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Cooper Hospital/University Medical Center v. Burwell

United States District Court, District of Columbia

April 11, 2016

COOPER HOSPITAL / UNIVERSITY MEDICAL CENTER, Plaintiff,
v.
SYLVIA M. BURWELL, Secretary, U.S. Department of Health and Human Services, Defendant.

MEMORANDUM OPINION

JAMES E. BOASBERG United States District Judge.

Will Rogers once said, “The minute you read something and you can’t understand it, you can almost be sure that it was drawn up by a lawyer.” While it is unlikely he had the Medicare and Medicaid statutes in mind, there may be no legislation to which his adage better applies. The present dispute - between Cooper Hospital, a medical center located in Camden, New Jersey, and Sylvia M. Burwell, Secretary of the Department of Health and Human Services - turns on the Secretary’s interpretation of a complex set of interwoven Medicare and Medicaid provisions. Cooper seeks partial reimbursement from HHS for its fiscal year 2001 treatment of low-income patients who were ineligible for Medicaid but covered under New Jersey’s charity-care statute, the New Jersey Charity Care Program (NJCCP). HHS has denied such repayments, arguing that the provision under which Plaintiff seeks repayment, the Medicare Disproportionate Share Hospital (DSH) provision, does not permit reimbursement for Medicaid-ineligible patients.

Cooper first appealed this denial administratively and, failing there, now brings this suit. In addition to continuing to challenge the reimbursement denial, the hospital also grumbles that HHS has treated it differently from hospitals in other states. More specifically, it objects that while its charity-care patients were denied, the agency permits reimbursement for Medicaid-ineligible patients in states that participate in what is known as § 1115 expansion-waiver programs. Plaintiff contends that these expansion-waiver patients are, in all relevant ways, identical to its NJCCP patients, insofar as both sets of patients are ineligible for traditional Medicaid. Because NJCCP patients’ Medicaid ineligibility was the basis for HHS’s denial of Cooper’s Medicare DSH reimbursement, the hospital believes this same reasoning should prohibit reimbursement for Medicaid-ineligible expansion-waiver patients. It therefore argues that the Secretary’s disparate treatment of these patient groups is arbitrary and capricious, thus violating both the Administrative Procedure Act and the equal-protection guarantee implied in the Due Process Clause of the Fifth Amendment to the Constitution.

After traversing its way through the labyrinthine Medicare and Medicaid statutory provisions, the Court ultimately concludes that the agency has acted rationally in interpreting these laws. Indeed, as the Court will explain, D.C. Circuit precedent essentially forecloses any route for success in Plaintiff’s suit. Circuit precedent mandates that the Secretary - and this Court - interpret the Medicare statute so as to deny reimbursement for Cooper’s NJCCP patient days. Yet the Circuit has also held that Congress granted the Secretary express permission to include § 1115 expansion-waiver patients in Medicare DSH reimbursement. Given these holdings, Plaintiff’s claim of disparate treatment fails, as the Secretary had a clear rational basis - and express statutory permission - to differentiate between Cooper’s charity-care patients and § 1115 expansion-waiver patients. The Court will, accordingly, grant Defendant’s Motion for Summary Judgment.

I. Background

Plaintiff Cooper Hospital / University Medical Center is a 560-bed not-for-profit general-acute-care hospital and academic medical center located in Camden, New Jersey, which participates in both the federal Medicaid and Medicare programs. See Compl., ¶¶ 1, 10; Pl. MSJ at 5. Over a third of Cooper’s patients are indigent, given the substantially low-income community that the hospital serves. See Pl. MSJ at 5. Defendant Sylvia M. Burwell is the Secretary of HHS, the agency responsible for operating the Medicare program. See Compl., ¶ 12. Cooper here challenges its Medicare DSH-reimbursement calculation for the fiscal year ending December 31, 2001. See Pl. MSJ at 1. Before turning to the specifics of Plaintiff’s claim, the Court will lay out in detail how both the Medicare and Medicaid programs operate. Such explanation is necessary given the complexities of the repayment determination involved here.

