Baptist Medical Center v. Burwell

          MEMORANDUM OPINION AND ORDER

          Emmet G. Sullivan United States District Judge

         Pending 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.

         I. Background

         The 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.^[1] 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.

         The 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.”).

         Over 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.^[2] 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).

         From 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”).^[3] 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.

         Medicare 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).

         Whether 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. § 1395ww(d)(5)(F)(vi)(I).

         The 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.

         The 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 program. Id.

         A “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.

         Plaintiffs 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.

         The 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 as follows:

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 percentage.

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.

         The 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 ...