Adventist Health System/Sunbelt Inc. v. Sebelius

• Decision Date: 13 June 2011
• Docket Number: No. 2:10–CV–189.,2:10–CV–189.
• Citation: 795 F.Supp.2d 704
• Parties: ADVENTIST HEALTH SYSTEM/SUNBELT, INC., Plaintiff,v.Kathleen SEBELIUS, Secretary, United States Department of Health and Human Services, Defendant.
• Court: U.S. District Court — Eastern District of Tennessee

795 F.Supp.2d 704

ADVENTIST HEALTH SYSTEM/SUNBELT, INC., Plaintiff,

v.Kathleen SEBELIUS, Secretary, United States Department of Health and Human Services, Defendant.

No. 2:10–CV–189.

United States District Court, E.D. Tennessee.

June 13, 2011.

Gary C. Shockley, Baker, Donelson, Bearman & Caldwell, Nashville, TN, Stephanie A. Webster, King & Spalding, Washington, DC, for Plaintiff.Loretta S. Harber, U.S. Department of Justice, Knoxville, TN, for Defendant.

ORDER

J. RONNIE GREER, District Judge.

This matter is before the Court to consider the Report and Recommendation of the United States Magistrate Judge dated May 11, 2011. In that Report and Recommendation, the Magistrate Judge recommends that the plaintiff's Motion for Summary Judgment, [Doc. 17], be denied and that the defendant's Motion for Summary Judgment, [Doc. 19], be granted. The plaintiff has filed objections to this Report and Recommendation. After careful de novo consideration of the record as a whole, and after careful consideration of the Report and Recommendation of the United States Magistrate Judge, and for the reasons set out in that Report and Recommendation which are incorporated by reference herein, it is hereby ORDERED that this Report and Recommendation is ADOPTED and APPROVED, [Doc. 25], and that plaintiff's Motion for Summary Judgment, [Doc. 17], is DENIED and that the defendant's Motion for Summary Judgment, [Doc. 19], is GRANTED. As such, the case is hereby DISMISSED.

REPORT AND RECOMMENDATION

DENNIS H. INMAN, United States Magistrate Judge.

Both parties to this suit have filed motions for summary judgment, (Doc. 17, Doc. 19). The district judge has referred these motions to the magistrate judge for a report and recommendation.¹ Disposition by summary judgment is appropriate since the issue is one of law only.

The plaintiff operates two hospitals in Tennessee, one in Greeneville, and one in Madison. These hospitals render medical services to low-income patients. Plaintiff claims that the Department of Health and Human Services (hereafter “federal government”) owes it approximately Five Million Dollars for reimbursement for services its hospitals rendered to low-income patients for the years 1995 to 2000.

Under Title XVIII of the Social Security Act, the Medicare program, the federal government reimburses hospitals for certain medical expenses provided to the elderly and disabled. Under Title XIX, which is the Medicaid program, the federal government financially assists the states in providing medical care to low-income patients. 42 U.S.C. § 1396a sets out the requirements for state Medicaid plans. For a state to receive federal assistance for medical services rendered to low-income individuals, that state must submit a plan for approval by the Secretary of the Department of Health and Human Services. ² The only state expenditures eligible for matching federal payments are those that are made under a plan approved by the Secretary.³

To encourage the states to “experiment” and develop programs to “assist in promoting the objectives” of Medicaid, 42 U.S.C. § 1315 authorizes the Secretary to waive compliance with the general statutory requirements set out in 42 U.S.C. § 1396a for state Medicaid plans:

(a) Waiver of State plan requirements; costs regarded as State plan expenditures; availability of appropriations

In the case of any experimental, pilot, or demonstration project which, in the judgment of the Secretary, is likely to assist in promoting the objectives of [Medicaid] in a State or States—

(1) the Secretary may waive compliance with any of the ... [general statutory requirements] ... to the extent and for the period [the Secretary] finds necessary to enable such State or States to carry out such project, and

(2)(A) costs of such project which would not otherwise be included as [Medicaid] expenditures ..., shall, to the extent and for the period prescribed by the Secretary, be regarded as expenditures under the State plan or plans approved [by the Secretary] ....

Tennessee has an experimental or demonstration project, “TennCare.” TennCare not only provides for medical assistance to low income individuals who are eligible for Medicaid, it also provides for medical assistance to certain uninsured or uninsurable individuals who would not otherwise qualify for Medicaid. This latter group is referred to as an “expansion waiver population,” and it lies at the heart of the present litigation.

