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Emanuel Medical Center, Inc. v. Sebelius

United States District Court, D. Columbia.

April 17, 2014

EMANUEL MEDICAL CENTER, INC. et al., Plaintiffs,
v.
KATHLEEN SEBELIUS, Secretary of the United States Department of Health and Human Services, Defendant

For EMANUEL MEDICAL CENTER, TURLOCK, CALIFORNIA, DIGNITY HEALTH, doing business as MERCY MEDICAL CENTER MERCED, formerly known as MERCED COMMUNITY MEDICAL CENTER, Plaintiffs: Frank P. Fedor, Richard F. Marotti, PRO HAC VICE, MURPHY AUSTIN ADAMS SCHOENFELD LLP, Sacramento, CA; Andrew C. Bernasconi, REED SMITH LLP, Washington, DC.

For KATHLEEN SEBELIUS, Secretary, United States DHS-DC, Defendant: Peter C. Pfaffenroth, LEAD ATTORNEY, U.S. ATTORNEY'S OFFICE, Civil Division, Washington, DC.

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MEMORANDUM OPINION

Gladys Kessler, United States District Judge.

Plaintiffs are two hospitals, Emanuel Medical Center (" Emanuel" ) and Merced Community Medical Center (" Merced" ) (collectively, " Plaintiffs" or " Providers" ). They bring this action against Kathleen

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Sebelius in her official capacity as Secretary of the Department of Health and Human Services (" Defendant" or " Secretary" ), pursuant to Title XVIII of the Social Security Act, 42 U.S.C. § § 1395 et seq. (" the Medicare Act" ). Plaintiffs seek judicial review of a final agency decision that the Provider Reimbursement Review Board (" PRRB" or " Board" ) did not have jurisdiction over Providers' appeals.

This matter is before the Court on Plaintiffs' Motion for Summary Judgment [Dkt. No. 17] and Defendant's Motion for Partial Summary Judgment and for Partial Remand [Dkt. No. 22]. Upon consideration of the briefs, the administrative record, and the entire record herein, and for the reasons stated below, Plaintiff's Motion for Summary Judgment is granted in part and denied in part and Defendant's Motion for Partial Summary Judgment and for Partial Remand is granted.

I. BACKGROUND

A. Statutory and Regulatory Framework

1. The Medicare Program

Title XVIII of the Social Security Act established the Medicare program, which provides medical care for the elderly and disabled. 42 U.S.C. § 1395 et seq.; see also Kaiser Found. Hosps. v. Sebelius, 708 F.3d 226, 227, 404 U.S.App.D.C. 148 (D.C. Cir. 2013) (citation omitted). The Medicare program is administered by the Secretary through the Center for Medicare and Medicaid Services (" CMS" ). Ark. Dep't of Health & Human Servs. v. Ahlborn, 547 U.S. 268, 275, 126 S.Ct. 1752, 164 L.Ed.2d 459 (2006).

Medicare providers enter into written agreements with the Secretary to provide services to eligible individuals. 42 U.S.C. § 1395cc. Fiscal intermediaries, private companies that process payments on behalf of CMS, make interim payments to providers, subject to subsequent adjustments. Id. § 1395h.

To calculate these adjustments, providers are required to submit an annual cost report to their fiscal intermediary identifying the costs incurred during the course of each fiscal year. 42 C.F.R. § § 413.20, 413.24; see also Sebelius v. Auburn Reg'l Med. Ctr., 133 S.Ct. 817, 822, 184 L.Ed.2d 627 (2013) (" At the end of each year, providers participating in Medicare submit cost reports to contractors acting on behalf of HHS known as fiscal intermediaries" ). Fiscal intermediaries then analyze and audit the cost report and inform the provider of the amount of total Medicare reimbursement to which they are entitled, which is referred to as the Notice of Program Reimbursement (" NPR" ). 42 C.F.R. § 405.1803; see also Regions Hosp. v. Shalala, 522 U.S. 448, 452, 118 S.Ct. 909, 139 L.Ed.2d 895 (1998).

If a provider is dissatisfied with the intermediary's determination of its NPR, it has 180 days to request a hearing before the PRRB. 42 U.S.C. § 1395oo(a). Review of an initial NPR is comprehensive and may include any item contained in the original cost report. Id. § 1395oo(d); Bethesda Hospital Ass'n v. Bowen, 485 U.S. 399, 405-06, 108 S.Ct. 1255, 99 L.Ed.2d 460 (1988) (noting that statutory language allows the Board " to review and revise a cost report with respect to matters not contested before the fiscal intermediary" ). The Board can affirm, modify, or reverse the fiscal intermediary's award; the Secretary in turn may affirm, modify, or reverse the PRRB's decision. See 42 U.S.C. § 1395oo (d)-(f).

The Medicare regulations permit a fiscal intermediary to reopen a provider's cost report " with respect to findings on matters at issue" within three years. 42 C.F.R. § 405.1885(a).[1]

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The intermediary can reopen the cost report either on its own motion, at the request of the provider, or at the request of the CMS Administrator. Id.