A. Medicare Reimbursement Policies

“This case is significantly more difficult to describe than to decide, ” Cookeville Reg’l Med. Ctr. v. Thompson, No. 04-1053, 2005 WL 3276219, at *1 (D.D.C. Oct. 28, 2005), for navigating the Medicare and Medicaid statutes’ choppy waters is no easy feat. Both are federally funded medical-insurance programs that are part of the Social Security Act, which “is among the most intricate [statutes] ever drafted by Congress. Its Byzantine construction, as Judge Friendly has observed, makes the Act ‘almost unintelligible to the uninitiated.’” Schweiker v. Gray Panthers, 453 U.S. 34, 43 (1981) (quoting Friedman v. Berger, 547 F.2d 723, 727 n.7 (2d Cir. 1976)). Although the two programs share similarities, each functions in partial independence of the other, albeit with many cross-references between the subchapters.

1. Medicare DSH Adjustment

Medicare, established as Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395 et. seq., provides medical insurance for the elderly and disabled, and the present dispute concerns provisions within Medicare “Part A, ” which authorizes payments for certain inpatient hospital services and related services. See Def. MSJ/Opp. at 2; see also 42 U.S.C. §§ 1395c-1395i-5. While the federal government reimburses hospitals for qualified costs under Medicare, the reimbursement rates are not based on hospitals’ actual costs. Instead, they are based on a Prospective Payment System (PPS), which provides “prospectively determined rates, rather than on the actual operating costs incurred by the hospital.” Def. MSJ/Opp. at 3 (citing 42 U.S.C § 1395ww(d)(1)-(4)). HHS’s calculations for reimbursement rates for individual hospitals can thus significantly affect a given hospital’s bottom line. Unsurprisingly, then, the gravamen of this suit concerns such a reimbursement calculation for Cooper Hospital.

Cooper objects to HHS’s approach to calculating reimbursement rates under what is known as the Medicare Disproportionate Share Hospital (DSH) adjustment. Recognizing that “[h]ospitals that serve disproportionate numbers of low-income patients have higher per-case medicare costs, ” but receive the same PPS reimbursements as other hospitals, see H.R. Rep. No. 99-241, pt. 1, at 16 (1986), Congress created the Medicare DSH adjustment, which requires HHS to increase PPS payments to hospitals that serve a “significantly disproportionate number of low income patients.” 42 U.S.C. § 1395ww(d)(5)(F)(i)(I); Pl. MSJ at 1; Def. MSJ/Opp. at 3. Whether a given hospital qualifies for a Medicare DSH adjustment, and how large that adjustment is, depends on the hospital’s “disproportionate patient percentage, ” or DPP. See 42 U.S.C. § 1395ww(d)(5)(F)(v)). That DPP calculation is in turn based on the sum of two fractions. The first is referred to as the “Medicare/SSI” DPP fraction, which is not relevant here, id. § 1395ww(d)(5)(F)(vi)(I), and the second is the Medicaid DPP fraction. Id. § 1395ww(d)(5)(F)(vi)(II). The latter is so called because it calculates reimbursement for those who are Medicaid eligible, see Compl., ¶ 36; Def. MSJ/Opp. at 3, but whether it does in fact permit reimbursement only for Medicaid-eligible patients is the question at the heart of this suit.

As explained in more detail below, the controversy here concerns the proper calculation of Cooper’s Medicaid DPP fraction of the Medicare DSH calculation for fiscal year 2001. As of 2001, the Medicaid DPP fraction was defined as follows:

the 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 plan approved under subchapter XIX of this chapter, but who were not entitled to benefits under [Medicare] part A of this subchapter, and the denominator of which is the total number of the hospital’s patient days for such period.

42 U.S.C. § 1395ww(d)(5)(F)(vi)(II) (emphasis added). To pierce through the legalese, the reason this fraction is known as the Medicaid fraction is because “subchapter XIX” is the Medicaid statute, and so a “State plan approved under” it refers to a Medicaid state plan. Id. §§ 1396 et seq. In plain English, then, the Medicaid DPP fraction is the percentage of all hospital patients who are eligible for medical assistance under a Medicaid state plan but not eligible for Medicare Part A. Or, expressed in mathematical terms:

Total Days Treating patients eligible for medical assistance under a medivaid state plan but not eligible for Medicare part A

All Patient days.