The Secretary approved TennCare in 1993 in a letter which stated, in part, that payments with respect to expansion populations would be “regarded as expenditures under the State Title XIX (Medicaid) plan.” ⁴

A hospital is reimbursed for its treatment of Medicare and Medicaid patients under the Prospective Payment System (“PPS”).⁵ Although payments under PPS are based on a predetermined amount for each patient depending upon that patient's diagnosis at the time of his discharge,⁶ the payments can be adjusted upwardly if a hospital serves a disproportionately large number of low-income patients. This increased payment is called the “Disproportionate Share Hospital” adjustment, or “DSH.” The 1986 Consolidated Omnibus Budget Reconciliation Act (“COBRA”) provides the formula to be used to determine if a hospital is entitled to the DSH adjustment.⁷ The formula includes the sum of two fractions. The first fraction—the Medicare fraction—involves a calculation of the number of “patient days” that a hospital utilizes in serving inpatients who are entitled to Medicare Part A benefits and Supplemental Security Income.

The second fraction, the “Medicaid fraction” and the one relevant to this suit, involves a calculation of a hospital's patient days that a hospital spends serving patients who are eligible for Medicaid. The numerator is the number of the hospital's patient days (for the reporting period) which consists of patients who were eligible for Medicaid, and who are not entitled to benefits under Medicare. The denominator of that fraction is the total number of the hospital's patient days for that reporting period. From a hospital's perspective, the larger the numerator, the higher that hospital's DSH percentage, and the greater its DSH adjustment. Of course, if the numerator is lessened, there will be a concomitant decrease in the DSH adjustment.

The Secretary has contracts with various insurance carriers—“fiscal intermediaries”—across the country to administer the fiscal aspect of the medical program. Before 2000 some intermediaries included expansion populations within the Medicaid fraction, and others did not, including those in Tennessee.⁸ As a result of the inconsistent treatment of the expansion populations, in December 1999 the Secretary issued a Program Memorandum A99–62 entitled “Clarification of Allowable Medicaid Days In The Medicare Disproportionate Share Hospital (DSH) Adjustment Calculation—Action.” ⁹ In this Memorandum, the Secretary stated that a review of the practices and policies regarding the DSH calculation indicated the need for clarification. The Secretary stated that a patient who is not eligible for medical assisted benefits under an approved Title XIX State plan does not generate a “Medicaid day” merely because that patient has “some other association with the Medicaid program.” ¹⁰

In January 2000, the Secretary promulgated an interim final rule that addressed the issue of the inclusion of the expansion waiver population within the numerator of the Medicaid fraction:

Effective with discharges occurring on or after January 20, 2000, for purposes of counting days under paragraph (b)(4)(I) of this section, hospitals may include all days attributable to populations eligible for Title XIX matching payments through a waiver approved under section 1115 of the Social Security Act.¹¹

In other words, after January 20, 2000, the expansion waiver population was to be included within the numerator of the Medicaid fraction. But with regard to pre-January 20, 2000 policy, the Secretary asserted that “[u]nder current policy ... [expansion waiver populations] ... were not to be included in the [numerator of the Medicaid fraction] ....” ¹²

For the years 1995–2000, this plaintiff's fiscal intermediary did not include the expansion waiver population in the Medicaid fraction, as a result of which plaintiff's Medicaid reimbursement was far less than what it would have been if that expansion waiver population had been included. And thus the dispute: plaintiff argues, on several bases, that the Secretary was required to include the expansion waiver population in the DSH calculation, whereas the Secretary insists that her exclusion of the expansion waiver population from the numerator's fraction is based on her interpretation of the relevant statutes, and that her interpretation is correct.

Judicial review of the Secretary's decision is accomplished pursuant to the “applicable provisions” of the Administrative Procedure Act.¹³ The “applicable provision” of the Administrative Procedure Act is 5 U.S.C. § 706(2), which directs the reviewing court to set aside any action or conclusion of the Secretary which the court finds to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; or unsupported by substantial evidence.

There are three cases decided by other courts that address the question now before this court: Portland Adventist Medical Center, et al. v. Thompson, Secretary, 399 F.3d 1091 (9th Cir.2005), which held in favor of the plaintiff hospitals and against the Secretary; Cookeville Regional Medical Center, et al. v. Leavitt, Secretary, 531 F.3d 844 (D.C.Cir.2008), which held in favor of the Secretary and against the plaintiff hospitals; and St. Thomas Hospital v. Sebelius, Secretary, 705 F.Supp.2d 905 (M.D.Tenn.2010), which also held in favor of the Secretary and against the plaintiff hospital.¹⁴

Plaintiff argues that this court should reverse the Secretary's decision because (1) her...