Acadian Homecare L.L.C. v. Leavitt, Civil Action No. 06-577.

CourtUnited States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Western District of Louisiana
Citation513 F.Supp.2d 684
Docket NumberCivil Action No. 06-577.
PartiesACADIAN HOMECARE, L.L.C. v. Michael O. LEAVITT, Secretary of the Department of Health and Human Services.
Decision Date15 May 2007
513 F.Supp.2d 684
Michael O. LEAVITT, Secretary of the Department of Health and Human Services.
Civil Action No. 06-577.
United States District Court, W.D. Louisiana, Lafayette-Opelousas Division.
May 15, 2007.

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Nicholas Gachassin, III, Gachassin Law Firm, Lafayette, LA, for Plaintiff.

Albert G. Alec Alexander, III, U.S. Attorneys Office, Lafayette, LA, for Defendant.


TUCKER L. ME LANCON, District Judge.

Before the Court is a Motion for Summary Judgment filed by defendant, Secretary of the Department of Health and Human

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Services Michael O. Leavitt [Rec. Doc. 11], and plaintiff's Response in opposition thereto [Rec. Doc. 15] and Amended Reply [Rec. Doc. 20]. Plaintiff, Acadian Homecare, LLC, has also filed a Motion for Summary Judgment [Rec. Doc. 12], to which defendant filed a Response in Opposition [Rec. Doc. 14]. Plaintiff, Acadian Homecare, L.L.C. ("Acadian"), is a home health agency located in Lafayette, Louisiana participating in the Medicare program.1 Defendant is the Secretary of the Department of Health and Human Services, Michael O. Leavitt, who as the federal official vested with primary responsibility for oversight of the Medicare program ("Medicare") is responsible for decisions of the Department of Health and Human Services Provider Reimbursement Review Board (hereinafter "PRRB"). This case involves the denial of plaintiffs Medicare Part A claims relating to costs claimed for Medical Director fees.


The Medicare program, established under Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395 et seq., provides payment for covered medical services primarily on behalf of eligible aged and disabled persons. The statute consists of two main parts: Part A, commonly known as "Hospital Insurance Benefits," which generally authorizes payment for primary institutional care such as hospitalization, skilled nursing care and home health agency services provided by hospitals and other institutions or agencies, including home health agencies; and Part B, which authorizes supplemental medical insurance for covered physician services and certain other medical benefits. 42 U.S.C. §§ 1395c through 1395i-4. The reimbursement claim at issue in this action is covered under Medicare Part A for Home Health Agency services pursuant to §§ 1812(a)(3), (a)(1)(i)(B), 1814(a)(1)(i)(C), and 1861(v) of the Social Security Act (hereinafter the "Act"), and regulations at 42 C.F.R. § 413.1 et seq. Section 1814 of the Act establish that providers of Home Health Agency (hereinafter "HHA") services shall be reimbursed for necessary and proper costs incurred in providing such services to Medicare beneficiaries.

A home health agency may become a participant in Medicare by entering into a provider agreement with the Secretary. 42 U.S.C. § 1395x(o); 42 U.S.C. § 1395cc. Entities known as fiscal intermediaries act as agents of the Secretary in making payments for services to Medicare providers on behalf of beneficiaries. 42 U.S.C. § 1395h; 42 C.F.R. § 421.103. Under Medicare Part A, home health agency providers are required to file a cost report with their intermediaries at the end of the fiscal year which reflects actual costs incurred. 42 C.F.R. § 413.64(a). The intermediary then makes adjustments to provider reimbursement based upon the cost report in accordance with the requirements of the Medicare statute and the regulations promulgated thereunder.

For the period at issue here, namely the cost reporting period ending December 31, 1999, Medicare Part A providers were reimbursed pursuant to 42 U.S.C. § 1395x(v), for the "reasonable cost" of providing services to beneficiaries. The Medicare statute generally defines "reasonable costs" as "the cost actually incurred, excluding therefrom any part of incurred costs found to be unnecessary in the efficient delivery of needed health services." Id. As it would be impractical, if not impossible, for the statute to define

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"reasonable costs" in every instance, the Medicare Act further provides that the Secretary of the Department of Health and Human Services (the "Secretary") to prescribe methods under the Social Security Act for determining the reasonable costs of providing services to Medicare beneficiaries and promulgate regulations "establishing the method or methods to be used, and the items to be included in determining such costs for various types of classes of institutions, agencies, and services." Id. 42 U.S.C. § 1395x(v)(1)(A).