Medicare DSH thus provides supplemental reimbursement for treatment of patients who were eligible for either Medicare/SSI (“Medicare DPP”) or Medicaid (“Medicaid DPP”), as both populations tend to have disproportionately higher medical-treatment costs. The greater the number of patient days included in this fraction, then, the higher the reimbursement rate for the hospital from HHS. Confusingly, while this dispute concerns the Medicare DSH adjustment, because that adjustment depends in part on how the Medicaid DPP defines Medicaid eligibility, the crux of the statutory interpretation dispute turns primarily on the Secretary’s reading of the Medicaid statute. The Court will thus take a short detour through that legislation.

2. Medicaid DPP Fraction

In contrast to Medicare, which is administered by HHS and provides medical insurance on the basis of age and disability, “Medicaid is a cooperative federal-state program that provides medical assistance to certain limited categories of low-income persons and other individuals who face serious financial burdens in paying for needed medical care.” Def. MSJ/Opp. at 4; see generally 42 U.S.C. §§ 1396 et seq. To be eligible for Medicaid funding, states submit a medical assistance plan (known as a “State plan”) to the Secretary; each plan must meet certain requirements related to the medical coverage of low-income patients, see 42 U.S.C. § 1396a(a), such as the categories of individuals eligible for assistance and the kinds of medical care and services that can be provided. See Def. MSJ/Opp. at 4. Once the Secretary approves a Medicaid State plan, the state receives matching payments from the federal government in a “percentage . . . of the total amount expended . . . as medical assistance under the State plan.” 42 U.S.C. § 1396b(a)(1). In 2001, then, Cooper’s Medicare DSH adjustment depended in part on what portion of its patients were considered eligible for medical assistance under New Jersey’s Medicaid State plan.

3. New Jersey Charity Care Program

Because Plaintiff’s objection is based on the Secretary’s refusal to include its NJCCP patient days as part of its Medicare DSH calculation, the basic provisions of the NJCCP are also important to understand. That program covers “some or all of the costs for uninsured hospital patients who are ‘ineligible for private or governmental sponsored coverage (such as Medicaid).’” Cooper Univ. Hosp. v. Sebelius, 686 F.Supp.2d 483, 487 (D.N.J. 2009) (quoting N.J. Hospital Care Payment Assistance Fact Sheet at 1)); see also (Joint Appendix (JA) 151). While such charity-care patients are not eligible for Medicaid and Medicaid makes no direct payments to hospitals that provide them with medical services, see Def. MSJ/Opp. at 7, such patients are counted for the purposes of determining a hospital’s Medicaid DSH adjustment. See 42 U.S.C. § 1396r-4(b)(1)(B). That Medicaid DSH calculation is not in dispute here, but Plaintiff erroneously pointed to it in support of its legal position during the administrative hearing. See Compl., ¶ 52; Pl. MSJ at 6, 12-13. As a reminder, the calculation that is in dispute is Cooper’s Medicare DSH adjustment, and Plaintiff seeks to have its patients who are provided with medical services under the NJCCP included in the Medicaid DPP Fraction of that Medicare DSH adjustment. See Def. MSJ/Opp. at 7.

