Alhambra Hosp. v. Thompson, PLAINTIFFS-APPELLANTS

• Decision Date: 07 August 2001
• Docket Number: DEFENDANT-APPELLEE,PLAINTIFFS-APPELLANTS,No. 99-57009,99-57009
• Parties: (9th Cir. 2001) ALHAMBRA HOSPITAL; MEMORIAL HOSPITAL OF GARDENA,, v. TOMMY G. THOMPSON <A HREF="#fr1-*" name="fn1-*">* , SECRETARY, UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES,
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1071

259 F.3d 1071 (9th Cir. 2001)

ALHAMBRA HOSPITAL; MEMORIAL HOSPITAL OF GARDENA, PLAINTIFFS-APPELLANTS, v. TOMMY G. THOMPSON^*, SECRETARY, UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, DEFENDANT-APPELLEE.

No. 99-57009

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted May 9, 2001

Filed August 7, 2001

Counsel Jonathan P. Neustadter, Hooper, Lundy & Bookman, Inc., Los Angeles, California, for the plaintiffs-appellants.

Mark S. Davies, Department of Justice, Civil Division, Washington, D.C., for the defendant-appellee.

Appeal from the United States District Court for the Central District of California Dean D. Pregerson, District Judge, Presiding D.C. No. CV-98-09870-DDP(Ex)

Before: Pamela Ann Rymer, Michael Daly Hawkins, and Ronald M. Gould, Circuit Judges.

Hawkins, Circuit Judge

OPINION

We are again confronted¹ with the failure of the Secretary of Health and Human Services ("the Secretary") to implement properly the "disproportionate share" provision of the Medicare statute, 42 U.S.C. §§ 1395ww(d)(5)(F)(vi). This provision provides for increased Medicare reimbursement to hospitals that serve a disproportionate number of low-income patients.

The plaintiffs, Alhambra Hospital and Memorial Hospital of Gardena ("the Hospitals"), contend that the Secretary has impermissibly excluded subacute patient days from the calculation of the disproportionate share reimbursement. We conclude that the Secretary's actions here are contrary to the plain meaning of the governing regulation.

BACKGROUND

A. Legal Background

Part A of the Medicare program provides basic health coverage for elderly and disabled people. 42 U.S.C.§§ 1395c. Reimbursement of hospitals is carried out by fiscal intermediaries pursuant to regulations and policies of the Department of Health and Human Services ("HHS"), and HHS's Health Care Financing Administration ("HCFA").

Prior to 1983, hospitals were reimbursed under Part A for their reasonable costs. In 1983, Congress replaced this procedure with a prospective payment system ("PPS"), under which hospitals are paid a fixed predetermined rate for each hospital discharge based on the patient's diagnosis related group. 42 U.S.C. §§§§ 1395ww(d)(2),(d)(3).

PPS is not used to reimburse hospitals for long-term care. Therefore, skilled nursing facility ("SNF") care is not included in the PPS reimbursement. Hospitals with SNF units certified by Medicare are reimbursed under a different mechanism. 42 C.F.R. §§ 413.1(g).

Hospitals that treat a disproportionate number of low-income patients are also entitled to a disproportionate share hospital ("DSH") payment. This payment is calculated primarily by the sum of two fractions. The first, relating to Medicare patients eligible for supplemental security income is not at issue here. The second fraction is defined by statute as follows:

[T]he fraction (expressed as a percentage), the numerator of which is the number of the hospital's patient days for such period which consists of patients who (for such days) were eligible for medical assistance under [the Medicaid program], but who were not entitled to benefits under part A of this subchapter, and the denominator of which is the total number of the hospital's patient days for such period.

42 U.S.C. §§ 1395ww(d)(5)(F)(vi)(II).This calculation, known as the "Medicaid proxy," therefore bases Medi care reimbursement in part on Medicaid patient days. The statute, however, is not meant to reimburse disproportionate Medicaid expenditures. A separate provision governs Medicaid reimbursement for hospitals with a disproportionate share of low-income patients. 42 U.S.C. §§ 1396r-4.

The Secretary has issued a regulation defining the statutory phrase "hospital's patient days." The interpretation of this regulation lies at the heart of this dispute:

The number of patient days includes only those days attributable to areas of the hospital that are subject to the prospective payment system and excludes all others.

42 C.F.R. §§ 412.106(a)(ii). The appellants do not challenge the validity of the regulation; rather, they contend that the Secretary has applied this regulation to them in direct contradiction to its plain meaning.

