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University of Kansas Hospital Authority v. Sebelius

United States District Court, District of Columbia

July 15, 2013

UNIVERSITY OF KANSAS HOSPITAL AUTHORITY, et al., Plaintiffs,
v.
KATHLEEN SEBELIUS, Secretary, U.S. Department of Health and Human Services, Defendant

For UNIVERSITY OF KANSAS HOSPITAL AUTHORITY, VIA CHRISTI REGIONAL MEDICAL CENTER, STORMONT-VAIL REGIONAL MEDICAL CENTER, Plaintiffs: Kenneth R. Marcus, LEAD ATTORNEY, HONIGMAN MILLER SCHWARTZ AND COHN L.L.P., Detroit, MI.

For KATHLEEN SEBELIUS, in her official capacity as Secretary of Health and Human Services, Defendant: Peter C. Pfaffenroth, LEAD ATTORNEY, U.S. ATTORNEY'S OFFICE, Civil Division, Washington, DC.

For QUALITY REIMBURSEMENT SERVICES, INC., Movant: Lori Allison Rubin, FOLEY & LARDNER, LLP, Washington, DC.

OPINION

Page 181

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

Barbara Jacobs Rothstein, U.S. District Court Judge.

I. INTRODUCTION

Plaintiffs University of Kansas Hospital Authority (" KU" ), Via Christi Regional

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Medical Center (" Via Christi" ), and Stormont-Vail Regional Medical Center (" Stormont-Vail" ) (collectively " Plaintiffs" ) challenge the Defendant Secretary of Health and Human Services (the " Secretary" )'s final decision regarding Plaintiffs' Medicare " Disproportionate Share Hospital" adjustments for the fiscal year 1996. Plaintiffs bring this action pursuant to Title XVIII of the Social Security Act, 42 U.S.C. § § 1395 et seq. (the " Medicare Statute" ).

Presently before the Court are Plaintiffs' Motion for Summary Judgment (Dkt. 21 " Pls.' Mot." ) and the Secretary's Cross Motion for Summary Judgment (Dkt. No. 23 " Def.'s Mot." ). Upon consideration of the motions, the memoranda in support thereof, the entire record, and the applicable law, the Court will DENY Plaintiffs' Motion for Summary Judgment and GRANT the Secretary's Cross Motion for Summary Judgment. The Court's reasoning is set forth below.

II. STATUTORY AND REGULATORY BACKGROUND

A. The Medicare Program

Title XVIII of the Social Security Act established the federally funded health insurance program for the elderly and disabled, commonly known as " Medicare." 42 U.S.C. § 1395 et seq. (1976). Medicare authorizes federal payment for covered health care services provided by hospitals, skilled nursing facilities, outpatient rehabilitation facilities, and the like. § § 1395x(u), 1395cc. This case arises under Part A of Medicare, which generally provides health insurance for inpatient hospital medical services. § § 1395c, 1395d. Under Part A, a participating hospital enters into an agreement with the Secretary whereby the hospital promises to render services to Medicare beneficiaries. § 1395cc. The hospital does not charge the Medicare beneficiaries for the services (except for certain deductible and coinsurance amounts), but instead, the federal government directly reimburses the hospital for the services rendered. § 1395cc(a)(1). However, the hospital is not reimbursed for the actual cost that it incurred in treating Medicare beneficiaries; rather, the hospital receives payments based on the Medicare beneficiary's diagnosis at discharge, regardless of the hospital's actual cost associated with treating the beneficiary. § 1395ww(d). The payment for each diagnosis is set according to predetermined standardized rates. § 1395ww(d)(1)-(4).