B. Cooper’s Medicare Reimbursement Challenge

Cooper’s specific challenge here relates to the denial of its reimbursement for NJCCP patient days under the Medicare DSH adjustment. Complicating matters still further, Medicare payments to hospitals are not made directly from HHS, but are instead processed by entities that are known as fiscal intermediaries - typically, private health-insurance companies that contract with HHS. See Pl. MSJ at 3 n. 3; Def. MSJ/Opp. at 8. When Cooper submitted its Medicare DSH calculation to its intermediary for the fiscal year ending December 31, 2001, it included among total reimbursable patient days 5, 559 inpatient days attributable to NJCCP patients. See Pl. MSJ at 3. The fiscal intermediary disallowed all of those patient days, reducing the hospital’s annual Medicare reimbursement by $1, 431, 228. Id.; Provider Reimbursement Review Board Decision (Sept. 23, 2014) at 4 (JA 8). Plaintiff filed a timely appeal with the relevant administrative agency, the Provider Reimbursement Review Board (PRRB), on January 14, 2005, challenging the fiscal intermediary’s disallowance. See Pl. MSJ at 3-4; PRRB Decision at 4 (JA 8). For reasons unexplained by either party, but of no particular moment, nearly a decade passed before that appeal was heard. A hearing was ultimately held on June 19, 2014, and in a decision dated September 23, 2014, the PRRB upheld the disallowance. See PRRB Decision (JA 5-17). A month later, on October 30, 2014, the Administrator for the Centers for Medicare & Medicaid services (CMS), a sub-unit of HHS, notified Cooper that it had declined to review the PRRB’s decision. See CMS Letter (Oct. 9, 2014) (JA 3-4). Plaintiff then timely filed this suit pursuant to 42 U.S.C. § 1395oo(f)(1) and has now moved for summary judgment on the administrative record. See Pl. MSJ at 5. Defendant has filed a cross-motion, arguing that the Court should sustain the Secretary’s decision as rational. See Def. MSJ/Opp. at 2.

Cooper sets out two causes of action in its Complaint. In Count I, it claims that the Secretary’s decision to deny reimbursement must be set aside as arbitrary and capricious because it is inconsistent with her prior and subsequent interpretations of the Medicare DSH statute. See Compl., ¶ 66. Plaintiff also argues in this count that the Secretary’s disparate treatment of § 1115 expansion-waiver hospitals (explained below) is arbitrary and capricious, insofar as she permits those hospitals’ low-income patient days to be included in Medicare DSH calculations even where such patients are not eligible for traditional Medicaid benefits. Id., ¶ 68. Cooper’s Count II alleges that this same disparate treatment is also a violation of the Equal Protection Clause of the Fourteenth Amendment. Id., ¶¶ 77-83. Because the only defendant in the suit is the Secretary - serving in her capacity as the head of a federal agency - the Court will assume that Plaintiff means to plead a violation of the equal-protection guarantee implied in the Due Process Clause of the Fifth Amendment, which, unlike the Fourteenth Amendment, applies to the federal government. See Bolling v. Sharpe, 347 U.S. 497, 499-500 (1955); see also Buckley v. Valeo, 424 U.S. 1, 93 (1976) (“Equal protection analysis in the Fifth Amendment area is the same as that under the Fourteenth Amendment.”).

II. Legal Standard

Both parties here have moved for summary judgment on the administrative record. See Pl. MSJ at 5; Def. MSJ at 10. The summary-judgment standard set forth in Federal Rule of Civil Procedure 56(c), therefore, does not apply because of the limited role of a court in reviewing the administrative record. See Sierra Club v. Mainella, 459 F.Supp.2d 76, 89-90 (D.D.C. 2006); see also Bloch v. Powell, 227 F.Supp.2d 25, 30 (D.D.C. 2002), aff’d, 348 F.3d 1060 (D.C. Cir. 2003). “[T]he function of the district court is to determine whether or not as a matter of law the evidence in the administrative record permitted the agency to make the decision it did.” Sierra Club, 459 F.Supp. 2d. at 90 (quotation marks and citation omitted). “Summary judgment is the proper mechanism for deciding, as a matter of law, whether an agency action is supported by the administrative record and consistent with the APA standard of review.” Loma Linda Univ. Med. Ctr. v. Sebelius, 684 F.Supp.2d 42, 52 (D.D.C. 2010) (citation omitted), aff’d, 408 Fed. App’x 383 (D.C. Cir. 2010).

Judicial review of the Secretary’s decision in this case is governed by the Medicare statute, 42 U.S.C. § 1395oo(f)(1), which incorporates the judicial-review provisions of the APA, 5 U.S.C. § 706. The Court, accordingly, must “hold unlawful and set aside” the Secretary’s decision only if it is “unsupported by substantial evidence, ” or if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2). Under this “narrow” standard of review, “a court is not to substitute its judgment for that of the agency.” Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). Rather, the Court “will defer to the [agency’s] interpretation of what [a statute] ...


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