United States District Court, District of Columbia
[Copyrighted Material Omitted]
Dennis M. Barry, King & Spalding, Stephanie Ann Webster, Akin Gump Strauss Hauer & Feld LLP, Washington, DC, for Plaintiffs.
Kyle Renee Freeny, U.S. Department of Justice, Washington, DC, for Defendant.
ROSEMARY M. COLLYER, District Judge.
Medicare, a federal program that pays for health coverage for most Americans aged 65 and older is, to pet it mildly, a complex program with reams of statutory provisions and regulations. Banking on this complexity to execute a fancy two-step, the Secretary of Health and Human Services excuses a lack of proper rulemaking and reasoned explanation for a new statutory interpretation of the reimbursement formula for certain hospitals serving low-income patients in the hopes that the Court will defer to her expertise. The Court recognizes both the Secretary's expertise and the flaws in the procedures she defends, with deference to the former but not to the latter.
Plaintiffs  are twenty-seven hospitals that serve " a significantly disproportionate share of low-income patients" without private health insurance. Consolidated Omnibus Budget Reconciliation Act of 1985, Pub.L. No. 99-272, § 9105 (1986) (COBRA); 42 U.S.C. § 1395ww(d)(5)(F)(i)(I); see also North Broward Hosp. Dist. v. Shalala, 172 F.3d 90, 92 (D.C.Cir.1999). Medicare pays such disproportionate share hospitals (DSH) additional monies, on top of Medicare's normal fees-for-service, to help cover the costs associated with the care of the very poor. This case concerns the formula for calculating DSH payments, a messy and incomplete rulemaking process, and the Secretary's unreasoned change in statutory interpretation.
This is not the first time the Secretary's calculation of DSH payments has been litigated recently. The D.C. Circuit noted the Secretary's " about-face in 2004," when she announced her new interpretation of the statute in a preamble to a final rule. Ne. Hosp. Corp. v. Sebelius, 657 F.3d 1, 15 (D.C.Cir.2011). Therefore, in reviewing
this record and deciding this case, the Court starts with the proposition that the Secretary had a different practice for calculating DSH payments at least until 2004, when she abruptly announced a change in policy. The Court relies for background on Northeast Hospital, which lays out the dispute in " numbing detail," id. at 18 (Kavanaugh, J., concurring), and will advance to the immediate issues here.
A. The Medicare DSH Payment System
Medicare pays benefits through different plans, three of which are relevant here. " Plan A covers medical services furnished by hospitals and other institutional care providers." Id. at 2; 42 U.S.C. §§ 1395c to 1395i-5. " Part B is an optional supplemental insurance program that pays for medical items and services not covered by Part A, including outpatient physician services, clinical laboratory tests, and durable medical equipment." Ne. Hosp., 657 F.3d at 2; 42 U.S.C. §§ 1395j to 1395w-4. " Part C governs the ‘ Medicare Choice’ (M) program, which gives Medicare beneficiaries an alternative to the traditional Part A fee-for-service system," allowing enrollment in a managed care plan. Id.; see 42 U.S.C. §§ 1395w-21 to 1395w-29. The Secretary pays the health care provider directly under Parts A and B but pays the managed-care plan under Part C, which in turn pays the provider.
DSH payment adjustments depend on the DSH percentage for each hospital, determined by way of a complicated statutory formula. It involves adding the results of two computations and expressing the sum as a percentage referred to as the " disproportionate patient percentage." 42 U.S.C. § 1395ww(d)(5)(F)(vi). One computation is identified as the Medicare/Supplemental Security Income (SSI) fraction and the other is identified as the Medicaid fraction. 42 U.S.C. §§ 1395ww(d)(5)(F)(vi)(I) (Medicare/SSI fraction) & (II) (Medicaid fraction); see also 42 C.F.R. § 412.106(b) (2012).
The Medicare/SSI fraction is meant as a proxy for low-income Medicare patients and is defined as:
[T]he 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). Thus, the Medicare/SSI fraction is based on the number of a hospital's patient days for individuals entitled to both Medicare Part A and SSI benefits on the top of the fraction over the number of patient days for all patients under Part A on the bottom.
The statute defines the Medicaid fraction, meant as a proxy for low-income, non-Medicare patients, as:
[T]he fraction (expressed as a percentage), the numerator of which is the number of the hospital's patient days for such period which consist of patients who (for such days) were eligible for medical assistance under a State [Medicaid] plan ... but who were not entitled to benefits under [Medicare] Part A ... 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). Thus, the Medicaid fraction is based on the number of a hospital's patient days for individuals who are eligible for Medicaid, but are not entitled to benefits under Medicare Part A, over the total number of all patient days for the hospital.
M was established by Congress as part of the Balanced Budget Act of 1997(BBA), Pub.L. No. 105-33 (1997). The M program is now known as the Medicare Advantage (MA) program. Wherever possible, the Court uses either " M" or " Part C" to be consistent with the record and the briefs. In order to enroll in M, an individual must be " entitled to benefits under part A ... and enrolled under part B." 42 U.S.C. § 1395w-21(a)(3)(A).
