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Catholic Health Initiatives - Iowa v. Kathleen Sebelius

January 30, 2012

CATHOLIC HEALTH INITIATIVES - IOWA, CORP. D/B/A MERCY MEDICAL CENTER - DES MOINES, PLAINTIFF,
v.
KATHLEEN SEBELIUS, SECRETARY UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, DEFENDANT.



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

MEMORANDUM OPINION

Picture a law written by James Joyce*fn1 and edited by E.E. Cummings. Such is the Medicare statute, which has been described as "among the most completely impenetrable texts within human experience." Rehab. Ass'n of Va. v. Kozlowski, 42 F.3d 1444, 1450 (4th Cir. 1994). Certain provisions of this labyrinthine*fn2 statutory scheme are at issue in this case, which concerns a hospital seeking review of a final decision of the Secretary of the Department of Health and Human Services, who denied it certain payments it believes it is owed for providing care to low-income patients. Before the Court is plaintiff's Motion for Summary Judgment, Pl.'s Mot. Summ. J. [12], July 7, 2010, and defendant's Cross-Motion for Summary Judgment. Def.'s Cross-Mot. Summ. J. [14], Aug. 9, 2010. Having carefully considered the motions, the oppositions, the replies, the administrative record in this case, and the applicable law, the Court will grant plaintiff's Motion and deny defendant's Cross-Motion. A review of the background of the case, the governing law, the parties' arguments, and the Court's reasoning in resolving those arguments follows.

I.BACKGROUND

A.Medicare and the "Disproportionate Share Hospital" Adjustment

Medicare is a federal program that provides health insurance for the elderly and disabled. It reimburses qualifying hospitals for services provided to eligible patients. See generally Cty. of Los Angeles v. Shalala, 192 F.3d 1005, 1008 (D.C. Cir. 1999). The Department of Health and Human Services ("HHS"), currently led by Secretary Kathleen Sebelius, is the agency charged with administering the Medicare program, and one of its operating components-the Centers for Medicare and Medicaid Services ("CMS")-handles the hospital reimbursements.

The Medicare statute have five parts. Part A of Medicare provides insurance for hospital and hospital-related services. 42 U.S.C. § 1395c; see Northeast Hospital, 657 F.3d at 2. This includes coverage for "inpatient hospital services"-i.e., (generally speaking) overnight stays in a hospital. 42 U.S.C. § 1395d(a)(1). Medicare Part A's coverage for inpatient hospital services is limited to a certain number of days of care, after which such coverage is "exhausted."*fn3 See id. Parts B, C, and D of Medicare concern other health care programs not relevant to this case. See Northeast Hospital, 657 F.3d at 2--3. Part E of Medicare, among other provisions, establishes a "prospective payment system" through which hospitals are reimbursed for Part A inpatient hospital services. 42 U.S.C. § 1395ww(d).

Medicare reimbursements are subject to a variety of hospital-specific adjustments. See id. One of these adjustments is for "disproportionate share hospitals" ("DSHs"), which "serve[] a significantly disproportionate number of low-income patients." Id. § 1395ww(d)(5)(F)(i)(I); see also Northeast Hospital, 657 F.3d at 3. The DSH adjustment reflects Congress's view that low-income Medicare patients are often in poorer health than the run-of-the-mill Medicare patient, and consequently more costly for a hospital to treat. See Adena Reg'l Med. Ctr. v. Leavitt, 527 F.3d 176, 177--78 (D.C. Cir. 2008).

This is where things start to get tricky. A hospital's DSH adjustment for a particular cost reporting period depends on the hospital's "disproportionate patient percentage" ("DPP"). 42 U.S.C. § 1395ww(d)(5)(F)(v). The DPP is not the actual percentage of low-income patients served by the hospital during the relevant period. It is an indirect, or "proxy measure for low income." H.R. Report No. 99-241, at 16 (1985), reprinted in 1986 U.S.C.C.A.N. at 594. To add a bit more complexity, the DPP is itself the sum of two other fractions: the "Medicare fraction" and the "Medicaid fraction."*fn4 42 U.S.C. § 1395ww(d)(5)(F)(vi). The Medicare fraction 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 Medicare] . . . and were entitled to supplementary security income benefits . . . , 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 Medicare] . . . .