B. Factual Background

The Hospitals both operate "subacute" care units. These units are classified under California's Medi-Cal program as units that provide less intensive care than do acute care units, but more intensive skilled nursing care than is typically provided in an SNF. 22 C.C.R. §§ 51124.5(a). California licenses these units as SNFs, although they are not certified as such by Medicare. The Hospitals sought to include patient days in the subacute units as part of their DSH calculation. The fiscal intermediary rejected this inclusion, and the Hospitals sought administrative review.

The Provider Reimbursement Review Board ("PRRB") ruled unanimously in favor of the hospitals after an extensive evidentiary hearing, finding that the subacute units were not exempt from PPS and therefore must be included in the DSH calculation. The PRRB concluded that the subacute units provided care that was closer to inpatient acute care than to SNF care. It also noted that California's classification of care levels was irrelevant for purposes of the federal Medicare program. Finally, the PRRB found that the Hospitals' position was consistent with HCFA policy, pointing to a 1992 letter from an HCFA regional administrator that stated that subacute unit days were to be included in the DSH calculation. It also pointed to HCFA's inclusion of transitional inpatient care days in the DSH calculation. The PRRB could find no significant difference between these days and subacute days. Accordingly, the PRRB ordered the fiscal intermediary to include the Hospitals' subacute days in the DSH calculation.

The fiscal intermediary then sought review from the Administrator of HCFA, to whom the Secretary has delegated the authority to reconsider PRRB decisions. The Administrator reversed the PRRB, finding that each of the Hospitals had "failed its burden of proof to demonstrate that the [ ] beds at issue are to be included as inpatient hospital beds for purposes of calculating the [PPS DHS adjustment]." The Administrator held:

The record is uncontested that the beds at issue were licensed by the State of California as SNF beds. Skilled nursing facility beds, whether certified by Medicare or not certified by Medicare, are not attributable to areas of the "hospital" that are subject to PPS.

The Administrator also found that the 1992 letter from a Regional Office was not "persuasive evidence as to HCFA policy." The Administrator's decision represented final agency action.

The Hospitals then filed suit in federal district court, challenging the Secretary's exclusion of the subacute beds from the DSH calculation. The district court granted the Secretary's motion for summary judgment, ruling that "exclusion of sub-acute patient days from the DSH calculation is consistent with the plain language of the governing regulation." The court found that "non-reimbursable services do not need to be exempted from PPS because they are not covered to begin with." The court also found that there was "inadequate evidence of a prior, consistent interpretation in conflict with the Secretary's current position."

The Hospitals filed this timely appeal. We have jurisdiction under 28 U.S.C. §§ 1291.

ANALYSIS

I. Standard of Review

Our review of an agency's interpretation of its own regulations is extremely deferential. The "agency's interpretation must be given controlling weight unless it is plainly erroneous or inconsistent with the regulation." Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994) (internal quotations and citations omitted). That is, we must defer to an agency's interpretation unless an "alternate reading is compelled by the regulation's plain language." Id. "This broad deference is all the more warranted when . . . the regulation concerns a complex and highly technical regulatory program." Id. (internal quotations and citations omitted).

We review the district court's grant of summary judgment de novo. Weiner v. San Diego County, 210 F.3d 1025, 1028 (9th Cir. 2000).

II. The Plain Language of the Relevant Regulation

The relevant regulation states,"The number of patient days includes only those days attributable to areas of the hospital that are subject to the prospective payment system and excludes all others." 42 C.F.R. §§ 412.106(a)(1)(ii) (emphasis added). The regulation as written is not ambiguous. The definitional boundary, chosen by HCFA, is geographic: If a Medicaid patient day is attributable to an area of the hospital subject to PPS, it is included; if not, it is excluded.

The sole issue in this case is whether the Hospitals' sub-acute Medicaid patient days are "attributable to areas of the hospital" that are subject to PPS. To determine whether an area of the hospital is subject to PPS, we must turn to other regulations. The scope of PPS is defined by 42 C.F.R. §§ 412.20(a):

Except for services described in paragraph (b) of this section, all covered inpatient hospital services furnished to beneficiaries during subject cost reporting periods are paid for under the prospective payment systems.

That is, all covered inpatient services are presumed to be covered under PPS, unless they meet specific requirements for an exception. Under these requirements, SNF units must meet strict requirements to be excluded from the PPS system. 42 C.F.R. §§§§ 412.25, 412.29. An SNF that does not meet these requirements will not receive the benefit of exemption from PPS.

Obviously, an area of a hospital is either subject to PPS or it is not. The regulations begin with the presumption that an area is covered by PPS, unless specifically exempted. The Hospitals here have never applied to exempt these units from PPS as SNFs, nor has Medicare ever certified these units as PPS exempt....