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UMDNJ-University Hospital v. Leavitt

March 7, 2008


The opinion of the court was delivered by: Emmet G. Sullivan United States District Judge


Plaintiff UMDNJ-University Hospital ("UMDNJ"), a provider of hospital services located in Newark, New Jersey, seeks judicial review of final decisions of the Secretary of Health and Human Services ("Secretary") denying jurisdiction over Plaintiff's appeals of its Medicare reimbursement pertaining to the costs of UMDNJ's "clinical medical education programs" for its 2000, 2001, 2002, and 2003 fiscal years.*fn1 The Provider Reimbursement Review Board ("PRRB" or "Board") concluded that it did not have jurisdiction over the issue of reimbursement for the clinical medical education programs because plaintiff never sought reimbursement for those programs from its fiscal intermediary. Pl.'s Mot., Ex. 4.

Plaintiff contends that the Supreme Court's decision in Bethesda Hosp. Ass'n. v. Bowen, 485 U.S. 399, 402 (1988) permits the PRRB to assume jurisdiction over claims brought for the first time on appeal, even when the hospital did not seek reimbursement from its fiscal intermediary for the costs in question. Defendant counters that the hospital cannot appeal claims for allowable costs not first considered by the fiscal intermediary. The parties have agreed that there are no material facts in dispute and this controversy can be resolved on cross motions for summary judgment, which have been filed and fully briefed. For the reasons articulated herein, the Court concludes that the plain language of the Medicare statute grants the PRRB jurisdiction to hear claims for reimbursement not previously brought before the fiscal intermediary. Accordingly, defendant's Motion for Summary Judgment is DENIED and plaintiff's Motion for Summary Judgment is GRANTED.

I. Factual Background

A. Statutory and Regulatory Framework

The Medicare statute, 42 U.S.C. § 1395 et seq., sets forth a federal health insurance program for the elderly and disabled.

A hospital participates in Medicare under a "provider agreement" with the Secretary. 42 U.S.C. § 1395cc. In 1983, Congress enacted a Medicare reimbursement program known as the Prospective Payment System ("PPS") which replaced the prior practice of reimbursing hospitals based on the "reasonable costs" of covered services. County of Los Angeles v. Shalala, 192 F.3d 1005, 1008 (D.C. Cir. 1999), cert. denied, 530 U.S. 1204 (2000). Under the PPS, Medicare pays hospitals for their inpatient operating costs on the basis of prospectively determined flat rates, set according to historic regional costs and patients' diagnoses, rather than on a reasonable-cost basis. Id. The hospital is thus responsible for costs in excess of the flat rates and retains excess funds when its costs are lower. Def.'s Mot. at 4. Approved educational activities are not included in the PPS rates, rather these costs continue to be reimbursed on a "reasonable cost" basis. Id.

The Secretary has delegated much of the responsibility for administering the Medicare Program to the Centers for Medicare and Medicaid Services ("CMS"). See 42 U.S.C. §§ 1395h, 1395u. The Secretary, through CMS, delegates many of Medicare's audit and payment functions to organizations known as fiscal intermediaries, which are generally private insurance companies. At the close of a fiscal year, a provider of services must submit to its intermediary a "cost report" showing both the costs incurred by it during the fiscal year and the appropriate share of those costs to be apportioned to Medicare. 42 C.F.R. § 413.24(f). The intermediary is required to analyze and audit the cost report and inform the provider of a final determination of the amount of Medicare reimbursement through a notice of program reimbursement ("NPR"). Id. § 405.1803. If a provider is unhappy with the total amount of reimbursement indicated by the NPR, it may appeal to the PRRB. The decision of the PRRB is final unless CMS reverses, affirms, or modifies it within 60 days from the provider's receipt of the decision. 42 U.S.C. § 1395oo (f) (1); 42 C.F.R. §§ 405.1875 (a), 405.1877 (a). If the Administrator declines review, the Board's decision is final and the provider must file a civil action within 60 days from receipt of the Board's decision. Id.

B. Standard of Review

The Court may set aside the Board's decision only if it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law, or unsupported by substantial record evidence." HCA Health Services of Oklahoma, Inc. v. Shalala, 27 F.3d 614, 616 (D.C. Cir. 1994) (citing 5 U.S.C. § 706 (2) (A) & (E)). "[T]o the extent [the Board's interpretation is] based ... on the language of the Medicare [Statute] itself," the Court will examine the decision with the appropriate deference due to an agency that has been charged with administering the Statute. Id. (quoting Marymount Hospital Inc. v. Shalala, 19 F.3d 658, 661 (D.C. Cir. 1994)). Unless Congress has spoken to the particular issue at hand, the Court will defer to the agency's interpretation whenever it is a permissible construction of the statute. Id; see Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-45 (1984).

C. Plaintiff's Complaint

For fiscal years 2000-2003, UMDNJ submitted cost reports to its fiscal intermediary that did not claim costs related to its clinical medical education programs ("CMEP"). In each instance, after the intermediary issued the NPR for the respective cost year, the hospital filed an appeal of the NPR with the PRRB in accordance with the above regulations. In each appeal, plaintiff contested several issues contained in the NPRs, including whether costs associated with the clinical medical education programs should have been reimbursed for the years in question. The intermediary challenged the jurisdiction of the PRRB to hear the CMEP issue, arguing that because the costs associated with CMEP had not been claimed as allowable costs when the relevant cost reports were filed by the hospital, the PRRB lacked jurisdiction on appeal to determine whether reimbursement was required. The hospital filed this action to challenge the PRRB's jurisdictional rulings. See Pl.'s Mot. 3-4.

II. Discussion

A. The Role of § 1395oo

The statutory provisions at issue in this case are subsections (a) and (d) of 42 U.S.C 1395oo. Subsection (a) establishes the jurisdiction of the Board, and states that a provider may obtain a hearing before the Board with respect to its cost report if such provider 1) is dissatisfied with a final determination... of its fiscal to the amount of total program reimbursement due the provider...for the period covered by such cost report... (2) ...

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