Id. § 1395ww(d)(5)(F)(vi)(I). The Medicaid fraction-which is 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 for such period which consists of patients who (for such days) were eligible for medical assistance under a State [Medicaid] plan . . . , but who were not entitled to benefits under part A [of Medicare] . . . , and the denominator of which is the total number of the hospital's patient days for such period.

Id. § 1395ww(d)(5)(F)(vi)(II). At the simplest level, each of these fractions is arrived at by dividing a certain type of patient day by another type of patient day, to determine the proportion of the first type to the second. If these two proportions are added up, the resulting "disproportionate patient percentage" may show that a hospital, for that cost reporting period, served a disproportionately high number of low-income patients, was a "disproportionate share hospital," and so is entitled to a DSH adjustment to its Medicare reimbursement.

Furthermore, as these two definitions show, both the Medicare and Medicaid fractions include the phrase, "entitled to benefits under part A [of Medicare]." However, the fractions make use of this phrase differently. While the Medicare fraction includes, in both its numerator and denominator, patient days made up of patients who were"entitled to benefits under part A [of Medicare]," in the Medicaid fraction, the phrase "entitled to benefits under part A [of Medicare]" appears only in its numerator, and such days are excluded, not included. Said another way, if a patient staying at a hospital is "entitled to benefits under part A [of Medicare]," that day is counted in the numerator of the Medicare fraction (so long as the patient is also "entitled" to Social Security benefits); but, that same day would not be counted in the numerator of the Medicaid fraction, because only days attributable to patients who were "eligible" for Medicaid and "not entitled to benefits under part A [of Medicare]" can be counted.

Determining a hospital's ultimate DSH adjustment involves some auditing and some math, and the Medicare statute entrusts these tasks, not to hospitals or even HHS, but to middlemen called "fiscal intermediaries"-usually insurance companies-which act as agents of the Secretary. See 42 C.F.R. §§ 421.1, 421.3, 421.100--.128. Once a hospital provides its fiscal intermediary with relevant information, the intermediary determines the total amount of reimbursement due and furnishes the provider with a "notice of program reimbursement" ("NPR") reflecting its determination. Id. § 405.1803. An intermediary may reopen and revise a reimbursement determination no later than three years following the original NPR. Id. § 405.1885. If a hospital is dissatisfied with the intermediary's calculation of its reimbursement, the hospital can appeal the decision to the Provider Reimbursement Board ("PRRB"), which is an administrative body appointed by the Secretary. See 42 U.S.C. §§ 1395oo(a), (h). The PRRB can affirm, modify, or reverse the intermediary's determination, and-if the PRRB's decision is appealed-the Secretary can affirm, modify, or reverse the decision of the PRRB. See id. §§ 1395oo(d)--(f).

B.This Lawsuit

The plaintiff in this case-Catholic Health Initiatives - Iowa, Corp. ("Catholic Health")- is a not-for-profit corporation that owns and operates Mercy Medical Center ("the Hospital") in Des Moines, Iowa. Compl. [1] ¶17, Mar. 12, 2010. The Hospital participates in the Medicare program as a "provider of services," and so receives reimbursements from the program on a regular basis. Id. The cost reporting period at issue in this case is the Hospital's fiscal year ending June 30, 1997.

After the Hospital provided information related to its 1996 and 1997 cost reporting periods to its fiscal intermediary, the intermediary calculated the Hospital's Medicare reimbursement, and furnished NPRs for those periods.*fn5 Id. However, in December 2002, the intermediary revisited those calculations and issued revised NPRs. Id. Unhappy with this revision, the Hospital appealed the intermediary's decision to the PRRB. Id.; see also id. at 455. The issue before the PRRB in this 2003 appeal was whether the intermediary incorrectly calculated the Hospital's DSH adjustment by excluding the Hospital's "Medicaid-eligible patient days attributable to two patients who had exhausted Medicare Part A benefits." Id. at 101. However, in early September 2004, before the PRRB considered the appeal, the parties reached an "Administrative Resolution" of the reimbursement dispute. Id. at 455. Pursuant to this settlement, the intermediary agreed to include some, but not all, of the "Part A exhausted days at issue in the Medicaid fraction for the 1996 and 1997 cost reporting periods." Id. at 102.

However, in June 2005, the intermediary-based upon what it called "a recent clarification received from CMS"*fn6 -announced that it would once again revisit the Hospital's DSH adjustment for the 1996 and 1997 cost reporting periods. Id. The intermediary then issued another set of revised NPRs, which excluded the same patient days that it had agreed to include pursuant to the ...


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