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Allina Health Services v. Price

United States District Court, District of Columbia

August 4, 2017

ALLINA HEALTH SERVICES, et ah, Plaintiffs,
v.
THOMAS E. PRICE, [1] Secretary, U.S. Department of Health and Human Services Defendant. Re Document No. 9

          MEMORANDUM OPINION

          RUDOLPH CONTRERAS UNITED STATES DISTRICT JUDGE

         Denying Defendant's Motion to Dismiss

         I. INTRODUCTION

         Medicare, the federal, single-payer program that pays for health coverage for most Americans aged 65 and older, is governed by an incredibly complex scheme of statutory provisions and regulations. This lawsuit joins a long line of cases related to one provision-the reimbursement formula for certain hospitals serving low-income patients.

         Plaintiffs are more than two dozen[2] hospitals (the "Hospitals") that serve "a significantly disproportionate number of low-income patients" without private health insurance. 42 U.S.C. § 1395ww(d)(5)(F)(i)(I). Medicare provides these "disproportionate share hospitals" ("DSH") additional funding to help cover the costs of providing care to low-income patients. The Hospitals bring this lawsuit against the Secretary of Health and Human Services ("HHS") Thomas Price to challenge the calculation of those payments.

         The Secretary moves to dismiss the Hospitals' suit. The Secretary's motion raises a threshold question and argues that the Hospitals cannot challenge one portion of the Secretary's decision on remand because the Hospitals failed to raise that claim in previous litigation. For the following reasons, the Secretary's motion is denied.

         II. BACKGROUND

         The Secretary's calculation of DSH payments has been entangled in extensive litigation. The D.C. Circuit has set forth the relevant backdrop in "numbing detail." Ne. Hosp. Corp. v. Sebelius 657 F.3d 1, 18 (D.C. Cir. 2011) (Kavanaugh, J., concurring). The district court's opinion in Allina I, a direct predecessor to this lawsuit, provides extensive detail on the facts originally giving rise to this matter before it was remanded to the agency. See Allina Health Servs. v. Sebelius, 904 F.Supp.2d 75, 79-84 (D.D.C. 2012), affdinpart, rev'dinpart, 746 F.3d 1102 (D.C. Cir. 2014). For the purposes of this case, the Court will begin by providing an overview of the relevant statutory and regulatory background. The Court will then turn to the procedural history of this litigation, the Hospitals' allegations in this action, and the pending motion to dismiss.

         A. Statutory and Regulatory Background

         1. General Medicare Provisions

         Medicare is a federal program that provides health insurance for the elderly and certain disabled people. See Catholic Health Initiatives Iowa Corp. v. Sebelius, 718 F.3d 914, 915-16 (D.C. Cir. 2013). Secretary Price administers the Medicare program through the Centers for Medicare & Medicaid Services ("CMS"), which is an agency within HHS. The Medicare statute has five parts, see Id. at 916, not all of which are relevant to this case.

         Medicare Part A establishes the criteria for individuals to be eligible for Medicare benefits and provides those people with insurance for hospital and hospital-related services. See 42 U.S.C. § 1395c. These benefits include coverage for "inpatient hospital services, " id. § 1395d(a)(1), which "generally refers to overnight stays in a hospital, " Catholic Health, 718 F.3d at 916. Under Part A, Medicare payments for covered services are made directly to "provider[s] of services, " such as hospitals. 42 U.S.C. §§ 1395f(a)-(b), 1395x(u).

         Medicare Part B is an optional program that allows individuals covered by Part A (and some other individuals) to purchase supplementary insurance by paying monthly premiums. See 42 U.S.C. §§ 1395r-1395t. Part B makes payments on behalf of participants for additional medical items and services, such as outpatient treatment, clinical laboratory tests, medical equipment, and other services not covered by Part A. See 42 U.S.C. §§ 1395j-1395w-4.

         Medicare Part C is an alternative, managed care program. See 42 U.S.C. § 1395w-21(a)(1). Part C (which was also known as Medicare Choice and is now also referred to as Medicare Advantage) is available to individuals who are "entitled to benefits under part A . . . and enrolled under part B." 42 U.S.C. § 1395w-21(a)(3). Instead of making direct payments to hospitals, Medicare pays the Part C plan a pre-determined per-patient rate from the Part A and Part B trust funds. See 42 U.S.C. §§ 1395w-23(f), 1395w-21(i)(1).

         2. The Disproportionate Share Hospital Adjustment

         Among many other provisions, Medicare Part E sets forth a prospective payment system for reimbursing hospitals that provide inpatient hospital services covered under Part A. See 42 U.S.C. § 1395ww(d). Under this system, Medicare reimburses hospitals for services based on prospectively determined national and regional rates instead of reimbursing the hospitals' actual costs. See 42 U.S.C. § 1395ww(d)(1)-(4). The prospective payment system also adjusts payments to hospitals based on various factors. Relevant to this case is the "disproportionate share hospital" ("DSH") adjustment, which requires Medicare to pay more for services provided by hospitals that "serve[ ] a significantly disproportionate number of low-income patients." 42 U.S.C. § 1395ww(d)(5)(F)(i)(I). The calculation of the DSH adjustment, in turn, depends on a hospital's "disproportionate patient percentage." 42 U.S.C. § 1395ww(d)(5)(F)(v)-(vii). This percentage is a "proxy measure" for the number of low-income patients served by a hospital, see H.R. Rep. No. 99-241, pt. 1, at 17 (1985), and reflects "Congress's judgment that low-income patients are often in poorer health, and therefore costlier for hospitals to treat, " Catholic Health, 718 F.3d at 916 (citing Adena Reg'l Med. Ctr. v. Leavitt, 527 F.3d 176, 177-78 (D.C. Cir. 2008)).