After implementation of M, " between 1999 and 2004, the Secretary routinely excluded M [inpatient hospital] days from the Medicare fraction." Ne. Hosp., 657 F.3d at 15. The " actual practice was to not count the M days in the [Medicare] fraction prior to 2004." Id. (citation and internal quotation marks omitted). It was not until 2007 that the Secretary even began to collect the data needed to include M days in the Medicare/SSI fraction. Id.; see Change Request 5647, CMS Pub. 100-04, Transmittal No. 1331 (July 20, 2007). The Secretary's excuse for this failure was " not convincing" to the D.C. Circuit, 657 F.3d at 15, just as her current excuses do not convince this Court.
B. Details of the Secretary's " About Face"
The Secretary's actions in 2003, 2004, and 2007 are the focal points of the parties' disputes.
1. 2003 NPRM
In 2003, in a notice of proposed rulemaking (" 2003 NPRM" ) published in the Federal Register, the Secretary stated the following:
We have received questions whether patients enrolled in an M Plan should be counted in the Medicare fraction or the Medicaid fraction of the DSH patient percentage calculation. The question stems from whether M plan enrollees are entitled to benefits under Medicare Part A since M plans are administered through Medicare Part C.
We note that, under § 422.50, an individual is eligible to elect an M plan if he or she is entitled to Medicare Part A and enrolled in Part B. However, once a beneficiary has elected to join an M plan, that beneficiary's benefits are no longer administered under Part A.
Therefore, we are proposing to clarify that once a beneficiary elects Medicare Part C, those patient days attributable to the beneficiary should not be included in the Medicare fraction of the DSH patient percentage. These patient days should be included in the count of total patient days in the Medicaid fraction (the denominator), and the patient's
days for the M beneficiary who is also eligible for Medicaid would be included in the numerator of the Medicaid fraction.
Medicare Program, Proposed Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2004 Rates, 68 Fed.Reg. 27154, 27208 (May 19, 2003).
The proposed clarification was the last and shortest of eight proposed changes in a section entitled " Indirect Medical Education (IME) Adjustment (§ 412.105) and Disproportionate Share Hospital (DSH) Adjustment (§ 412.105)." Id. at 27201-08.
2. Comments Received After 2003 NPRM
The public comments on the 2003 NPRM appear in the Rulemaking Record (R.R.), Dkt. 31, 33, 34, and are relatively sparse. A small number of hospitals submitted comments, some of which were nearly identical, asserting that the proposal was " inconsistent" with the Medicare Act and urging that " M days continue to be treated as Medicare days in the DSH calculation." See, e.g., Comment of North Shore University Hospital at Plainview, R.R. at 343; see also Comment of Association of American Medical Colleges, R.R. at 370-71 (arguing that Part C patients should be included in the Medicare/SSI fraction). But a smaller number of commenters— the Secretary has identified only two, see Def. MSJ Mem., Dkt. 35, at 33— urged that the Secretary include Part C days in the Medicaid fraction. E.g., Comment of Mercy Health System, R.R. at 389-90.
Three other comments are particularly noteworthy. One commenter, Southwest Consulting Associates, stated: " In our work with data from CMS [Centers for Medicare & Medicaid Services], it appears that the SSI fraction generally does not include Medicare HMO days[, ... which were] inconsistently counted in the SSI fraction from provider to provider and from year to year.... To count all indigent [patients] (the purpose of the calculation), we support the inclusion of Medicare HMO days in the Medicaid fraction." R.R. at 140-41; see also id. at 147-49 (supplemental comment from same commenter arguing that " CMS's exclusion of [M] days from the Medicaid percentage ... violates the plain language of the DSH provisions of the Medicare statute" and is inconsistent with " Congress' and the Secretary's readings of similar language in another Medicare payment area, as well as prior CMS policy" ).
Another commenter, a CMS contractor, expressed confusion over the 2003 NPRM. See Comment of Cahaba Safeguard Administrators, LLC, R.R. at 516 (" We assume that the Medicare fraction refers to the SSI% used in the DSH patient percentage. Is this a correct assumption? Does the proposal mean that M days were included in the SSI% prior to this proposal, and will no longer be included in the SSI%?" ). A third commenter observed:
Insufficient data is provided in the proposed rule to make a rational evaluation of this proposal. When a beneficiary elects M coverage, Medicare Part A no longer administers their benefits, but Part A entitlement does not end. M plans also did not exist when the DSH formula was devised, and hove [sic] not been otherwise addressed by Congress in this regard. So it is possible for CMS to support inclusion of these days in the Medicare fraction or in the Medicaid fraction, depending on the argument selected. We would like to see data on the effects (by provider number) of removing M days from the SSI percentage calculation.
Comment of Memorial Healthcare System, ...