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Allina Health Services, Et. Al v. Kathleen Sebelius

December 22, 2010


The opinion of the court was delivered by: Rosemary M. Collyer United States District Judge


Plaintiff Hospitals*fn1 bring suit under the Medicare Act, Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq., and the Administrative Procedure Act, 5 U.S.C. § 551 et seq., challenging the interpretation by the U.S. Department of Health and Human Services of a specific kind of Medicare payment. Pending before the Court are the parties' cross-motions. The Hospitals seek a preliminary injunction to direct the Secretary of HHS to amend its methodology while the Secretary moves the Court to stay this matter pending the resolution of an appeal in a related case by the D.C. Circuit. See Northeast Hospital Corp. v. Sebelius, 699 F. Supp. 2d 81 (D.D.C. 2010), appeal docketed, No. 10-5163 (D.C. Cir. May 27, 2010). See Def.'s Mot. to Stay Proceedings [Dkt. # 7]. The parties agree that the D.C. Circuit's decision in Northeast will likely be dispositive of the merits of this case. See id. at 2; Pls.' Reply in Supp. of Mot. for Prelim. Inj. [Dkt. # 14] 1, 3. For reasons articulated below, the Court will deny the Plaintiffs' request for a preliminary injunction without prejudice and will grant the Secretary's motion for a stay until the D.C. Circuit renders its opinion on the Northeast appeal.


The Secretary administers Medicare through the Centers for Medicare and Medicaid Services ("CMS"), an agency within HHS. The Medicare program includes Part A, which authorizes payments to hospitals for covered inpatient services, see 42 U.S.C. § 1395c to 1395i-4, based on prospectively determined, standardized, national and regional rates, rather than on the actual operating costs incurred by providers. Id. § 1395ww(d)(1)-(4); see also Southeast Alabama Med. Ctr. v. Sebelius, 572 F.3d 912, 914 (D.C. Cir. 2009). However, the system allows for certain upward payment adjustments based on hospital-specific factors, including a "disproportionate share hospital" ("DSH") adjustment. DSH provides an upward adjustment for hospitals that serve a disproportionate number of low-income patients, due to the higher costs incurred by serving this population. See 42 U.S.C. § 1395ww(d)(5)(F)(i)(I).

This case focuses on the method by which the Secretary calculates whether and to what extent a hospital qualifies for such an adjustment, based, in part, on the hospital's "disproportionate patient percentage." See id. § 1395ww(d)(5)(F). The disproportionate patient percentage is a statutory formula determined by adding the results of two fractions and expressing that sum as a percentage. The two computations are: (a) the Medicare/Supplemental Security Income ("SSI") fraction, and (b) the Medicaid fraction. Id. § 1395ww(d)(5)(F)(vi))(I), (II); see also 42 C.F.R. § 412.106(2)(b). The SSI fraction is meant as a proxy for low-income Medicare patients and is defined as: the fraction (expressed as a percentage), the numerator of which is the number of such hospital's patient days for such period which were made up of patients who (for such days) were entitled to benefits under part A of [Title XVIII] and were entitled to [SSI] benefits (excluding any State supplementation) under [Title] XVI of this chapter, and the denominator of which is the number of such hospital's patient days for such fiscal year which were made up of patients who (for such days) were entitled to benefits under part A of [Title XVIII] . . .

42 U.S.C. § 1395ww(d)(5)(F)(vi)(I) (emphasis added). The SSI fraction is therefore based on the number of patient days that are attributable to individuals who are receiving SSI benefits and who are "entitled to benefits under part A."

A Medicare beneficiary has the option to receive benefits for hospital care under Medicare Part C, also called the Medicare Advantage program, instead of Part A. See id. § 1395w-21(a)(1); 42 C.F.R. § 422.50. Part C allows beneficiaries to enroll with private health organizations, such as a health maintenance organization (HMO), which have entered into a payment contract with Medicare. The Medicare program does not pay hospitals directly for services provided to patients enrolled in Part C plans. Instead, CMS contracts with these private health organizations, and pays them directly for services provided to Part C enrollees at predetermined per-patient rates. See 42 U.S.C. § 1395w-23(f), -27, -21(i)(1)--(2).

While the obligations of a Medicare Advantage plan to a Part C enrollee are heavily regulated by federal law and federal contracts, the terms of the contractual relationship between the plan and the hospital, or other health care provider, are left largely to the parties to negotiate and define. This includes the financial terms and reimbursement rates within the contract. Thus, if a dispute erupts between a Medicare Advantage organization and a hospital, for instance, neither the Medicare Advantage statute, nor CMS's regulations, nor CMS's contract with the insurer provides terms of resolution.

In certain situations, Medicare Advantage plans are required to pay for services provided to their enrollees even though the plans do not have a contract with the hospital in question. See 42 C.F.R. § 422.100(b). In such a case, the hospital must "accept as payment in full," the amount that would have been paid by Medicare Part A as if the services had been provided on that basis. 42 U.S.C. § 1395cc(a)(1)(O). CMS has not further defined this statutory requirement through regulation. See 42 C.F.R. § 422.214. CMS does, however, make information available so that hospitals and Medicare Advantage plans can estimate what Medicare Part A would have paid for a particular service.

The Hospitals challenge the Secretary's current definition of the term "entitled to benefits" under Medicare Part A per the DSH statute. Prior to 2004, the Secretary interpreted the Medicare DSH statute to exclude Part C days in the SSI fraction, i.e., Part C enrollees were not counted as being entitled to benefits under Part A. However, the Secretary changed course in 2004, see 69 Fed. Reg. 48916, 49099 (Aug. 11, 2004), although the policy was not immediately implemented. Starting with federal fiscal year 2007 claims, the Secretary has employed an SSI fraction which includes Part C patient days, thereby finding that Part C patients are entitled to benefits under Part A. Plaintiffs sue to block the Secretary from including Part C days in the SSI fraction.


A district court has broad discretion to stay a proceeding pending the resolution of proceedings in other courts where the other proceedings may affect the scope and necessity for the litigation. IBT/HERE Employee Representatives' Council v. Gate Gourmet Div. Am., 402 F. Supp. 2d 289, 292--93 (D.D.C. 2005); see also Landis v. N. Am. Co., 299 U.S. 248, 254--55 (1936). "The power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants. How this can best be done calls for the exercise of judgment, which must weigh competing interests and maintain an even balance." Air Line Pilots Ass'n v. Miller, 523 U.S. 866, 879 n.6 (1998). Therefore, "[a] trial court may, with propriety, find it is efficient for its own docket and the fairest course for the parties to enter a stay of an action before it, pending resolution of independent proceedings which bear upon the case." IBT/HERE, 402 F. Supp. 2d at 292 (quoting Leyva v. Certified Grocers of Cal., Ltd., 593 F.2d 857, 863--64 (9th Cir. 1979)).

A district court may grant a preliminary injunction "to preserve the relative positions of the parties until a trial on the merits can be held." Univ. Of Tex. v. Camenisch, 451 U.S. 390, 395 (1981). An injunction is an equitable remedy so its issuance is one which falls within the sound discretion of the district court. See Hecht Co. v. Bowles, 321 U.S. 321, 329 (1944). However, an injunction is an extraordinary and drastic form of relief. ...

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