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Allina Health Services v. Burwell

United States District Court, District of Columbia

August 17, 2016

ALLINA HEALTH SERVICES, et al. Plaintiffs,
v.
SYLVIA M. BURWELL, Secretary United States Department of Health and Human Services, Defendant.

          MEMORANDUM OPINION

          GLADYS KESSLER UNITED STATES DISTRICT JUDGE.

         Plaintiffs Allina Health Services, et al. ("Plaintiffs") are nine hospitals that bring this action against Sylvia M. Burwell, in her official capacity as Secretary of the United States Department of Health and Human Services ("Secretary" or "Defendant"). They challenge the calculation of certain disproportionate share hospital payments as procedurally and substantively invalid.

         This matter is before the Court on the Plaintiff s Motion for Summary Judgment [Dkt. No. 8] and Defendant's Cross-Motion for Summary Judgment [Dkt. No. 28]. Upon consideration of the Motions, Oppositions, Replies, the entire record herein, and for the reasons set forth below, Plaintiffs' Motion shall be denied and Defendant's Motion shall be granted.

         I. Background

         A. The Medicare DSH Payment System

         The Medicare program was established in 1965 and provides health care coverage for persons age 65 and older, disabled persons, and persons with end stage renal disease who meet certain eligibility requirements. See 42 U.S.C. § 426, 426a. The Secretary administers the program through the Centers for Medicare & Medicaid Services (CMS), an agency with the United States Department of Health and Human Services. Def.'s Mot. at 4.

         Medicare pays benefits through different plans, three of which are relevant here. "Plan A covers medical services furnished by hospitals and other institutional care providers." Ne. Hosp. Corp. v. Sebelius, 657 F.3d 1, 2 (D.C.Cir.2011); 42 U.S.C. §§ 1395c to 1395i-5. "Part B is an optional supplemental insurance program that pays for medical items and services not covered by Part A, including outpatient physician services, clinical laboratory tests, and durable medical equipment." Ne. Hosp., 657 F.3d at 2; 42 U.S.C. §§ 1395J to 1395w-4. "Part C governs the 'Medicare Choice' (M) program, which gives Medicare beneficiaries an alternative to the traditional Part A fe-e-for-service system, " allowing enrollment in a managed care plan. Ne. Hosp., 657 F.3d at 2; see 42 U.S.C. §§ 1395w-21 to 1395w-2 9. The Secretary pays the health care provider directly under Parts A and B, but pays the managed-care plan under Part C, which in. turn pays the provider.

         Hospitals that serve a significantly disproportionate share of low-income patients without private health insurance are paid "additional monies [by Medicare], on top of Medicare's normal fees-for-service, to help cover the costs associated with the care of the very poor." Allina Health Servs. v. Sebelius, 904 F.Supp.2d 75, 77 (D.D.C. 2012) ("Allina I"); see also 42 U.S.C. § 1395ww(d)(5)(F); 42 C.F.R. § 412.106.

         The disproportionate share hospital ("DSH") adjustment is based on a "disproportionate patient percentage" for each hospital, which is determined by a complicated statutory formula. See 42 U.S.C. §§ 1395ww(d)(5)(F)(iv) and (vii)-(xiii); 42 C.F.R. § 412.106(d). The disproportionate patient percentage is the sum of two fractions, 42 U.S.C. § 1395ww (d) (5) (F) (vi), which are commonly known as the "Medicaid fraction" and the "Medicare fraction" (sometimes also referred to as the "SSI fraction").

         The Medicare fraction is defined as:

the fraction (expressed as a percentage), the numerator of which is the number of such hospital's patient days for such period which were made up of patients who (for such days) were entitled to benefits under part A of [Title XVIII] and were entitled to supplemental security income benefits (excluding any State supplementation) under [Title] XVI of this chapter, and the denominator of which is the number of such hospital's patient days for such fiscal year which were made up of patients who (for such days) were entitled to benefits under part A of [Title XVIII]...

42 U.S.C. § 1395ww(d)(5)(F)(vi)(I) (emphasis added). In layman's terms, the top of the Medicare fraction is based on the number of a hospital's patient days for individuals entitled to both Medicare Part A and SSI benefits, and the bottom of the fraction is based on the number of patient days for all patients under Part A. As discussed later, the phrase "entitled to benefits under part A" is key to the present dispute.

         The Medicaid fraction is defined as:

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 [Medicaid] plan . . . but who were not entitled to benefits under [Medicare] Part A ... 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). In layman's terms, the top of the Medicaid fraction is based on the number of a hospital's patient days for individuals who are eligible for Medicaid, but who are not entitled to benefits under Medicare Part A, and the bottom is the total number of all patient days for the hospital. For a visual representation of the fractions, see Ne. Hosp., 657 F.3d 1, 3.

