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Mercy Hospital, Inc. v. Burwell

United States District Court, District of Columbia

July 25, 2016

MERCY HOSPITAL, INC. Plaintiff,
v.
SYLVIA M. BURWELL, Secretary, United States Department of Health and Human Services, Defendant.

          MEMORANDUM OPINION

          JOHN D. BATES UNITED STATES DISTRICT JUDGE

         Plaintiff Mercy Hospital operates an inpatient rehabilitation facility that is eligible for reimbursement under Medicare. The Hospital believed that the Medicare contractor responsible for determining the reimbursement amounts applied the wrong formula for the years 2002, 2003, and 2004, so it filed an administrative appeal. The Provider Reimbursement Review Board agreed with the Hospital. But the Administrator of the Centers for Medicare and Medicaid Services reversed the Board’s decision, concluding that a statutory provision precluded administrative or judicial review of the contractor’s reimbursement determination. The Hospital now seeks judicial review of that decision. The Hospital argues that the Administrator has read the statutory provision too broadly, and that the type of error alleged here is not shielded from review. The Court concludes, however, that the plain language of the statute precludes review of the contractor’s determination. The case will therefore be dismissed.

         BACKGROUND

         Under Medicare, inpatient rehabilitation facilities are reimbursed pursuant to a prospective payment system. In this context, “prospective” does not mean that a facility is paid in advance, but rather that its reimbursement is based on payment rates fixed in advance, and not on the facility’s actual costs. See Washington Hosp. Ctr. v. Bowen, 795 F.2d 139, 142 n.2 (D.C. Cir. 1986) (discussing the analogous prospective payment system for acute care hospitals). The statutory foundation of the prospective payment system for inpatient rehabilitation facilities is found at 42 U.S.C. § 1395ww(j). (While the Court will do its best to summarize the relevant features of § 1395ww(j), the reader will benefit from having a copy of the provision at hand.)

         Subparagraph (3)(A) instructs the Secretary of the Department of Health and Human Services (HHS) to “determine a prospective payment rate for each payment unit for which [a] rehabilitation facility is entitled to receive payment under this subchapter.” A “payment unit” refers to a discharge, § 1395ww(j)(1)(D), meaning that the Secretary must determine a rate applicable to each discharged patient. The Secretary begins by estimating “the average payment per payment unit . . . for inpatient operating and capital costs of rehabilitation facilities using the most recent data available, ” § 1395ww(j)(3)(A); in other words, she estimates the costs associated with the average inpatient rehabilitation patient. That average amount is then adjusted for five factors listed in clauses (i) through (v) of subparagraph (3)(A). First, it is increased for inflation by a factor based on price increases in a relevant market basket of goods and services. Second, it is reduced somewhat as a counterbalance or offset for additional payments made in certain unusually high-cost “outlier” cases. Third, it is adjusted to reflect variations in local labor costs (the “area wage adjustment”). Fourth, it is adjusted by a “weighting factor” that depends on the costs associated with the category of case-the “case mix group, ” in the statute’s terminology- into which the patient falls (e.g., spinal injury, stroke, amputation, etc.). Finally, it is adjusted “by such other factors as the Secretary determines are necessary to properly reflect variations in necessary costs of treatment among rehabilitation facilities.”

         Note a feature of subsection (j) that will later become important: Although the instructions to apply these five adjustments are located within paragraph (3), the details of some of the adjustments are located in other paragraphs. For example, clause (3)(A)(iv) instructs the Secretary to apply the weighting factor adjustment, but it is paragraph (2) that actually tells the Secretary to establish the case mix groups and to assign a weighting factor to each. Similarly, clause (3)(A)(iii) instructs the Secretary to apply the area wage adjustment, but the parameters of that adjustment are explained in paragraph (6). This is not true, however, of the final, “other factors” adjustment in clause (3)(A)(v). Because that clause is an authorization for the Secretary to develop other adjustments through the administrative process, there is no cross-reference to other portions of the statute.

         This case concerns one such “other factors” adjustment that the Secretary has authority to develop under clause (v): the Low-Income Percentage (LIP) adjustment. The LIP adjustment is designed to increase the payment rate at facilities that serve a significant number of low-income patients, “because as a facility’s percentage of low-income patients increases, there is an incremental increase in a facility’s costs.” Medicare Program; Prospective Payment System for Inpatient Rehabilitation Facilities, 66 Fed. Reg. 41, 316, 41, 360 (Aug. 7, 2001) (promulgating the LIP adjustment). For present purposes, the formula by which a facility’s LIP adjustment is calculated need not be explained in full; it is enough to know that it depends in part on determining the number of the facility’s patients who were eligible for Medicaid but not entitled to benefits under Part A of Medicare. See id. (incorporating the “DSH” measure into the LIP adjustment); Ne. Hosp. Corp. v. Sebelius, 657 F.3d 1, 3, 5 (D.C. Cir. 2011) (explaining the “DSH” measure in detail).

         The determination of the prospective payment rates (including LIP adjustment) that a provider will receive for each of its discharged patients is performed by a contractor serving as the Secretary’s agent. The contractor makes this determination and issues a notice of total program reimbursement after receiving detailed cost reports and patient information from the provider. See 42 C.F.R. § 405.1803; id. § 412.604(g). As a general matter, if a Medicare provider is dissatisfied with a contractor’s final determination of the reimbursement due for a given fiscal year, the provider may appeal to an administrative tribunal called the Provider Reimbursement Review Board. 42 U.S.C. § 1395oo(a)(1)(A)(i). The Board’s decision is final unless the Secretary-acting through the Administrator of the Centers for Medicare and Medicaid Services (CMS)-reverses, affirms, or modifies the Board’s decision. § 1395oo(f)(1). A provider generally has “the right to obtain judicial review of any final decision of the Board, or of any reversal, affirmance, or modification by the Secretary” by filing suit within 60 days. Id.

         Plaintiff Mercy Hospital operates an inpatient rehabilitation facility eligible for reimbursement under Medicare. The Hospital was dissatisfied with the notices of reimbursement it received from its Medicare contractor for fiscal years 2002, 2003, and 2004. In particular, the Hospital believed that the contractor had improperly determined its LIP adjustment by taking an erroneous view of which of its patients were entitled to benefits under Part A of Medicare. The Hospital accordingly appealed to the Provider Reimbursement Review Board. After concluding that it had authority to hear the appeal, the Board sided with the Hospital. Mercy Hosp. v. First Coast Serv. Options, Inc., PRRB Dec. No. 2015-D7, 2015 WL 10381780 (Apr. 3, 2015). The Board agreed with the Hospital that Northeast Hospital Corp. v. Sebelius, 657 F.3d 1-which addressed a closely related adjustment applied to acute care hospitals-mandated the Hospital’s interpretation of the LIP adjustment.

         The Administrator of CMS vacated the Board’s decision. Mercy Hosp. v. First Coast Serv. Options, Inc., Review of PRRB Dec. No. 2015-D7, 2015 WL 3760091 (June 1, 2015). The Administrator concluded that the Board had lacked authority to hear the Hospital’s appeal in light of 42 U.S.C. § 1395ww(j)(8). Entitled “Limitation on review, ” paragraph (8) provides in full:

There shall be no administrative or judicial review under section 1395ff of this title, 1395oo of this title, or otherwise of the establishment of-
(A) case mix groups, of the methodology for the classification of patients within such groups, and of the appropriate weighting factors thereof under paragraph (2),
(B) the prospective payment rates under paragraph (3),
(C) outlier and special payments under paragraph ...

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