         The disproportionate patient percentage is not a straightforward percentage of low-income patients served by the hospital. Instead, the percentage is created by combining two complex fractions, the SSI/Medicare fraction[3] and the Medicaid fraction. The statute defines the SSI/Medicare fraction as:

[T]he 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 [Medicare] and were entitled to supplementary security income [SSI] benefits . . ., 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 [Medicare] ....

42 U.S.C. § 1395ww(d)(5)(F)(vi)(I). The Medicaid fraction is defined as:

[T]he 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 part A of [Medicare], 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).

         The D.C. Circuit has described this language as "byzantine" and noted that its meaning is "not easily discernible." Catholic Health, 718 F.3d at 916. Put as simply as possible, the two fractions stand for two different markers of low income-SSI and Medicaid-that, taken together, roughly represent the low-income population served by a hospital. In other words, the SSI/Medicare fraction "effectively asks, out of all patient days from Medicare beneficiaries, what percentage of those days came from Medicare beneficiaries who also received SSI benefits?" Id. at 917 (emphasis in original). At the same time, the Medicaid fraction "asks, out of all patient days in total, what percentage of those days came from patients who received benefits under Medicaid, but not under Medicare?" Id. at 917 (emphasis in original). A visual representation is helpful to understanding the relationship between the two fractions:[4]

SSI/Medicare

Fraction Medicaid Fraction

Numerator

Patient days for patients “entitled to benefits under part A” and “entitled to SSI benefits”

Patient days for patients “eligible for [Medicaid]” but not “entitled to benefits under part A”

Denominator

Patient days for patients “entitled to benefits under part A”

Total number of patient days

         The SSI/Medicare fraction is calculated annually by CMS. See 42 C.F.R. § 412.106(b)(2). The Medicaid fraction, however, is calculated by agency contractors using data from hospital cost reports. See 42 C.F.R. § 412.106(b)(4). After a hospital files a cost report, the contractor issues a final determination as to the amount of Medicare payment due the hospital, and that determination is called a Notice of Program Reimbursement ("NPR"). See 42 C.F.R. § 405.1803(a). Among other things, the NPR takes into account both the Medicaid Fraction that the contractor calculates and publishes and the SSI/Medicare Fraction previously published by CMS for the relevant reporting year. See 42 C.F.R. § 412.106(b)(5).

         3. The 2004 Rulemaking

         A central question in this case, and in a range of other lawsuits, is whether enrollees in Medicare Part C are "entitled to benefits" under Part A, such that they should be included in the SSI/Medicare fraction, or if they are not, whether they should therefore be included in the Medicaid fraction. Before 2003, the Secretary treated individuals covered by Part C as not entitled to benefits under Part A. See Allina I , 746 F.3d at 1106 (citing Ne. Hosp. Corp., 657 F.3d at 16-17).

         Considerable confusion surrounded this treatment, and the Secretary issued a notice of proposed rulemaking in 2003. See Medicare Program, Proposed Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2004 Rates, 68 Fed. Reg. 27, 154 (May 19, 2003). The notice stated that the agency "propos[ed] to clarify that once a beneficiary elects Medicare Part C, those patient days attributable to the beneficiary should not be included in the [SSI/Medicare] fraction of the DSH patient percentage. These patient days should be included in the count of total patient days in the Medicaid fraction." Id. at 27, 208. The following year, the Secretary announced a final rule adopting the opposite interpretation, stating that the agency was "not adopting . . . our proposal... to include the days associated with [Part C] beneficiaries in the Medicaid fraction." Medicare Program: Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2005 Rates, 69 Fed. Reg. 48, 916, 49, 099 (Aug. 11, 2004). Instead, the agency explained that it was "adopting a policy to include the patient days for [Part C] beneficiaries in the Medicare fraction." Id. Despite the promulgation of the rule in 2004, "the Code of Federal Regulations was never actually amended, so in 2007 the Secretary issued a 'technical correction, ' conforming the language of the C.F.R. to the 2004 rule." Allina I , 746 F.3d at 1106 n.3; see also Medicare Program; Changes to the Hospital Inpatient Prospective Payment System and Fiscal Year 2008 Rates, 72 Fed. Reg. 47, 130, 47, 384 (Aug. 22, 2007).

         B. The Allina I Litigation[5]

         The Hospitals then filed an administrative appeal to challenge the 2004 rule. See Allina I, 904 F.Supp.2d at 83, aff'd in part, rev 'd in part,746 F.3d 1102 (D.C. Cir. 2014). The Provider Reimbursement Review Board ("PRRB") heard the appeal, denied relief, and granted expedited judicial review. Id. The Hospitals sought-and the PRRB granted-expedited judicial review on the question of "[w]hether the Secretary unlawfully treats Medicare Advantage Days, which are paid under Medicare Part C, as days for which patients are entitled to benefits under Medicare Part A for purposes of calculating the Medicare DSH adjustment." See Defi's Mot Dismiss, Ex. ...


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