United Hosp. v. Thompson

• Decision Date: 07 September 2004
• Docket Number: No. 03-3012.,03-3012.
• Citation: 383 F.3d 728
• Parties: UNITED HOSPITAL, Appellant, v. Tommy G. THOMPSON, in his official capacity as Secretary of the Department of Health and Human Services, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 728

383 F.3d 728

UNITED HOSPITAL, Appellant, v. Tommy G. THOMPSON, in his official capacity as Secretary of the Department of Health and Human Services, Appellee.

No. 03-3012.

United States Court of Appeals, Eighth Circuit.

Submitted: May 12, 2004.

Filed: September 7, 2004.

Appeal from the United States District Court for the District of Minnesota, Donovan W. Frank, J Counsel who presented argument on behalf of the appellant was Jon D. Epstein of Houston, TX. Also appearing on appellant's brief was Gregory N. Etzel on Houston. Of Counsel on appellant's brief was Elizabeth H. Schmiesing of Minneapolis, MN.

Counsel who presented argument on behalf of the appellee was Ara B. Gershengorn, USDOJ, Washington, DC. Also appearing on the appellee's brief was Scott R. McIntosh, also with the DOJ.

Before LOKEN, Chief Judge, BRIGHT, Circuit Judge, and DORR,^* District Judge.

BRIGHT, Circuit Judge.

United Hospital ("United"), a private healthcare provider in St. Paul, Minnesota, appeals from the district court's¹ summary judgment in favor of the Secretary of Health & Human Services ("the Secretary"). United seeks certain payments under the Secretary's Medicare reimbursement program for hospital expenses related to the treatment of poor and disabled patients. The district court approved the Secretary's decision not to reimburse United for the claimed expenses as not arbitrary, capricious, or contrary to law. We agree with the district court's decision against United and affirm.

I. Background

Pursuant to the Medicare (for the elderly) and Medicaid (for the poor and disabled) programs established by Congress, the Secretary reimburses hospitals for costs incurred in treating patients who qualify for insurance under these programs. Hospitals receive reimbursement for some costs on the basis of the treatment provided; for example, the hospital would receive a predetermined amount of money for every treatment it provides for a covered patient's broken arm. Hospitals also receive payment based on characteristics of the hospital, rather than the particular treatment provided. For example, since 1986, those hospitals which serve an unusually high number of Medicaid patients are entitled to a "disproportionate share hospital" ("DSH") adjustment. See 42 U.S.C. § 1395ww(d)(5)(F)(i)(I) (authorizing supplemental payments to a hospital that "serves a significantly disproportionate number of low-income patients"). The Secretary applies a statutory formula to determine how much the DSH adjustment for a particular hospital should be, based on the number of days that Medicaid patients spent in the hospital (known as "Medicaid days").

Some states, including Minnesota, provide health insurance to indigent residents who are not eligible for federally-funded Medicaid. Patients' time spent in hospitals under this type of program is known as "state-only" days, indicating that the state foots the bill by itself, apart from Medicaid. Even when a patient does receive benefits under Medicaid, the reimbursement comes to the hospital via the states, which administer the Medicaid program on behalf of the Secretary. Poor patients may have their treatment costs covered either by the state's own independent program or under Medicaid, but in either case the hospital receives payment from the state. However, only Medicaid days count toward establishing a particular hospital's DSH rate. The state's provision of benefits under its own program does not work to increase the federal government's reimbursement rate under Medicaid.

This accounting issue caused confusion for some hospitals, which were submitting all low-income-patient days for the Secretary's calculation of DSH rates, regardless of whether the reimbursement came under the state's own program or under the federally funded Medicaid program. To make clear that only Medicaid days could be counted toward the DSH rate, the Secretary, acting through the agency now known as the Centers for Medicare and Medicaid Services ("the Centers"), issued a letter to Congressional oversight officials on October 15, 1999. The letter explained that the Centers would not seek to recoup payments to hospitals already made (erroneously) for state-only days, but that in the future hospitals would have to abide by the statutory requirement that only Medicaid days count toward DSH payments.² Later, the Centers formalized this position in Program Memorandum A-99-62 ("Program Memo"), issued December 1, 1999. The Program Memo established that hospitals that had been reimbursed for state-only days prior to October 15, 1999, or that had appealed a denial of reimbursement for state-only days as of October 15, 1999, would not face recoupment action from the Secretary and further would have any money already recouped returned to the hospitals. Furthermore, the Program Memo provided that the Secretary would pay out to hospitals "that did not receive payments reflecting the erroneous inclusion of otherwise ineligible days[, if those hospitals] filed a jurisdictionally proper appeal to the [administrative appeal board] on the issue of the exclusion of these types of days from the Medicare DSH formula before October 15, 1999."

On the other hand, from January 1, 2000 forward, no state-only days accrued would count toward DSH reimbursement and hospitals raising the reimbursement issue for state-only days for the first time after the October 15 cut-off date would not prevail on that issue on appeal. In effect, the Program Memo exempts certain hospitals that misconstrued the DSH statutes and rules from the otherwise-harsh costs of their errors.

The basic structure of the Program Memo distinguished between hospitals that wrongly believed themselves eligible for reimbursement for state-only days, and hospitals that correctly realized they were not eligible but then pursued benefits once it became clear that the mistaken hospitals would not have to pay for their error. The primary issues on appeal in this case, then, are whether United falls into the latter category or not, and if it does, whether the Secretary's refusal to pay that category on the same basis as the first category is arbitrary and capricious.

II. Procedural Posture

United brought appeals to the appropriate administrative body, the Provider Reimbursement Review Board ("the Board"), in 1996 and 1997, raising issues related to its cost reports for 1992 and 1993, but not seeking the addition of state-only days to its DSH calculation. United had not sought the inclusion of state-only days since the start of the DSH concept in the mid-1980s. After the Centers issued the Program Memo, United argued for the first time, in March 2000, that it deserved to have the state-only days retroactively incorporated into its DSH reimbursements.³ The Board provided a hearing and considered United's position, but concluded that the statutory restrictions on reimbursement precluded relief for United, and that United did not fall in any of the exceptions to the statutory restrictions outlined in the Program Memo.

In August 2002, United then appealed the Board's decision to the district court, pursuant to 42 U.S.C. § 1395oo(f)(1) (granting jurisdiction to the district court over this type of appeal). The district court considered four issues raised by United: first, whether United fell under the protections of the Program Memo; second, if not, whether the Program Memo denied United its procedural rights; third, whether the Program Memo's authorization of reimbursement for some hospitals but not others was arbitrary; and fourth, whether the reimbursement for some hospitals but not others denied United equal protection of the laws as construed under the Fifth Amendment of the federal Constitution.

The district court concluded that because United's appeals before the Board did not raise the specific issue of DSH rates until March 2000, United could not claim protection under the Program Memo, which the district court held to limit relief by its plain terms to hospitals raising the DSH issue prior to October 15, 1999. The district court rejected United's second procedural argument by observing that the Board gave a hearing and full consideration to United's claims on the DSH issue. A right to have claims heard before the Board does not equate to a right to the substantive relief...