In addition, in general, a hospital is not reimbursed at the time of service, but rather, the hospital must file an annual report showing the costs it incurred during the fiscal year and the portion of those costs allocated to Medicare. 42 C.F.R. § § 413.24, 413.50. The report is filed with a fiscal intermediary (" FI" ), which is typically a private insurance company acting under contract with the Secretary. 42 U.S.C. § 1395ww(d)(5), 42 C.F.R. § 413.20(b). After auditing the hospital's report, the FI determines the amount of reimbursement owed to the hospital by Medicare through the issuance of a Notice of Program Reimbursement (" NPR" ). 42 C.F.R. § 405.1803(a). If the hospital is dissatisfied with the FI's award, it has 180 days to appeal to the Provider Reimbursement Review Board (the " PRRB" ), which issues a decision that the Secretary may reverse, affirm, or modify within sixty days. 42 U.S.C. § 1395oo(f)(1). If the hospital remains dissatisfied after either the PRRB or the Secretary issues a final decision, it may seek judicial review by filing suit in the appropriate federal district court. Id.

B. The Medicare Disproportionate Share Hospital Adjustment

As discussed above, at the end of each fiscal year, the federal government reimburses

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participating hospitals for the portion of their annual operating costs allocated to Medicare. It does this under a system of prospectively determined standardized rates ( i.e., the hospitals are reimbursed at pre-set rates based on a patient's diagnosis at discharge); however, these predetermined rates may be adjusted for specific hospitals under certain circumstances recognized by Congress. 42 U.S.C. § 1395ww(d). This case involves one such adjustment, known as the Medicare Disproportionate Share Hospital (" DSH" ) adjustment. Id. at § 1395ww(d)(5)(F). Under the Medicare DSH adjustment, the federal government pays more to hospitals that " serve[] a significantly disproportionate number of low-income patients." Catholic Health Initiative Iowa Corp. v. Sebelius, 718 F.3d 914, 405 U.S.App. D.C. 264, 2013 WL 2476896, *1 (D.C. Cir. June 11, 2013) (quoting § 1395ww(d)(5)(F)(i)(I)). This provision is based on Congress's judgment that low-income Medicare patients have generally poorer health and are costlier to treat than high-income Medicare patients. Id. (citing Adena Reg'l Med. Ctr. v. Leavitt, 527 F.3d 176, 177-78, 381 U.S.App. D.C. 225 (D.C. Cir. 2008)). To compensate for this disparity, Congress authorized the Secretary to disburse extra Medicare funds--the Medicare DSH adjustment--to hospitals that treat a disproportionate share of low-income patients. Cabell Hunting Hosp., Inc. v. Shalala, 101 F.3d 984, 986 (4th Cir. 1996).

Whether a hospital qualifies for the Medicare DSH adjustment is based on the hospital's " disproportionate low-income patient percentage" --the higher the hospital's disproportionate low-income patient percentage, the greater Medicare DSH adjustment the hospital will receive. 42 U.S.C § 1395ww(d)(5)(F)(v); Catholic Health, 2013 WL 2476896 at *1. The disproportionate low-income patient percentage, in turn, is based, in part, on how many Medicaid beneficiaries a hospital treats. [1] Specifically, the " disproportionate low-income patient percentage" is determined by dividing the total number of inpatient hospital days for which the treated patient is a Medicaid beneficiary, but who is not entitled to benefits under Medicare Part A, by the total number of inpatient hospital days for that same time period. [2] This is commonly referred to as the Medicaid Fraction. Banner Health v. Sebelius, 715 F.Supp.2d 142, 146 (D.D.C. 2010) (citing Jewish Hosp., Inc. v. Sec'y of Health & Human Servs., 19 F.3d 270, 272 (6th Cir. 1994)). The Medicare statute defines the Medicaid Fraction 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

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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). As the D.C. Circuit stated recently (in a masterful understatement): " [t]his language is downright byzantine and its meaning not easily discernible." Catholic Health, 2013 WL 2476896, at *2. However, in general, under this formula, a hospital's Medicare DSH adjustment increases as the number of Medicaid -eligible patient days in the numerator of hospital's Medicaid Fraction increases. Adena, 527 F.3d at 178; Cabell, 101 F.3d at 985 (noting that the ...


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