Allina Health Sys. v. Sebelius, Civil Action No. 09–cv–1889 (RLW)

• Decision Date: 08 October 2013
• Docket Number: Civil Action No. 09–cv–1889 (RLW)
• Parties: Allina Health System, Plaintiff, v. Kathleen Sebelius, Secretary, United States Department of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Columbia

982 F.Supp.2d 1

Allina Health System, Plaintiff,

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

Civil Action No. 09–cv–1889 (RLW)

United States District Court, District of Columbia.

October 8, 2013

Stephanie Ann Webster, Akin Gump Strauss Hauer & Feld LLP, Washington, DC, for Plaintiff.

Peter C. Pfaffenroth, U.S. Attorney's Office, Washington, DC, for Defendant.

MEMORANDUM OPINION

ROBERT L. WILKINS, United States District Judge

Plaintiff Allina Health System (“Allina”) brings this suit to challenge, under the Administrative Procedure Act, 5 U.S.C. §§ 701, et seq., a Medicare reimbursement decision of the Secretary of Health and Human Services. Broadly speaking, Allina contends that the Secretary improperly calculated the disproportionate share hospital adjustments for five Allina-owned hospitals, during fiscal years ranging from 1993 through 2003. More specifically, this case turns on the parties' rival interpretations of a single phrase as used in the applicable adjustment formula: “entitled to benefits under [Medicare] Part A.” 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II). The parties have cross moved for summary judgment, and those motions are presently pending before the Court. (Dkt. Nos. 6, 17). Disagreeing that the interpretation pressed by Allina is compelled by the plain language of the statute, and otherwise finding the Secretary's interpretation permissible and reasonable, the Court concludes that Allina's attacks against the Secretary's decision are without merit.

Accordingly, upon careful consideration of the parties' briefing, the Administrative Record, and the governing authorities, the Court concludes, for the reasons that follow, that Allina's Motion for Summary Judgment will be DENIED and that the Secretary's Cross–Motion for Summary Judgment will be GRANTED.

BACKGROUND

A. Statutory and Regulatory Framework

Few regulatory regimes rival the complexity of the federal Medicare statute. