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Baptist Memorial Hospital, D/B/A Baptist Memorial Hospital-Memphis v. Kathleen Sebelius

March 11, 2011


The opinion of the court was delivered by: Royce C. Lamberth, Chief Judge


Before the Court is plaintiff's Motion [18] for Summary Judgment and defendant's Motion [22] for Summary Judgment. Upon consideration of the summary judgment motions, the memoranda in support thereof, the entire record, and the applicable law, the Court will DENY plaintiff's Motion for Summary Judgment and GRANT defendant's Motion for Summary Judgment. The Court's reasoning is set forth below.


In this action, plaintiff Baptist Memorial Hospital-Memphis (Baptist-Memphis) seeks review of a final decision by the Secretary of Health and Human Services. In that decision, the Secretary denied as untimely Baptist-Memphis's request for an exception to the routine cost limit applicable to certain costs claimed in its cost report for Fiscal Year Ending September 30, 1995.

A.Statutory and Regulatory Background

This action arises under Title XVIII of the Social Security Act, also known as the Medicare statute. See 42 U.S.C. §§ 1395--1395ggg. Relevant to this case is Part A of the Medicare statute, which authorizes payment to hospitals and skilled nursing facilities (SNFs). Part A services are furnished by providers that have entered into a "provider agreement" with the Secretary. Id. §§ 1395x(u), 1395cc. The Secretary is responsible for determining reimbursement amounts and for issuing regulations defining reimbursable costs. Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 506--07 (1994) (citing 42 U.S.C. § 1395x(v)(1)(A)).

Hospitals eligible for Part A payments submit annual cost reports containing reimbursement claims to a designated fiscal intermediary, who processes claims on behalf of the Secretary. On the basis of a hospital's cost report, the intermediary makes a final determination known as a Notice of Program Reimbursement (NPR) regarding the amount the hospital should be reimbursed for services rendered during the reporting period. 42 C.F.R. § 405.1803. If a provider is dissatisfied with the intermediary's determination, it may request a hearing before the Provider Reimbursement Review Board (PRRB). 42 U.S.C. § 1395oo(a). In order to qualify for PRRB review, the provider must submit its hearing request within 180 days of the NPR, among other jurisdictional requirements. Id. The request must "identify the aspects of the determination with which the provider is dissatisfied, explain why the provider believes the determination is incorrect in such particulars, and be accompanied by any documenting evidence the provider considers necessary to support its position." 42 C.F.R. § 405.1841(a)(1). If the PRRB holds a hearing, its decision is subject to review by the Secretary's delegate, the Administrator of the Centers for Medicare and Medicaid Services (CMS). 42 U.S.C. § 1395oo(f)(1).

Regulations also permit an intermediary to reopen an otherwise final cost report determination to make limited corrections. See 42 C.F.R. § 405.1885. A final determination "may be reopened with respect to findings on matters at issue" on the motion of either a provider or an intermediary, provided that the reopening request is made within three years of the initial NPR. Id. § 405.1885(a). Once a cost report determination is reopened, a provider may appeal the "separate and distinct" results of the reopening, including any adjustments made in the revised NPR. Id. § 405.1889.

"Reasonable costs" reimbursable under the Medicare statute exclude any costs that are "unnecessary in the efficient delivery of needed health services." 42 U.S.C. § 1395x(v)(1)(A). Congress has authorized the Secretary to establish limits on reasonable costs "based on estimates of the costs necessary in the efficient delivery of needed health services." Id. Such limits establish the maximum reimbursement to which a provider is typically entitled. Congress has also given the Secretary discretion to grant exceptions to cost limits as needed. See S. Rep. No. 92-1230, at 187--89 (1972).

The Secretary's cost limit regulation, 42 C.F.R. § 413.30, includes provisions for exceptions. The limits, known as routine cost limits (RCLs), are derived from several factors (i.e., the type of services furnished, the geographic area where services are furnished, the size of the institution, and the nature and mix of services furnished and patients treated). See 39 Fed. Reg. 20,165 (June 6, 1974). RCLs may also be adjusted upward to reflect added costs flowing from the delivery of "atypical services." Id.; 42 C.F.R. § 413.30(e). As is relevant to this case, the Secretary has the discretion to authorize exceptions to the RCL for SNFs like Baptist-Memphis. 42 U.S.C. § 1395yy(c). The Secretary's cost limit regulation places a time limit on exception requests, requiring a provider to submit any request "to its fiscal intermediary within 180 days of the date on the intermediary's notice of program reimbursement." 42 C.F.R. § 413.30(c).

B.Factual and Procedural Background

During the time period relevant to this case, plaintiff Baptist-Memphis was owned and operated by Baptist Memorial Healthcare Corporation (BMHCC). As a Medicare participant, Baptist-Memphis filed a cost report containing reimbursement claims for Fiscal Year Ending September 30, 1995 (FYE 1995). A.R. 1614. Baptist-Memphis claimed, among other things, SNF costs. Id. Part of its reported costs, including the SNF costs, were "home office costs" that BMHCC had provided to Baptist-Memphis. Id. at 339. The home office of a chain of healthcare providers (here, BMHCC) cannot directly receive Medicare reimbursement, 42 U.S.C. § 1395cc, but the services it preforms for provider subsidiaries are treated as "obtained from [the provider] itself." 42 C.F.R. § 413.17(c)(2). To receive reimbursement for such services, the home office must file a cost statement identifying allowable costs and how costs are allocated among provider subsidiaries. The intermediary can adjust the allocation of home office costs as necessary, which may affect the total amount of an individual provider's allowable costs.

On September 21, 1998, Baptist-Memphis's Intermediary issued an NPR for FYE 1995. A.R. 8, 1383--87, 1612--14, 1665--66, 1854--62, 1879--83. The NPR used FYE 1994 home office costs because the Intermediary had not yet finalized BMHCC's FYE 1995 home office cost statement. Id. at 339, 342--43, 378. Baptist-Memphis and the Intermediary thus knew that the Intermediary would later reopen the FYE 1995 cost report to correct home office costs. Id. at 342--43, 345, 378.

The NPR indicated that Baptist-Memphis's claimed SNF costs substantially exceeded the applicable RCL. Id. at 23, 472 (noting that the "routine cost per diem was substantially over the RCL"), 1599 (observing that SNF costs "exceeded the RCL limitation by approximately $1.2 million dollars"). Baptist-Memphis did not, however, request an exception to the RCL within ...

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