The opinion of the court was delivered by: PAUL FRIEDMAN, District Judge
Plaintiff hospitals in Baystate Heath System v. Thompson,
Civil Action No. 02-0601 (PLF), bring suit for declaratory and injunctive
relief in the nature of mandamus, asking the Court to compel defendant,
the Secretary of Health and Human Services, through the Centers for
Medicare and Medicaid Services ("CMS"), to reopen certain final payment
decisions issued by the Secretary's payment agents that pertain to the
Secretary's reimbursement of plaintiffs for services they rendered to
indigent clients.*fn1 Defendant filed a motion to dismiss and plaintiffs
moved for summary judgment. These two motions are currently before the
Court for consideration. The Court heard oral argument on the motions on
August 11, 2003.
The Medicare statute, Title XVIH of the Social Security Act,
42 U.S.C. § 1395 et seq., creates a federally funded health insurance
program for the elderly and disabled, known as Medicare and Medicaid.
This case arises under Part A of the Medicare program, which authorizes
payments for, inter alia, certain inpatient hospital services
and related post-hospital services. See 42 U.S.C. § 1395c,
1395d. A hospital may participate in the Medicare program as a provider
by entering into a "provider agreement" with the Secretary of Health and
Human Services. 42 U.S.C. § 1395cc. Plaintiffs here are
not-for-profit acute care hospitals that participate as providers of
inpatient hospital services in the federal Medicare program.
The operating costs of inpatient hospital services are reimbursed by
Medicare primarily through the Prospective Payment System ("PPS").
See 42 U.S.C. § 1395ww(d). The regulations governing the
PPS require a provider of inpatient hospital services to file an annual
cost report with a "fiscal intermediary." 42 C.F.R. § 413.20(b).*fn2
The fiscal intermediary typically an insurance company that
acts as the Secretary's agent then audits the report and makes
a final determination of the total amount of payments owed by Medicare
to the provider for that fiscal year. The total amount to which a
provider is entitled is set forth by the intermediary in an initial
Notice of Program Reimbursement ("NPR"). See
42 C.F.R. § 405.1803. Under the statute, a provider that is dissatisfied with
any aspect of the total payment amount set forth in the initial NPR may
timely request a hearing before the Provider Reimbursement Review
Board ("Board"), an administrative body composed of five members
appointed by the Secretary. See 42 U.S.C. § 1395oo(a) and (h).
If the provider objects to the Board's conclusion, it may seek judicial
review, provided that the provider files suit within 60 days of the
Board's determination. See 42 U.S.C. § 1395oo(f)(1).
The PPS contains a number of provisions that adjust reimbursements
based on hospital-specific factors. See
42 U.S.C. § 1395ww(d)(5). This case involves one of the hospital-specific
adjustments, specifically, the disproportionate share adjustment. The
"disproportionate share," or "DSH," adjustment requires the Secretary to
provide increased PPS reimbursements to hospitals that serve a
"significantly disproportionate number of low-income patients."
42 U.S.C. § 1395ww(d)(5)(F)(i)(I). Whether a hospital qualifies for the DSH
adjustment, and how large an adjustment it receives, depends on the
hospital's "disproportionate patient percentage." See
42 U.S.C. § 1395ww(d)(5)(F)(v). The "disproportionate patient percentage" is
the sum of two fractions, the "Medicare and Medicaid fractions," for a
hospital's fiscal period. 42 U.S.C. § 1395ww(d)(5)(F)(vi).
The computation of the numerator of the "Medicaid" fraction is at the
heart of this action. This numerator is calculated by determining the
total number of a hospital's inpatient days attributable to patients who
"were eligible for medical assistance under a State plan approved under
subchapter XIX [i.e., eligible for Medicaid], but who were not
entitled to benefits under Part A of this subchapter [Medicare]."
42 U.S.C. § 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II). From 1986 through 1997,
the Secretary construed the first portion of this numerator calculation
to include only those patients who were both eligible for Medicaid
payments under the relevant state Medicaid plan and who actually
received such payments from the state. See
42 C.F.R. § 412.106(b)(4). Providers challenged this interpretation, and every
circuit court that considered the Secretary's interpretation
rejected it. The courts of appeals uniformly concluded that the numerator
calculation must include all patient days for which a patient was
eligible for Medicaid assistance regardless of whether a state Medicaid
program actually paid the hospital for services provided to the patient.
See Cabell Huntington Hospital, Inc. v. Shalala, 101 F.3d 984,
988 (4th Cir. 1996); Legacy Emanual Hospital and Health Center v.
Shalala, 97 F.3d 1261, 1266 (9th Cir. 1996); Deaconess Health
Services Corp. v. Shalala, 83 F.3d 1041, 1041 (8th Cir. 1996);
Jewish Hospital, Inc. v. Sec'y of Health and Human Services,
19 F.3d 270, 276 (6th Cir. 1994).
In February 1997, the then-Secretary of HHS issued a ruling that
rescinded the original interpretation of the statutory provision and
prospectively mandated that in calculating the disproportionate patient
percentage, the Medicaid numerator must include all inpatient days of
patients who were eligible for Medicaid "whether or not the hospital
received payment for those inpatient hospital services." Defendant's
Motion to Dismiss, Attach., Heath Care Financing Administrative Ruling
97-2 at 2 (Feb. 27, 1997) ("Ruling" or "Ruling 97-2"). In issuing the
Ruling, the Secretary did not concede that the prior interpretation was
incorrect. Instead, she stated that "[a]lthough HCFA believes that its
longstanding interpretation of the statutory language was a permissible
reading of the statutory language, HCFA recognizes that, as a result of
the adverse court rulings, this interpretation is contrary to the
applicable law in four judicial circuits." Id. According to the
Secretary, the changed interpretation would apply only prospectively,
"[i]n order to ensure national uniformity in calculation of DSH
adjustments." Id. The Ruling also expressly announced that the
Secretary would not reopen past NPRs on the basis of this changed
statutory interpretation. See id.
