Alegent Health-Immanuel Med. Ctr. v. Sebelius
| Decision Date | 31 March 2014 |
| Docket Number | Civil Case No. 12–812 RJL |
| Citation | 34 F.Supp.3d 160 |
| Parties | Alegent Health–Immanuel Medical Center, Plaintiff, v. Kathleen Sebelius, Secretary, Department of Health and Human Services, Defendant. |
| Court | U.S. District Court — District of Columbia |
Christopher L. Crosswhite, Duane Morris LLP, Washington, DC, for Plaintiff.
Peter C. Pfaffenroth, U.S. Attorney's Office, Washington, DC, for Defendant.
(Dkt. ## 15, 18)
Plaintiff Alegent Health—Immanuel Medical Center (“Alegent” or “plaintiff”) brought this action against Kathleen Sebelius (“Secretary”), in her official capacity as Secretary of the United States Department of Health and Human Services (“HHS”), pursuant to 42 U.S.C. § 1395 et seq., seeking judicial review of the Secretary's denial of reimbursements for costs associated with offsite medical resident training during the fiscal years ending on June 30, 2002 and June 30, 2003. See Compl. [Dkt. # 1]. Before the Court are the parties' cross-motions for summary judgment. Upon consideration of the parties' pleadings, relevant law, and the entire record in this case, defendant's Motion for Summary Judgment [Dkt. # 18] is GRANTED and plaintiff's Motion for Summary Judgment [Dkt. # 15] is DENIED.
The Medicare Act provides health insurance benefits to eligible elderly and disabled persons. See 42 U.S.C. § 1395 et seq. The Centers for Medicare and Medicaid Services (“CMS”) administers the program for the Secretary. See 42 U.S.C. § 1395kk ; 42 C.F.R. § 400.200 et seq. Medicare Part A serves as insurance for hospital care, related post-hospital care, home health services, and hospice care. See 42 U.S.C. § 1395c et seq. The Secretary contracts with fiscal intermediaries to determine and process payments to hospitals. See 42 U.S.C. § 1395h. At the close of the fiscal year, a participating hospital submits a cost report to its intermediary. See 42 C.F.R. §§ 413.20, 413.24. After auditing the report, the intermediary issues a Notice of Program Reimbursement (“NPR”). See 42 C.F.R. § 405.1803. A hospital may challenge an NPR by requesting a hearing before the Provider Reimbursement Review Board (“PRRB”). See 42 U.S.C. § 1395oo(a). The PRRB's decision is subject to review by the CMS Administrator (“Administrator”).See 42 U.S.C. § 1395oo(f)(1) ; 42 C.F.R. § 405.1875(a). The Administrator's decision constitutes a final agency decision subject to judicial review. See 42 U.S.C. § 1395oo(f)(l) ; 42 C.F.R. § 405.1875.
Hospitals are paid standardized rates for designated hospital-provided outpatient services, subject to payment adjustments and additional payments for particular types of costs. See 42 C.F.R. § 419.2. Under Part A of the Medicare program, hospitals that operate approved medical residency programs are entitled to reimbursement for certain costs related to graduate medical education. Medicare makes both a direct graduate medical education (“DGME”) payment and an indirect graduate medical education (“IME”) payment. See 42 U.S.C. §§ 1395ww(d)(5)(B), (h). DGME costs include residents' salaries and fringe benefits, as well as compensation paid to teaching physicians and supervisors. See 42 U.S.C. § 1395ww(h) ; 42 C.F.R. § 413.86(b)(3) (1998). IME costs include higher-than-average operating costs incurred as an indirect result of having a teaching program. See 42 U.S.C. §§ 1395f(b), 1395ww(d)(5)(B) ; 42 C.F.R. § 412.105(1998).
The standard payment rates, however, do not include reimbursement for DGME costs. See 42 C.F.R. §§ 412.2(a)(1), 419.2(f)(7), 412.1(c)(1). CMS pays hospitals a separate payment for DGME costs, as determined pursuant to 42 C.F.R. § 413.86(d) (1998). The amount of these payments are determined annually and are based on the “average per resident amount” payment methodology. See 42 U.S.C. § 1395ww(h). The DGME payment is equal to the product of the hospital's average per resident amount—derived from a 1984 base period—times the number of full-time equivalent medical residents (“FTE”) in approved residency programs during the cost reporting period, times the hospital's Medicare patient load.1
See 42 U.S.C. § 1395ww(h)(3). Additional payments are also made for IME, the amounts of which also vary by the number of FTEs in a hospital's residency programs, as well the number of beds the hospital has. See 42 U.S.C. § 1395ww(d)(5)(B)(ii).
