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Allina Health Servs. v. Sebelius

United States Court of Appeals, District of Columbia Circuit

April 1, 2014

ALLINA HEALTH SERVICES, DOING BUSINESS AS ABBOTT NORTHWESTERN HOSPITAL, DOING BUSINESS AS CAMBRIDGE MEDICAL CENTER, DOING BUSINESS AS OWATONNA HOSPITAL, DOING BUSINESS AS UNITED HOSPITAL, DOING BUSINESS AS UNITY HOSPITAL, ET AL., APPELLEES
v.
KATHLEEN SEBELIUS, SECRETARY, UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, APPELLANT

Argued February 7, 2014

Page 1103

[Copyrighted Material Omitted]

Page 1104

Appeals from the United States District Court for the District of Columbia. (No. 1:10-cv-01463), (No. 1:12-cv-00328).

Stephanie R. Marcus, Attorney, U.S. Department of Justice, argued the cause for appellant. With her on the briefs were Stuart F. Delery, Assistant Attorney General, Ronald C. Machen Jr., U.S. Attorney, and Anthony J. Steinmeyer, Attorney.

Stephanie A. Webster argued the cause for appellees. With her on the briefs were Christopher L. Keough, J. Harold Richards, Hyland Hunt, and Dennis M. Barry.

Before: GARLAND, Chief Judge, SRINIVASAN, Circuit Judge, and SILBERMAN, Senior Circuit Judge.

OPINION

Page 1105

Silberman, Senior Circuit Judge.

Appellees are a group of hospitals that serve a significant number of elderly, very lowincome patients. Congress assumes that such patients cost more to treat than the average Medicare patients, so these hospitals are entitled to supplemental payments. These are determined by calculating what is called the " disproportionate share percentage" -- a formula which is a proxy for the percentage of low-income patients served.

In 2004, the Secretary issued a rule that addressed one aspect of this calculation. Although ostensibly only a detail, the financial impact is apparently substantial, costing the hospitals hundreds of millions of dollars. Not surprisingly, the hospitals sued in district court challenging the rule. The court, holding that the final rule was not a logical outgrowth of the proposed rule and that the Secretary had insufficiently explained a change in policy, granted judgment to the hospitals and vacated the rule. But the court went further, instructing the Secretary to recalculate reimbursement percentages using the alternate methodology. We affirm in part and reverse in part.

I.

Medicare, as is surely well known, is the federal program providing health insurance for all elderly, as well as the disabled. The Medicare statute has three parts relevant in this case: Part A provides direct " fee for service" hospital payments; Part C is an alternative option providing eligible beneficiaries an opportunity to enroll in private health insurance plans; and Part E includes the formula for calculation of the disproportionate share percentage -- the added compensation for the treatment of a disproportionate number of low-income patients.[1]

The size of this adjustment is determined by adding together two fractions. The first fraction, referred to as the Medicare fraction, measures the percentage of all Medicare patients (regardless of means) who are low income, i.e., entitled to supplemental security income benefits. Mathematically, the numerator of this fraction is the number of " patient days" for patients who were " entitled to benefits under Part A and were entitled to supplemental security income benefits." The denominator is the total number of " patient days for such fiscal year which were made up of patients who (for such days) were entitled to benefits under Part A ." 42 U.S.C. § 1395ww(d)(5)(F)(iv) (emphasis added).

The second fraction accounts for the number of Medicaid patients -- who, by definition, are low income -- not entitled to Medicare. The numerator is the number of patient days attributable to patients who (for such days) were eligible for Medicaid, but " not entitled to benefits under [Medicare] Part A." The denominator is the total number of patient days, regardless of whether the patients were enrolled in a federal medical benefits program. Id.

The statutory interpretation question that led to this case is whether enrollees in Part C are " entitled to benefits" under Part A, such that they should be counted in the Medicare fraction, or whether, if not regarded as " entitled to benefits under Part A," they should instead be included in the Medicaid fraction. As it turns out, if Part C beneficiaries are included in the Medicaid fraction rather than the Medicare fraction, the hospitals receive a great deal more compensation.

Page 1106

As we have previously recognized, the phrase " entitled to benefits under Part A" is ambiguous. Northeast Hospital Corp. v. Sebelius, 657 F.3d 1, 13, 398 U.S.App. D.C. 43 (D.C. Cir. 2011). Because a Part C enrollee must, by definition, have been eligible for Part A, it could mean one was legally entitled to Part A benefits whether or not one chose Part C's option, or it could mean only those who did not choose Part C, and, therefore, remained legally entitled to Part A benefits. In other words, ...


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