United States District Court, District of Columbia
BAPTIST MEDICAL CENTER et al. Plaintiffs,
SYLVIA M. BURWELL, in her official capacity as Secretary of Health and Human Services Defendant.
MEMORANDUM OPINION AND ORDER
G. Sullivan United States District Judge
before the Court are the parties' objections to
Magistrate Judge G. Michael Harvey's Report and
Recommendation (“R&R”), which recommends that
the Court grant in part and deny in part plaintiffs'
motion for summary judgment, deny defendant's motion for
summary judgment, and remand the matter to the agency for
further proceedings. See R&R, ECF No. 64. Upon
consideration of the R&R, plaintiffs' objections,
defendant's response to those objections, and the
relevant law, the Court adopts Magistrate Judge Harvey's
R&R and GRANTS IN PART and
DENIES IN PART plaintiffs' motion for
summary judgment, DENIES defendant's
motion for summary judgment, and REMANDS
this matter to the agency.
Court will not restate the full factual background of this
case, which is set forth in the Report and Recommendation.
See R&R, ECF No. 64 at 3-8. By way of general
overview, this case concerns the administration of Medicare,
the federal program that provides health insurance to the
elderly and disabled. See 42 U.S.C. §§
1395-1395cc; see also Northeast Hosp. Corp. v.
Sebelius, 657 F.3d 1, 2 (D.C. Cir. 2011)(explaining
Medicare statutory provisions). The Centers for Medicare and
Medicaid Services (“CMS”) is charged with
administering the Medicare program. The Medicare statute is
divided into five parts; three of which are relevant to this
case. see id.
first relevant part is Medicare Part A which covers medical
services provided by hospitals and other institutional
providers. See 42 U.S.C. § 1395c. Under Part A,
providers are paid directly by the Secretary of Health and
Human services for the services they provide. See
Id. §§ 1395f(a)-(b), 1395x(u). This payment
arrangement is commonly known as the fee-for-service system.
Northeast Hosp., 657 F.3d at 2 (referring to the
“traditional Part A fee-for-service system.”).
the last forty years, Congress has provided an alternative to
the fee-for-service arrangement under Part A through
different arrangements. Medicare Part C, the second relevant
part, is an alternative to the fee-for-service system that
allows an individual to choose to enroll with a Health
Maintenance Organization (“HMO”), preferred
organization, or other private managed care plan after
1999. See Balanced Budget Act of 1997
(BBA), Pub. L. No. 105-33, §4001, 111 Stat. 251, 270
(codified at 42 U.S.C. § 1395w-21). If a person chooses
to enroll in Part C, the Secretary makes payments to the
managed care plan, rather than directly to the provider.
Id. § 1395w- 21(i)(1).
1972 through the end of 1998, as an alternative to the
traditional fee-for-service system, Medicare beneficiaries
instead could enroll with a managed care organization, such
as an HMO, which entered into a payment contract with
Medicare. See Section 1876 of the Social Security
Act; 42 U.S.C. § 1395mm (“HMO
statute”). Similar to present-day Medicare Part C, if
a person chose to enroll in an HMO the Secretary made
payments to the managed care plan, rather than to the
provider. The fiscal periods at issue in this case are
1993-1998, i.e., prior to 1999, and therefore are
governed by the HMO statute.
Part E sets out various “Miscellaneous
Provisions.” Relevant to this case, Part E sets out a
Prospective Payment System (“PPS”) for
reimbursing inpatient hospital services based on
“prospectively determined national and regional rates
rather than on the actual amount the hospital spends.”
Northeast Hosp., 657 F.3d at 3 (citing 42 U.S.C.
§ 1395ww(d)(1)-(4)). Providers are also entitled to
payment adjustments based on certain factors. At issue in
this case is the disproportionate share hospital
(“DSH”) payment adjustment, which provides that
the Secretary pays more for services provided by hospitals
that “serve a significantly disproportionate number
of low-income patients.” Id. (citing 42 U.S.C.
§ 1395ww(d)(5)(F)(i)(I)). “Congress assumes that
such patients cost more to treat than the average Medicare
patients, so these hospitals are entitled to supplemental
payments.” Allina Health Services v. Sebelius,
746 F.3d 1102, 1105 (D.C. Cir. 2014).
a hospital qualifies for a Medicare DSH adjustment, and the
amount of that adjustment, depends on the hospital's
“disproportionate patient percentage
[‘DPP'].” 42 U.S.C. §
1395ww(d)(5)(F)(v)-(vii). This percentage is a “proxy
measure” for the number of low-income patients a
hospital serves. H.R. Rep. No. 99-241, pt. 1, at 17 (1985).