Pursuant to the Balanced Budget Act of 1997 (“BBA”), the Secretary imposed caps on the number of FTEs a hospital could claim, with some exceptions, using 1996 as the base year. See Pub.L. No. 105–33 ; 42 U.S.C. § 1395ww(h)(4)(F). The caps limit the number of FTEs for which a hospital can claim DGME/IME reimbursement to the number of FTEs claimed by the hospital for the last cost reporting period ending on or before December 31, 1996.2 See Pub.L. No. 105–33 ; 42 U.S.C. § 1395ww(h)(4)(F). It goes without saying that the higher the number of FTEs a hospital is able to claim, the larger the amount of potential reimbursement payment it might receive.
The BBA contained certain exemptions to the FTE caps placed on hospitals seeking reimbursement for DGME/IME expenses. For instance, the BBA permitted the Secretary to prescribe rules allowing hospitals that are members of the same “affiliated group”—as defined by the Secretary—to apply their FTE caps on an aggregate basis. See 42 U.S.C. § 1395ww(h)(4)(H)(ii). The BBA also directed the Secretary to prescribe rules for the application of FTE caps to new medical residency training programs established on or after January 1, 1995. See 42 U.S.C. § 1395ww(d)(h)(H)(i).
On August 29, 1997, the Secretary—through CMS—issued regulations implementing the BBA's changes to DGME and IME reimbursements, including the application of FTE caps, in an interim final rule with comment period published in the Federal Register.See 62 Fed.Reg. 45966. The regulations promulgated by the 1997 rule provided that “[h]ospitals that are part of the same affiliated group may elect to apply the [FTE] limit on an aggregate basis.”3 42 C.F.R. § 413.86(g)(4) (1997). The 1997 rule also provided for adjustments to hospitals' FTE caps for new medical residency programs, to include instances where “a hospital had no residents before January 1, 1995, and it establishe[d] a new medical residency training program on or after that date.” 42 C.F.R. § 413.86(g)(6)(i)(1997).
On May 12, 1998, the Secretary issued a final rule responding to comments received regarding the August 29, 1997 interim final rule and addressing the application of FTE caps. See 63 Fed.Reg. 26318. The regulations in the 1998 final rule allowed the application of FTE caps on an aggregate basis for hospitals in affiliated groups,4 and also continued to provide for adjustments to a hospital's FTE caps for new medical residency programs. See 42 C.F.R. § 413.86(g)(4), (6) (1998). In addition, the preamble to the 1998 final rule stated that affiliated groups wishing to apply their FTE caps on an aggregate basis were required to submit a written affiliation agreement5 to the Secretary and their fiscal intermediaries. See 63 Fed.Reg. at 26338–26339, 26341. In 2002, the Secretary amended 42 G.F.R. § 413.86(b) to include the detailed requirements for affiliation agreements contained in the preamble of the 1998 final rule. See 67 Fed.Reg. 49982, 50069 (Aug. 1, 2002).
Alegent Health—Immanuel Medical Center is a not-for-profit, general acute care hospital located in Omaha, Nebraska. See Administrative Record (“AR”) at 148–149; Compl. at ¶ 6. Alegent is owned and operated by Alegent Health, a non-profit health care system in Southeast Nebraska and Southwest Iowa. See AR at 148–49. Creighton University (“Creighton”) is a private university that is also located in Omaha. See AR at 107. Creighton's medical school, like most medical schools in the United States, sends its third and fourth year medical students to participate in residency training programs in local hospitals in order to gain clinical experience. See Def.'s Mot. Summ. J. at 8, AR at 19.
Prior to July 1998, Creighton's psychiatric residency training program took place at Creighton St. Joseph Regional Healthcare System, LLC (“St.Joseph”). See AR at 19, 149–50, 483, 491. St. Joseph had an FTE cap of 145.39 for IME and 165.45 for DGME, as established by the cost reporting period ending on May 31, 1996. See AR at 19. In 1997, St. Joseph informed Creighton that it would no longer be able to fulfill its responsibilities as the school's training site, causing Creighton to approach plaintiff about becoming the new primary training site for its psychiatric residency training program. See AR at 149, 491.
Because Alegent had not previously participated in any medical residency training program, it had a cap of zero FTEs. See AR at 19. In an effort to raise the number of FTEs plaintiff could claim, and thus raise the potential level of Medicare reimbursement, Alegent and St. Joseph agreed to form an affiliated group. See AR at 19, 149, 491. On June 30, 1998, the parties entered into an academic affiliation agreement (“Agreement”), and plaintiff became the primary site for Creighton's residency training program. See AR at 19–20. By doing so, Alegent and St. Joseph were able to apply the FTE caps on an aggregate basis, thereby allowing Alegent access to a Medicare reimbursement it would otherwise not have been entitled to receive.See id.
Following an audit of plaintiff s cost reports for its fiscal years ending June 30, 1999 through June 30, 2002, the fiscal intermediary determined that the Agreement satisfied the requirements for establishing an affiliated group for the purpose of applying FTE caps on an aggregate basis. See AR at 20. Furthermore, the intermediary determined that plaintiff's medical residency program was a “new program,” and allowed reimbursement on that basis through June 30, 2001. See id. However, during a subsequent...
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