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Bradley Memorial Hospital v. Leavitt

March 2, 2009


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


Twenty-seven plaintiff hospitals ("Plaintiffs") are providers of Medicare services in Connecticut. Plaintiffs seek a writ of mandamus from this Court compelling the Secretary of Health and Human Services ("Secretary" or "Defendant"), either directly or through his intermediaries, to reopen Plaintiffs' cost reports submitted for reimbursement in the years 1994, 1995, and 1996. Plaintiffs claim that Defendant owes them a clear, non-discretionary duty to reclassify payments made by Plaintiffs under Connecticut's now-defunct "gross earnings tax" ("GET tax") as reimbursable costs and to recalculate and issue those payments. Pending before the Court are (1) Defendant's Renewed*fn1 Motion to Dismiss Plaintiffs' First Amended Complaint; (2) Plaintiffs' Renewed Motion for Summary Judgment; and (3) Plaintiffs' Motion to Strike. Upon consideration of the motions, responses and replies thereto, and the applicable law, the Court GRANTS Defendant's Motion to Dismiss and DENIES both of Plaintiffs' Motions.

I. Background

A. Statutory and Regulatory Framework

The Medicare program, established by Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq., pays for covered medical services provided to eligible aged and disabled persons. Part A of the Medicare program authorizes payments for, among other things, certain inpatient hospital services. See id. §§ 1395c, 1395d. A hospital participates in Medicare under a "provider agreement" with the Secretary. See id. § 1395cc. Providers are reimbursed for the "reasonable" costs that they incur in treating Medicare beneficiaries. Id. § 1395f(b). Reasonable costs include "all necessary and proper costs incurred in furnishing . . . services," which are further defined as "costs that are appropriate and helpful in developing and maintaining the operation of patient care facilities and activities." 42 C.F.R. §§ 413.9(a), 413.9(b)(2).

The Centers for Medicare and Medicaid Services ("CMS") (formerly known as the Health Care Financing Administration) is the agency within the Department of Health and Human Services that has been designated by the Secretary to administer the Medicare program. The Secretary, through CMS, has delegated many of Medicare's audit and payment functions to fiscal intermediaries, who are generally private insurers. See 42 U.S.C. § 1395h.

Since 1983, the Secretary has reimbursed providers using a Prospective Payment System ("PPS"). Id. § 1395ww(d). Under PPS, providers are generally paid a predetermined amount based on the discharge diagnosis of patients as determined by their category of illness treated or "Diagnostic Related Group," subject to certain payment adjustments. See id.

To receive reimbursement for services, eligible providers must file "cost reports" with their intermediaries at the end of each fiscal year. 42 C.F.R. §§ 413.20(b), 413.24(f). Providers are required to "furnish such information to the intermediary as may be necessary to . . . [a]ssure proper payment by the program." Id. § 413.20(d)(1)(I). Intermediaries then audit the reports and determine the reimbursement amount owed to the providers. That determination is memorialized in a Notice of Program Reimbursement ("NPR") and issued to the provider. Id. § 405.1803(a)(2).

A provider that is dissatisfied with an intermediary's payment determination has two ways to seek relief. Pursuant to 42 U.S.C. § 1395oo, the provider may file an appeal with the Provider Review Reimbursement Board ("the Board"). The Board is "an administrative review panel that has the power to conduct an evidentiary hearing and affirm, modify, or reverse the intermediary's NPR determination." Your Home Visiting Nurse Servs., Inc. v. Shalala, 525 U.S. 449, 451 (1999). Such an appeal must be filed within 180 days of the issuance of the NPR. 42 U.S.C. § 1395oo(a)(3). The Board's decision, in turn, is subject to reversal, affirmance, or modification by the Secretary within sixty days. Id. § 1395oo(f)(1). A provider that remains dissatisfied after this administrative review may then seek judicial review by filing suit in federal court. Id.

