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Lester E. Cox Medical Centers v. Sebelius

March 9, 2010


The opinion of the court was delivered by: Gladys Kessler United States District Judge


Plaintiff Lester E. Cox Medical Centers ("Plaintiff" or "Cox") is a provider of acute care, inpatient hospital services located in Missouri. Plaintiff brings this action against Kathleen Sebelius in her official capacity as Secretary of the Department of Health and Human Services ("Defendant" or "HHS"), after Defendant dismissed Cox's administrative appeal for failure to appear at a hearing. Pursuant to the Medicare Act, 42 U.S.C. § 1395 et seq., and the Administrative Procedure Act ("APA"), 5 U.S.C. § 551 et seq., Cox challenges that decision. This matter is before the Court on Plaintiff's Motion for Summary Judgment [Dkt. No. 24] and Defendant's Cross-Motion for Summary Judgment [Dkt. No. 25]. Upon consideration of the Motions, Oppositions, Replies, and the entire record herein, and for the reasons stated below, Plaintiff's Motion for Summary Judgment is denied and Defendant's Motion for Summary Judgment is granted.


Part A of the Medicare Act provides for prospective payments to healthcare providers, such as Plaintiff, that offer inpatient care to Medicare beneficiaries. See 42 U.S.C. § 1395ww(d). Under this "prospective payment system" ("PPS"), hospitals receive a predetermined payment that is calculated based on a complex statutory formula. Providers file annual cost reports that detail the "reasonable costs" they have incurred and the portion of those costs that are covered by Medicare. 42 U.S.C. § 1395g(a); 42 C.F.R. § 413.50. HHS delegates Medicare administration to the Centers for Medicare and Medicaid Services ("CMS"). CMS often contracts out to "fiscal intermediaries," usually insurance companies, the task of auditing the providers' cost reports and creation of a Notice of Program Reimbursement ("NPR"), which informs the hospital of the intermediary's final determination of its Medicare reimbursement for the period in question. 42 C.F.R. §§ 405.1803, 421.100.

In this challenge to the intermediary's calculation of one of the several Medicare hospital-specific adjustments that can be made to the PPS, Cox argues that the Intermediary wrongly calculated its "disproportionate share hospital" ("DSH") adjustment.*fn3 Certain hospitals receive a payment adjustment because they serve a "significantly disproportionate number of low-income patients." 42 U.S.C. § 1395ww(d)(5)(F)(i)(I). Eligibility for this adjustment, as well as its value, is determined by looking to a provider's "disproportionate patient percentage." Id. at § 1395ww(d)(5)(F)(v). Under § 1395ww(d)(5)(F)(vi), this percentage is calculated by combining two fractions, known as the Medicare Proxy and the Medicaid Proxy. 42 C.F.R. § 412.106(b).

The merits of this case deal with Cox's challenge to the exclusion of certain days from the numerator of the Medicaid Proxy. Pl.'s Mot. for Summ. J., or in the Alternative, Summ. Adjudication of the Issues at 2 ("Pl.'s Mot.") [Dkt. No. 24]. Plaintiff charges that Defendant wrongly refused to include the patient-days that it provided under the State's General Relief program as Medicaid-eligible days for purposes of the Medicaid fraction. Failure to include those days had the effect of reducing the hospital's DSH adjustment.

The Medicare Act permits dissatisfied providers to bring their claims before the Provider Reimbursement Review Board ("PRRB" or "the Board"). 42 U.S.C. § 1395oo(a). On February 9, 1998, in Case No. 98-3283, Plaintiff challenged the NPR issued by its fiscal intermediary for the fiscal year ending September 30, 1992, by raising several substantive challenges to the calculation of the Medicaid fraction. In May of 2004, the Plaintiff and the intermediary negotiated an agreement, AR at 619-20, which was forwarded to the Board. The Board then granted Plaintiff's request for withdrawal of its appeal and Case No. 98-3283 was closed. AR at 625.

Prior to withdrawal of its case, Cox requested that the DSH issue which it had raised in Case No. 98-3283 be combined with another appeal to create a group appeal. The Board allowed this group appeal (Case No. 04-1779G) to go forward. A hearing was scheduled for October 19, 2007. Prior to that hearing, the intermediary had filed a jurisdictional brief arguing that the DSH issue had already been resolved by the 2004 settlement agreement in Case No. 98-3283.

On September 19, 2007, the Board received notification that an attorney would be representing the providers in the group appeal, Case No. 04-1779G. AR at 199. According to the Government, Plaintiff was not represented by counsel before this time.*fn4 Further, there is no record of counsel entering an appearance in the case after notifying the Board on September 19. Def.'s Opp'n to Pl.'s Motion at 14 ("Def.'s Opp'n") [Dkt. No. 26].

On October 13, 2007, days before the scheduled hearing in the group appeal, Plaintiff filed with the Board a request for "expedited judicial review" ("EJR"). Such a procedure allows the Board to authorize judicial review of an Intermediary action that "involves a question of law or regulations relevant to the matters in controversy whenever the Board determines... that it is without authority to decide the question." 42 U.S.C. § 1395oo(f)(1). Cox maintained that the Board did not have the authority to decide certain questions of law and regulations. Pl.'s Mot. at 4.

The Board disagreed. It issued its EJR ruling on October 17, 2007, in which it concluded that, for several reasons, the issues should proceed to a hearing, and that immediate judicial review was not appropriate. AR at 44-45. Among the issues that the Board wanted to resolve at the hearing was whether the intermediary's 2005 jurisdictional challenge was a valid one. Id. at 45. ("The Board will hear the [jurisdictional] challenge and the Providers' [sic] response, along with other motions, at the October 19 hearing.").

On October 17, 2007, Plaintiff received notice--the same day that the PRRB denied EJR--that it was permitted to appear at the hearing by telephone. On October 18, 2007, Cox informed the Board that it would not be appearing at the hearing at all, AR at 31; in response, on October 19, 2007, the Board sent Cox a letter indicating that failure to appear would result in dismissal, AR at 2. The hearing was conducted on October 19, but Plaintiff chose not to attend. On October 22, 2007, the Board formally dismissed Case No. 04-1779G with prejudice due to Plaintiff's failure to appear. AR at 1.

The PRRB is authorized by statute to "make rules and establish procedures, not inconsistent with the provisions of this subchapter or regulations of the Secretary, which are necessary or appropriate to carry out the provisions" of the statute. 42 U.S.C. § 1395oo(e). CMS issued PRRB Instructions in March of 2002, setting forth the Board's policies and guidelines. See PRRB Instructions at Introduction.*fn5 One of the rules directed at providers states: "[i]f you fail to appear at the hearing without a good cause finding by the Board, [the Board] will dismiss your case with prejudice." PRRB Instructions at III.B.I.d.

On August 3, 2009, parties filed their Motions.*fn6 On October 1, 2009, the Court denied Plaintiff's request to stay the proceedings while a related case was pending before another Judge of this Court. Minute order (Oct. ...

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