The DPP is defined as the sum of two fractions expressed as
percentages. See 42 U.S.C. §
1395ww(d)(5)(F)(vi). Those fractions are referred to as the
“Medicare” fraction and the
“Medicaid” fraction. Id. §
1395ww(d)(5)(F)(vi)(I) & (II); see also 42
C.F.R.§ 412.106(b)(2). Both of these fractions require
consideration of whether a patient was “entitled to
benefits under Part A.” See 42 U.S.C. §
first fraction, the Medicare fraction, is the percentage of
Medicare patients who are entitled to supplemental security
insurance. The numerator of this fraction is the sum of the
hospital's patient days for patients who were
“entitled to benefits under Part A . . . and were
entitled to supplementary [social security insurance].”
Id. § 1395ww(d)(5)(F)(vi)(I). The denominator
of the fraction is the total number of “hospital's
patient days for such fiscal year which were made up of
patients who (for such days) were entitled to benefits under
[Medicare] Part A.” Id.
second fraction, the Medicaid fraction, is comprised of the
number of Medicaid patients not entitled to Medicare. The
numerator of the fraction 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.”
Id. § 1395ww(d)(5)(F)(vi)(II). The denominator
is the total number of patient days, regardless of whether
the patients were eligible for assistance through a federal
“fiscal intermediary, ” typically a private
insurance company acting as the Secretary's agent,
calculates DSH adjustments. See 42 C.F.R.
§§ 421.1, 421.3, 421.100-.128. If a hospital
disagrees with the intermediary's determination, it may
appeal to the Provider Reimbursement Review Board
(“PRRB” or “Board”), an
administrative body appointed by the Secretary. See
42 U.S.C. § 1395oo(a), (h). The PRRB may affirm, modify,
or reverse the fiscal intermediary's award. See
Id. § 1395oo(d). The Board's decision is the
final agency action unless the Secretary affirms, modifies,
or reverses the Board's decision within 60 days after the
provider is notified of the decision. Id. §
1395oo(f)(1). A provider has a statutory right to seek
judicial review of the agency's final decision in federal
district court. Id.
are several hospitals that offered inpatient services for
individuals whose care was paid for by HMOs. See
Compl., ECF No. 1 ¶¶ 5-6. The hospitals serve
several elderly, low-income patients and are therefore
entitled to supplemental payments, an amount determined by
the disproportionate share percentage. See Id. For
fiscal years, 1995-1998, the Intermediary concluded HMO
patient days should not be in the numerator of the Medicaid
fraction. QRS 1995-1998 DSH Medicare HMO Days
Grps. v. BlueCross BlueShield Ass'n, PRRB Dec. No.
2011-D20, 2011 WL 1231544, at *4 (Mar. 16, 2011). Plaintiffs
appealed this decision to the PRRB, arguing that the patient
days should be included in the Medicaid fraction because the
HMO patients are not entitled to benefits under Part A.
Id. This distinction matters because, if Part C
beneficiaries are “included in the Medicaid fraction
rather than the Medicare fraction, the hospitals receive a
great deal more compensation.” Allina, 746
F.3d at 1105.
PRRB disagreed with plaintiffs and found that the
“Intermediary properly excluded Medicare HMO days from
the Medicaid fraction. QRS 1995-1998 DSH Medicare HMO
Days Grps., 2011 WL 1231544, at *6. The Board reasoned
that the HMO statute required HMO patients to be excluded
from the Medicaid fraction because payments to HMOs are made
from the Federal Hospital Insurance Trust Fund established by
Part A. Id. at 5-6. The Board's explanation was
The Federal Hospital Insurance Trust Fund was established
under Part A of the Medicare Act to fund the services
provided under Part A. 42 U.S.C. §§1395i(a) and
(h). Consequently, prior to the change in the Medicare Act
which created Part C, HMO inpatient hospital services were
paid pursuant to Part A of Medicare.
In Jewish Hospital, Inc. v. Secretary of Health and Human
Services, 19 F.3d 270, 274- 75 (6th Cir. 1994), the term
“entitled” as it is used in the definition of the
Medicare fraction at 42 U.S.C. §1395ww(d)(5)(F), was
defined as follows:
“[t]o be entitled to some benefit means that one
possesses the right or title to
that benefit. Thus the Medicare proxy
fixes the calculation upon the
absolute right to receive an independent and readily defined
payment.” The explicit language of the DSH statute
limits inclusion in the Medicaid fraction to those
individuals or beneficiaries “eligible for medical
assistance under state plan approved under XIX” and
“not entitled to benefits under Part
A.” 42 C.F.R.
§412.106(b)(4)(emphasis added). In that services to
Medicare beneficiaries enrolled in an HMO were paid under
Part A during the fiscal periods prior to the effective date
of Part C, the DSH statute requires those days be
excluded from the Medicaid
Id. at *5-6 (emphasis in original). Therefore, the
Board found that “the Intermediary properly excluded
Medicare HMO days from the Medicaid fraction.”
Id. at 6.
Board also made a finding that the Secretary's policy
during 1995-1998, the years at issue in this case, was to
include the HMO patient days in the Medicare, but not the
Medicaid fraction. Id. at *4. This finding was based
on CMS's response to a comment ...