In addition to the statutory procedures described above, the Secretary's regulations provide a method for obtaining relief directly from the intermediary by empowering intermediaries, under certain circumstances, to reopen cost reports. See 42 C.F.R. § 405.1885.*fn2 Two such circumstances are relevant in the present case. First, an intermediary determination may be reopened at the request of a provider within three years of the date of the NPR. Id. § 405.1885(a). Reopening under § 405.1885(a) is permissive, and the denial of such a request is unreviewable by the courts. See Your Home, 525 U.S. at 457 (explaining that the language of § 405.1885(a) "do[es] not require reopening, but merely permit[s] it," and concluding that because any duty to reopen under that section is discretionary, mandamus jurisdiction over a denial is necessarily improper). Second, "an intermediary determination . . . shall be reopened and revised at any time if it is established that such determination . . . was procured by fraud or similar fault of any party to the determination." 42 C.F.R. § 405.1885(d). It is under this latter provision that Plaintiffs, by way of a writ of mandamus from this Court, seek relief from Defendant.

B. Factual and Procedural Background

Between April 1, 1994 and April 1, 2000, Connecticut imposed the GET tax on hospitals operating within the state. See Conn. Gen. Stat. § 12-263b; Am. Compl. ¶¶ 20-22. Along with a sales tax paid directly by patients to hospitals, the GET tax was part of a program "designed to help defray the costs of providing uncompensated hospital care to the indigent." Def.'s Mem. Supp. Renewed Mot. Dismiss ("Def.'s Mem.") at 12; see Conn. Gen. Stat. §§ 19a-669, 19a-670 (establishing procedures for distributing payments to hospitals according to their relative volume of uncompensated care). Hospitals were thus required to pay to the state a certain percentage of their gross earnings in each taxable quarter.*fn3 Conn. Gen. Stat. § 12-263b. If a hospital failed to pay the GET tax within the statutory time limit, a penalty would be incurred. Id. § 12-263c.

From 1994 to 2000, Plaintiffs did not claim payments for the GET tax on their annual cost reports submitted to the intermediary*fn4 for reimbursement. Plaintiffs do not dispute that they never claimed the GET tax as a reimbursable expense on their cost reports. They do allege, however, that they were "strictly forbidden from claiming payments under the GET tax on their cost reports." Am. Compl. ¶ 23. Plaintiffs do not explain who forbade them from making such claims, nor do they allege that the Secretary or his agents explicitly forbade the hospitals from doing so.

The only explanation offered by Plaintiffs as to how they were "prevented" from claiming the GET tax on their cost reports is the alleged policy of the successive intermediaries to treat the GET tax as a non-reimbursable cost. See Am. Compl. ¶¶ 24-27. Plaintiffs allege that at least two individuals employed as auditors by the intermediaries understood the GET tax to be a non-reimbursable cost and that such individuals believed that the intermediaries had a policy of classifying the GET tax as nonallowable. Id. ¶¶ 24-25. One such individual claims that "documentation relative to these policies exist, including contemporaneous writings reflecting the fact that the intermediary's policy in the State of Connecticut was that the GET Tax was a non-allowable cost." Id. ¶ 25(c). Moreover, Plaintiffs allege that the Director of Budgets and Reimbursement for one plaintiff hospital was told, at some point "prior to 2002," by the intermediary's auditing staff that the GET tax was not reimbursable and "should not be included" on the hospital's cost report. Id. ¶ 26.

Plaintiffs' allegations of wrongdoing on the part of the intermediary are based in part on their contention that the Connecticut intermediary knew or should have known that the state of New York had a tax similar to the GET tax that CMS had deemed a reimbursable cost and that was being treated as such by the New York intermediary as early as June of 1995. See id. ¶¶ 24(b), 25(b), 37(b)-(c). Plaintiffs impute knowledge of the New York policy to the Connecticut intermediary because two of its employees attended regional meetings that included representatives of the New York intermediary. Id. ¶¶ 24(b), 25(b). According to the Amended Complaint, "the purpose of such meetings was to help develop and articulate consistent Medicare policies." Id. ¶ 24(b). Plaintiffs claim that once the Connecticut intermediary learned of the New York policy of reimbursement, it "should have begun to reimburse the Connecticut hospitals for GET payments." Id. ¶ 37(b).

In 2001, Plaintiffs began working with Rex Shera, an Ernst & Young LLP accountant, in an attempt "to get the Secretary and [the intermediary] to recognize the GET Tax as an allowable, reimbursable cost." Id. ¶ 28. According to Plaintiffs, Shera sent a letter to the Acting Director of the Division of Cost Reporting at CMS, arguing that the GET tax was an allowable cost and requesting "that CMS issue a statement to that effect." Id. ¶ 28(a). Less than five months ...

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