After the intermediary reopens and revises the cost report, the revised NPR is considered a " separate and distinct determination or decision." Id. § 405.1889. The provider can then appeal the revised NPR to the PRRB within 180 days. Id. § § 405.1889, 405.1835(a). Unlike the comprehensive review of an initial NPR, however, the Board's jurisdiction over a revised NPR is limited to " the specific issues revised on reopening." HCA Health Servs. of Okla., Inc. v. Shalala, 27 F.3d 614, 615, 307 U.S.App.D.C. 164 (D.C. Cir. 1994) (upholding Secretary's interpretation of reopening regulations as reasonable).

Within sixty days of notice of a final decision of the PRRB or the Secretary, a provider is entitled to file a civil action in the United States District Court for the District of Columbia to seek judicial review of that decision. 42 U.S.C. § 1395oo(f); 42 C.F.R. § 405.1877.

2. Disproportionate Share Hospital Adjustment

Part E of the Medicare statute sets out " Miscellaneous Provisions" including a prospective payment system for reimbursing hospitals that provide certain inpatient hospital services. 42 U.S.C. § 1395ww(d); see also Ne. Hosp. Corp. v. Sebelius, 657 F.3d 1, 3, 398 U.S.App.D.C. 43 (D.C. Cir. 2011). A hospital is reimbursed for each day spent treating a Medicaid patient, and receives additional funds if it is eligible for various hospital-specific adjustments. See 42 U.S.C. § 1395ww(d)(5); Cookeville Reg'l Med. Ctr. v. Leavitt, 531 F.3d 844, 846, 382 U.S.App.D.C. 115 (D.C. Cir. 2008).

The adjustment at issue in this case is the Disproportionate Share Hospital (" DSH" ) adjustment, under which the government gives additional funds to hospitals that " serve[] a significantly disproportionate number of low-income patients." 42 U.S.C. § 1395ww(d)(5)(F)(i)(I). This adjustment is " made because hospitals with an unusually high percentage of low-income patients generally have higher per-patient costs; such hospitals, Congress therefore found, should receive higher reimbursement rates." Auburn Reg'l, 133 S.Ct. at 822; see also Catholic Health Initiatives Iowa Corp. v. Sebelius, 718 F.3d 914, 916, 405 U.S.App.D.C. 264 (D.C. Cir. 2013) (citation omitted).

Whether a hospital qualifies for this adjustment, and the amount of the adjustment the hospital receives, depends on the hospital's " disproportionate patient percentage" (" DPP" ). 42 U.S.C. § 1395ww(d)(5)(F)(v); Ne. Hosp. Corp., 657 F.3d at 3. The DPP " is not the actual percentage of low-income patients served; rather, it is an indirect, proxy measure for low income." Catholic Health Initiatives, 718 F.3d at 916.

The DPP, as defined by the Medicare statute, is calculated by adding together two fractions: the SSI fraction. In sum, the Medicaid fraction. 42 U.S.C. § 1395ww(d)(5)(F)(vi); Metro. Hosp. v. Dep't of Health & Human Servs., 712 F.3d 248, 251 (6th Cir. 2013). The basic unit of measurement for both fractions is the hospital's " patient days." Metro Hosp., 712 F.3d at 251.

The SSI fraction, also known as the " Medicare fraction," " measures the portion of a hospital's Medicare-entitled patient

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population that is also entitled to [Supplemental Security Income (" SSI" )], a cash benefit provided to low-income elderly, blind, or disabled individuals." Id.; see also Auburn Reg'l, 133 S.Ct. at 822.

The SSI fraction for a given period consists of the number of patient days attributable to patients entitled to both Medicare Part A benefits and SSI benefits divided by the number of patient days attributable to patients entitled to Medicare Part A benefits but not SSI benefits. 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I). The Secretary receives data from the Social Security Administration to calculate the SSI fraction and provides the fraction to the intermediary. Auburn Reg'l, 133 S.Ct. at 822; 42 C.F.R. § 412.106(b)(2), (3).

The Medicaid fraction " measures the proportion of a hospital's total patient population that is Medicaid-eligible, with the caveat of excluding patients who are also entitled to Medicare benefits." Metro Hosp., 712 F.3d at 251. The Medicaid fraction for a given period consists of the number of patient days attributable to patients eligible for a state Medicaid plan but not entitled to Medicare Part A benefits, divided by the total number of patient days in that period. 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II).[2] The Medicaid fraction is calculated by the intermediary. 42 C.F.R. § 412.106(b)(4).

The intermediary then adds the SSI fraction and the Medicaid fraction and that sum, expressed as a percentage, is the hospital's DPP for that period. Id. § 412.106(b)(5). The higher the DPP, the higher the rate at which the hospital is reimbursed. Catholic Health Initiatives, 718 F.3d at 916 (" [A] higher DPP means greater reimbursements because the hospital is serving more low-income patients." ); Metro. Hosp., 712 F.3d at 251 (" A higher DPP produces a higher adjustment percentage, which in turn produces a larger adjustment payment." ) (citation omitted).

B. Factual and Procedural History

Plaintiffs are two hospitals located in California. Administrative Record (" AR" ) 80-81. It is undisputed that Plaintiffs are " providers of services" participating in the Medicare program. This case concerns three cost reports: Merced's cost reports for fiscal year 1991 and ...


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