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Covenant Health System, Formerly D/B/A St. Mary of the Plains Hospital v. Kathleen G. Sebelius

October 24, 2011

COVENANT HEALTH SYSTEM, FORMERLY D/B/A ST. MARY OF THE PLAINS HOSPITAL AND METHODIST HOSPITAL, PLAINTIFF,
v.
KATHLEEN G. SEBELIUS, SECRETARY OF THE UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES
DEFENDANT.



The opinion of the court was delivered by: Barbara J. Rothstein United States District Judge

ORDER GRANTING DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT AND DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

In this action, Plaintiff Covenant Health System ("Covenant") appeals the Secretary of the Department of Health and Human Service's (the "Secretary") final decision concerning the amount of Medicare payments due to Covenant for the fiscal years 1991 and 1993-1997. Currently before the court are Covenant's motion for summary judgment and the Secretary's cross-motion for summary judgment. (Dkt. Nos. 20 and 24.). Upon consideration of the relevant legal authorities, the parties' memoranda, and the entire record herein, and for the reasons discussed below, the court will grant the Secretary's cross-motion and deny Covenant's motion for summary judgment.

I. BACKGROUND

A. The Medicare Disproportionate Share Adjustment

Medicare is a federally funded insurance program designed to cover older and disabled individuals. 42 U.S.C. § 1395 et seq. Medicare reimburses hospitals primarily through the Prospective Payment System ("PPS") based upon what it would cost an efficient hospital to treat a patient with a given diagnosis. In re Medicare Reimbursement Litig., 309 F.Supp.2d 89, 92 (D.D.C. 2004), aff'd, 414 F.3d 7, 8-9 (D.C.Cir. 2005). However, the Medicare statute adjusts the PPS reimbursement to account for hospital-specific factors that may make a provider's costs higher than average. 42 U.S.C. § 1395ww(d)(5). One such adjustment is the "Disproportionate Share Hospital" adjustment, by which the Secretary provides an additional payment to hospitals that "serve[ ] a significantly disproportionate number of low-income patients." 42 U.S.C. § 1395ww(d)(5)(F)(i)(I). This is known as the "Medicare DSH adjustment."*fn1

Whether a hospital qualifies for a Medicare DSH adjustment, and the amount of the adjustment it receives, depends on the hospital's "disproportionate patient percentage," 42 U.S.C. § 1395ww(d)(5)(F)(v), which is determined by the Secretary pursuant to a statutory formula. 42 U.S.C. § 1395ww(d)(5)(F)(v)-(vii); 42 C.F.R. § 412.106(b). According to the formula, the disproportionate patient percentage is the sum of two fractions, 42 U.S.C. § 1395ww(d)(5)(F)(vi), commonly referred to as the Medicaid fraction and the Medicare fraction, see Jewish Hosp., Inc. v. Sec'y of Health & Human Servs., 19 F.3d 270, 272 (6th Cir. 1994).

The Medicare fraction is not at issue in this case. The Medicaid fraction, central to this case, is defined as:

The fraction (expressed as a percentage), the numerator of which is the number of the hospital's patient days...which consist of patients who...were eligible for medical assistance under a State plan approved under subchapter XIX of [the Social Security Act], but who were not entitled to benefits under [Medicare], and the denominator of which is the total number of the hospital's patient days for such period.

42 U.S.C. § 1395ww(d)(5)(F)(vi)(II). "[A] State plan approved under [subchapter] XIX" is the State's "Medicaid" plan. 42 C.F.R. § 400.200. Therefore, the result of this adjustment is that a hospital receives a higher reimbursement per Medicare patient as it treats more Medicaid patients. Id. § 1395ww(d)(5)(F)(vi)(II). "Put simply, the more a hospital treats patients who are 'eligible for medical assistance under a State plan approved under [Medicaid],' the more money it receives for each patient covered by Medicare." Adena Reg'l Med. Ctr. v. Leavitt, 527 F.3d 176, 178 (D.C.Cir.2008) (quoting

42 U.S.C. § 1395ww(d)(5)(F)(vi)(II)) (alteration in original).*fn2

B. Texas' Charity Care Program

The State of Texas administers and funds its Medicaid program through the Texas Title XIX State Plan (the "Texas Medicaid Plan"). (Pl. Stat. of Facts, Dkt. No. 20 at ¶ 17; AR 14.).*fn3 In September 1993, the Texas Medicaid Plan was amended to provide reimbursement for inpatient charity care provided by qualified hospitals (the "Charity Care Program"). (Id. ¶ 17; AR 14, n. 28.). Pursuant to the terms of the amended plan, the State identifies and reimburses those hospitals that provide a disproportionate share of inpatient care to indigent patients.*fn4 (Id. ¶ 17.). In order to be eligible for charity care reimbursement, the hospital must have a charity care policy that meets a minimum set of criteria approved at the state and federal level, and provide care pursuant to that policy. (Id. at ¶¶ 17-19.).

Covenant operates two acute care facilities located in the State of Texas that provided services to charity care patients during the fiscal years 1991 and 1993-1997. (AR 35.). Neither hospital qualified as a Medicaid DSH hospital under the Texas State Medicaid Plan, and consequently, did not receive Medicaid DSH adjustment payments (see note 2, supra). (AR 17, n. 35.). However, the hospitals did receive payment for the services from Texas pursuant to the State's Charity Care Program.

Covenant sought to include the inpatients days associated with the charity care patients in its numerator for the Medicaid fraction of its Medicare DSH adjustment for the fiscal years 1991 and 1993-1997. The fiscal intermediary refused to do so, and thereby, reduced Covenant's Medicare DSH reimbursement for those years. (AR 285-330.). Covenant alleges that it was short-changed $484,243.*fn5 Covenant timely appealed to the Provider Reimbursement Review Board (the "Board") to determine whether the Fiscal Intermediary determined the hospitals' Medicare DSH adjustment in accordance with 42 U.S.C. ยง 395ww(d)(5)(F)(vi)(II). (AR 461-465.). The Board ruled that although the patients in the charity care program did not qualify for federal Medicaid, the patients did ...


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