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Caritas Medical Center v. Johnson

March 26, 2009

CARITAS MEDICAL CENTER ET AL., PLAINTIFFS,
v.
CHARLES E. JOHNSON, ACTING SECRETARY, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES, DEFENDANT.
BAPTIST MEMORIAL HOSPITAL -- MISSISSIPPI COUNTY, INC. ET AL., PLAINTIFFS,
v.
CHARLES E. JOHNSON, ACTING SECRETARY, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES, DEFENDANT.
CHIPPEWA VALLEY HOSPITAL & OAKVIEW CARE CENTER, INC. ET AL., PLAINTIFFS,
v.
CHARLES E. JOHNSON, ACTING SECRETARY, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES, DEFENDANT.



The opinion of the court was delivered by: Ricardo M. Urbina United States District Judge

Document Nos. 16, 21

Document Nos. 14, 18

Document Nos. 14, 18

MEMORANDUM OPINION DENYING THE PLAINTIFFS'MOTION FOR SUMMARY JUDGMENT; GRANTING THE DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT

I. INTRODUCTION

This matter is before the court on the plaintiffs' motion for summary judgment and the defendant's cross-motion for summary judgment. The plaintiffs, a group of hospitals that receive funding through Medicare, complain that the defendant, the Acting Secretary of the Department of Health and Human Services ("the Department"),*fn1 erred by promulgating a rule regarding the rate at which some of their Medicare reimbursement rates were calculated from January 1, 1999 through July 31, 2000. In their motion for summary judgment, the plaintiffs request that the court invalidate the rule. The defendant has filed a cross-motion for summary judgment, maintaining that the court should uphold the rule. For the reasons discussed below, the court determines that the rule is entitled to deference. Accordingly, the court denies the plaintiffs' motion for summary judgment and grants the defendant's cross-motion for summary judgment.

II. FACTUAL & PROCEDURAL BACKGROUND

This suit concerns the rate at which hospitals receive Medicare reimbursements for providing three specific types of outpatient services: ambulatory surgical, radiology and diagnostic services.*fn2 Pls.' Mot. for Summ. J. ("Pls.' Mot.") at 6. To provide context for the defendant's rule regarding the reimbursement rates for these three services, the court begins with a brief history of Medicare reimbursement methodologies. At the inception of the Medicare program in 1965, all hospital services -- both inpatient and outpatient -- were reimbursed using the "reasonable cost" rate, which provides that the hospital is reimbursed for the actual costs that it incurred in furnishing the service. Id. at 4; see also County of L.A. v. Shalala, 192 F.3d 1005, 1008 (D.C. Cir. 1999). By the early 1980s, however, Congress had started to become dissatisfied with the reasonable cost rate, which it perceived as breeding "'little incentive for hospitals to keep costs down' because 'the more they spent, the more they were reimbursed.'" County of L.A., 192 F.3d at 1008. In 1983, Congress created a "Prospective Payment System" ("PPS") for inpatient services. Def.'s Cross-Mot. for Summ. J. & Opp'n to Pls.' Mot. ("Def.'s Cross-Mot.") at 4-5; see also 42 U.S.C. § 1395ww (applying the PPS to inpatient services). Reimbursement under the PPS rate depends on the condition being treated rather than on the actual costs incurred. Def.'s Cross-Mot. at 5. While Congress applied the PPS to inpatient services in 1983, it continued to reimburse outpatient services using the reasonable cost rate. Id.

In an effort to curb hospital outpatient costs, in the Omnibus Budget Reconciliation Act of 1986 ("the 1986 Act") Congress began applying a "blend rate"*fn3 to ambulatory surgical procedures. Pub. L. No. 99-509, 100 Stat. 1874 (codified as amended at 42 U.S.C. § 1395l(i)(3)). The "blend rate" is a hybrid between the reasonable cost formula and the PPS formula. Def.'s Cross-Mot. at 6. In regulations concerning the blend rate, the Department explained that the rate was a temporary payment method that would be used until a PPS for ambulatory surgical procedures could be developed. 52 Fed. Reg. 36,767 (Oct. 1, 1987). In 1988, Congress then applied the blend rate to radiology and other diagnostic services. Pub. L. No. 100-203, 101 Stat. 1330 (codified as amended at 42 U.S.C. § 1395l(a)(2)(E)). Meanwhile, Congress continued to work toward developing a PPS for outpatient services, and in the Balanced Budget Act of 1997 ("BBA") it announced that a PPS for outpatient services would go into effect beginning on January 1, 1999. Pub. L. No. 105-33, 111 Stat. 251. To be consistent with this enactment, Congress added a "conforming amendment" establishing that both the blend rate and the reasonable cost rate, which was still being applied to other types of outpatient services, would sunset when the PPS went into effect on January 1, 1999. Id.; see also 42 U.S.C. § 1395l(t) (codifying conforming amendments).

The plan went awry, however, when the Department realized that Medicare was at risk of a "total systems failure" if the Department did not quickly correct a computer programming defect that made its computers unable to distinguish between the years 1900 and 2000 ("the Y2K crisis"). Def.'s Cross-Mot. at 11. The Department rearranged its priorities and postponed implementing the PPS until after the Y2K crisis was averted. Id. Congress ratified this decision in the Balanced Budget Refinement Act of 1999 ("the 1999 Act"). Pub. L. No. 106-113, 113 Stat. 1501. In the 1999 Act, Congress did not extend the sunset dates for the blend rate and the reasonable cost rate beyond January 1, 1999. Id.; see also Pls.' Mot. at 8.In other words, Congress did not address what reimbursement method would apply to the three relevant services between January 1, 1999 and when the PPS was finally implemented. Pls.' Mot. at 8. Congress did, however, extend a provision establishing "reasonable cost reduction factors": factors that affect the calculation of the reasonable cost rate. Pub. L. No. 106-113, 113 Stat. 1501; see also Pls.' Mot. at 8.

On April 7, 2000, the defendant promulgated a rule establishing that the PPS would go into effect later that year. 65 Fed. Reg. 18,489-90. The rule also established that for the interval between January 1, 1999 and the date the PPS went into effect, the blend rate would continue to be applied to the three relevant services. Id. On August 1, 2000, the PPS finally went into effect. 65 Fed. Reg. 40535. The plaintiffs object to the portion of the rule that applied the blend rate to the three relevant services from January 1, 1999 through July 31, 2000. Pls.' Mot. at 14. The plaintiffs have moved for summary judgment, contending that they are entitled to be reimbursed at the reasonable cost rate rather than at the blend rate. Id. at 1. The defendant, on the other hand, has opposed the plaintiffs' motion for summary judgment and filed a cross-motion for summary judgment, asserting that he properly applied the blend rate. Def.'s Cross-Mot. at 1. The court turns now to the parties' arguments.

III. ANALYSIS

A. Legal Standard for a Motion for Summary Judgment

Summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R. CIV. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Diamond v. Atwood, 43 F.3d 1538, 1540 (D.C. Cir. 1995). To determine which facts are "material," a court must look to the substantive law on which each claim rests. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A "genuine issue" is one whose ...


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