In response to the Ruling, two hospitals (the "Monmouth
plaintiffs") sought to have their NPRs for the fiscal years ending in
1993 and 1994 reopened. See Monmouth Medical Center v.
Thompson, 257 F.3d 807
(D.C. Cir. 2001). Under the regulations in
effect at the time of the Ruling, there were two methods by which an
intermediary had the authority to reopen a final determination. First,
[a] determination or decision . . . may be
reopened with respect to findings on matters at
issue in such determination or decision . . .
either on motion of such intermediary officer or
panel of hearing officers, Board, or Secretary, or
on the motion of the provider affected by such
determination or decision to revise any matter in
issue at any such proceedings. Any such request to
reopen must be made within 3 years of the date of
the notice of the intermediary or Board hearing
decision, or where there has been no such
decision, any such request to reopen must be made
within 3 years of the date of notice of the
intermediary determination. No such determination
or decision may be reopened after such 3-year
period except as provided in paragraphs (d) and
(e) of this section.
42 C.F.R. § 405.1885(a). Second, the regulations directed that
a determination or decision "shall be reopened and revised by the
intermediary if, within the aforementioned 3-year period, the HCFA
notifies the intermediary that such determination or decision is
inconsistent with the applicable law, regulations, or general
instructions issued by the HCFA in accordance with the Secretary's
agreement with the intermediary." 42 C.F.R. § 405.1885(b).*fn3
are in addition to the direct appeals process of NPRs provided for
by the statute. See 42 U.S.C. § 1395oo(a)-(f).
Although Ruling 97-2 expressly stated that closed decisions would not
be reopened, the Monmouth plaintiffs sought recalculation of
their DSH payments under Section 405.1885(a) within three years of the
issuance of their original NPRs, but to no avail. See Monmouth
Medical Center v. Thompson, 257 F.3d at 810. These plaintiffs also
attempted to proceed through the vertical appeal procedures provided for
in 42 U.S.C. § 1395oo, but again
were denied. The Monmouth plaintiffs then filed suit,
alleging three different bases for district court jurisdiction. The
district court concluded that it had no jurisdiction and therefore found
for defendant; the plaintiffs appealed. The court of appeals determined
that jurisdiction existed only under 28 U.S.C. § 1361, the mandamus
statute. See id. at 814. The court concluded that the Ruling
constituted notice to the intermediaries that the Secretary's
interpretation was inconsistent with applicable law, and that Section
405.1885(b) of the regulations therefore "imposed a clear duty on
intermediaries to reopen DSH payment determinations for the hospitals."
Id. Because Ruling 97-2's prohibition against retroactive reopening
conflicted with the regulation's imposition of a clear duty to reopen,
the prohibition was a "nullity," and mandamus lay to assure that the
plaintiff providers' NPRs were reopened and recalculated. Id.
The court of appeals also reviewed the steps the Monmouth
plaintiffs had taken in seeking relief under Subsection 405.1885(a),
noting that "we think it insignificant that, because of the Secretary's
own three year limitation, reopening would not be available if sought
today. Although mandamamus [sic] is classified as a legal
remedy, its issuance is largely controlled by equitable principles. Since
both hospitals were within the three-year mark when they made their
requests for reopening, they are entitled to the reopening that was due
them at that time." Monmouth Medical Center v. Thompson, 257
F.3d at 815 (internal quotation and citation omitted). The court rejected
as irrelevant the Secretary's contention that the hospitals had failed to
exhaust their remedies by failing to file proper appeals of their final
decisions under Section 139500(a) within 180 days of the decisions,
concluding that the plaintiffs were challenging the reopening prohibition
of the Ruling, which plaintiffs could not have pursued until the Ruling
was issued, which occurred more than 180 days after the original NPRs.
See id. The court expressly
noted that "the question is whether [plaintiffs] have done all they
can to vindicate their rights to reopening. We have already shown above
how all other avenues of relief [including appeal through Section
139500(a)] are either foreclosed or fufile." Id.
In this action, plaintiffs filed suit for declaratory and injunctive
relief in the nature of mandamus. Plaintiffs argue, inter alia,
that the Monmouth decision requires this Court to direct the
intermediaries to reopen and recalculate their NPR's for the three years
prior to the Ruling, notwithstanding plaintiffs' failures (1) to request
reopenings pursuant to Subsection 405.1885(a); and (2) to proceed through
the administrative review channels provided for in the statute and
regulations. Defendant filed a motion to dismiss under Rule 12(b)(1) and
Rule 12(b)(6) of the Federal Rules of Civil Procedure, arguing that
plaintiffs should be denied mandamus relief on timeliness and equitable
grounds, thereby defeating plaintiffs' asserted basis of subject matter
jurisdiction under the mandamus statute.*fn4 In response plaintiffs
moved for summary judgment. Upon careful consideration of the pleadings
and briefs filed by the parties and the arguments of counsel, the Court
concludes that defendant's motion to dismiss should be denied and
plaintiffs' motion for summary judgment should be granted. The writ of
mandamus therefore will issue.
A. Standard for Relief in the ...