         M (also referred to as Part C) was established by Congress in 1997 as part of the Balanced Budget Act of 1997 (BBA), Pub. L. No. 105-33 (1997). In order to enroll in M, an individual must be "entitled to benefits under part A ... and enrolled under part B." 42 U.S.C. § 1395w-21(a) (3) (A). After M was implemented, "the Secretary routinely excluded M [inpatient hospital] days from the Medicare fraction" from 1999 to 2004. Ne. Hosp., 657 F.3d at 15. That is, M patients were not counted in the numerator of the Medicare fraction as part of the patients "entitled to benefits under Part A . . . and entitled to [SSI] benefits." 42 U.S.C. § 1395ww(d) (5) (F) (vi) (I) . It was not until 2007 that the Secretary began to collect the data needed to include M days in the Medicare/SSI fraction. Id.; see Change Request 5647, CMS Pub. 100-04, Transmittal No. 1331 (July 20, 2007).

         Central to this case is whether, once enrolled in Part C, enrollees continue to be entitled to benefits under Part A. If the agency considers enrollees to be entitled to benefits under Part A, then they should be included in the Medicare fraction. If they are no longer entitled to benefits under Part A, because they are receiving benefits under Part C, then they should be excluded from the Medicare fraction. The financial impact on the hospitals of this seemingly minor detail is in the hundreds of millions of dollars. See Allina Health Servs. v. Sebelius, 746 F.3d 1102, 1105 (D.C. Cir. 2014) ("Allina I Appeal") .

         B. Factual Background

         In Allina I, a group of hospitals, including the Plaintiffs in the present case, challenged a 2004 rulemaking by the Secretary ("2004 Final Rule"). See 904 F.Supp.2d at 77. The 2004 rulemaking adopted a policy whereby Part C patients were to be considered as "entitled to benefits under part A, " and therefore counted in the numerator of the Medicare fraction. In November 2012, the Court (Collyer, J.) granted summary judgment for the plaintiffs, finding that the 2004 Final Rule was not a logical outgrowth of the proposed rule and therefore violated the procedural requirements of the Administrative Procedure Act ("APA"). See Allina I, 904 F.Supp.2d at 89-90.

         On appeal, our Court of Appeals affirmed the part of the Allina I Court's decision vacating the 2004 Final Rule. But, the Court of Appeals held that the Allina I Court erred when it directed the Secretary to calculate the DSH payments- in a particular manner, rather than simply remanding. See Allina I Appeal, 746 F.3d 1102, 1111 (D.C. Cir. 2014). On remand, the Secretary addressed the issue of the appropriate DSH calculation methodology through an adjudication. The Administrator determined that, prior to 2004, the regulation did not specify where the Part C enrollees should be counted in the DSH percentage. Allina I, Adm'r Dec. at 26 (Dec. 2, 2015) [Dkt. 28-2]. The Administrator further concluded that the better statutory interpretation is that Part C enrollees are "entitled to benefits under Part A" within the meaning of the DSH provisions, and therefore should be included in the Medicare fraction. Id. at 35-45.

         C. Procedural Background

         Shortly after our Court of Appeals' decision in Allina I, the Secretary published calculations for federal fiscal year 2012 DSH payments ("2012 DSH Calculations").[1] See 2012 Part A/SSI Fraction Data File, available at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcutelnpatlentPPS/Downloads/FY-2012-SSI-Ratios-for-web-posting.zip. Plaintiffs allege that the 2012 DSH Calculations are based on the 2004 Final Rule that was vacated. They also allege that the 2012 DSH Calculations are procedurally invalid and arbitrary and capricious. Compl. ¶¶ 4 6-52. Plaintiffs timely appealed the 2012 DSH Calculations to the Provider Reimbursement Review Board ("PRRB"), see Compl. ¶¶ 36-39, and requested that the PRRB grant expedited judicial review. Id. ¶ 41.

         The PRRB is an independent administrative tribunal that resolves disputes regarding hospital reimbursement determinations by Medicare contractors or the Centers for Medicare & Medicaid Services ("CMS"). See 42 U.S.C. § 1395oo(a). The PRRB may resolve certain payment disputes without following low-level policy guidance, see 42 C.F.R. § 405.1867; however, it is bound by agency regulation and rulings, id., and cannot decide "question[s] of law or regulations." 42 U.S.C. § 1395oo(f) (1) . Section 1395oo(f) gives providers "the right to obtain judicial review of any action . . . which involves a question of law or regulations . . . whenever the [PRRB] determines . . . that it is without the authority to decide, the question." Id.

         By letter dated August 13, 2014, the PRRB granted Plaintiffs' request for expedited judicial review, finding that "it is without the authority to decide the legal question of whether the regulation regarding the [2012 DSH Calculations] is valid and whether the Secretary's actions subsequent to the decision in Allina [I] are legal." Letter from the Provider Reimbursement Review Board to Stephanie Webster 6 (Aug. 13, 2014) [Dkt. No. 14-1] ("PRRB Decision").

         On August 19, 2014, Plaintiffs filed their Complaint, pursuant to the PRRB's grant of expedited judicial review [Dkt. No. 1]. Plaintiffs filed a Notice of Related Case on the same day [Dkt. No. 2]. Judge Collyer granted Defendant's objection to the related case designation on May 18, 2015, and the case was ...


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