The Secretary's regulations elaborate upon the factors to be included in reasonable costs, and provide that:

All payments to providers of services must be based on the reasonable costs of services covered under Medicare and related to the care of beneficiaries. Reasonable costs includes all necessary and proper costs incurred in furnishing the services [to beneficiaries].

42 C.F.R. 413.9(a). The regulations proceed to define "necessary and proper costs" as costs that are appropriate and helpful in maintaining the operation of patient care facilities and activities. They are usually costs that are common and accepted occurrences in the field of the provider's activity. 42 C.F.R. § 413.9(b)(2).

The Secretary has rendered additional interpretive guidance relating to the Medicare statute and reimbursement regulations through issuance of the Provider Reimbursement Manual ("PRM").2 Section 2304 provides that cost information as developed by the provider must be current, accurate and in sufficient detail to support payments made for services rendered to beneficiaries. This includes all ledgers, books, records and original evidence of cost, all of which must be capable of being audited. Id.

Section 2127 of the PRM specifically describes the role of professional personnel in the home health agency setting and allowable costs incurred in connection with their activities. A home health agency is required to have a group of professional personnel to serve in an advisory capacity to the agency.3 Id. The function of this advisory group is to approve and review on a regular basis the agency's policies governing skilled nursing and other health care services. Id. Payments to physicians for their direct medical services to individual patients are not allowable home health agency costs. Id. The home health agency must maintain adequate records to enable the fiscal intermediary to determine the reasonableness of the compensation paid to a physician or other professional person. Id. At a minimum, these records must contain the following information for each meeting of the advisory group: the date of the meeting, the name and occupation of each participant to whom compensation is paid, the hourly rate or other payment base for each of these individuals, and the number of hour of services rendered by each participant. Id.

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The fiscal intermediary determines a provider's reasonable cost based upon a cost report that the provider submits annually. After a provider files its annual cost report, the intermediary conducts an audit and issues a Notice of Program Reimbursement ("NPR") setting forth the amount of reimbursement that the provider is entitled to. 42 C.F.R. § 405.1803. A provider dissatisfied with a fiscal intermediary's decision may request review by the Provider Reimbursement Review Board ("PRRB"), which hears the case and renders an opinion. 42 U.S.C. § 1395oo(a)(d). A decision of the PRRB will become final sixty days after its issuance unless the Secretary, upon request of one of the parties or sua sponte, reverses, affirms, or modifies the decision. 42 U.S.C. § 1395oo(f).

Providers may obtain judicial review of any final decision of the Board or of the Secretary by commencing a suit in federal district court within sixty days of receipt of notice of the decision. Id. In cases such as this, where the issue is whether the PRRB properly denied Medicare Part A reimbursement, the standard of review is governed by 42 U.S.C. § 1395oo(f), which incorporates the standards of Section 706 of the Administrative Procedure Act ("APA"). 5 U.S.C. § 706. Section 706(2)(A) and (B) of the APA provide that agency actions, findings, and conclusions can only be set aside if they are "arbitrary, capricious, an abuse of discretion, or not in accordance with law," or when in a case reviewed on the records of an agency proceeding provided by statute, they are unsupported by substantial evidence.


From the evidence of record, the pertinent facts are as follows. This case involves judicial review of the decision of the Department of Health and Human Services Provider Reimbursement Review Board (hereinafter "PRRB") denying reimbursement for certain costs claimed by plaintiff under Medicare Part A relating to Medical Director fees during its 1999 fiscal year under the Medicare Hospital Insurance Program.

The Medicare fiscal intermediary for plaintiff, Palmetto Government Benefits Administrator (the "Intermediary"), audited Acadian's Medicare cost report for the cost reporting period from January 1, 1999 to December 21, 1999 and determined that Acadian had received an overpayment of $58,271 for the fiscal period. A.R. 203-209. As part of its audit of Acadian's cost report, the Intermediary reviewed Acadian's general ledger, its listing of all medical directors, the contracts between Acadian and its medical directors and the related Form 1099s. A.R. 88. Acadian had thirteen (13) Medical Directors, including a Corporate Medical Director (Dr. Harmon) and an Alternate Medical Director (Dr. Hargroder), to cover seven branch locations. A.R. 88-89. Acadian contracted with the Medical Directors to provide services and the contracts provided for "on-call fees." A.R. 88-89, 173. All of the Medical Directors were paid $200 per hour for oversight and administrative services actually provided to the agency, as well as a monthly on-call fee of...

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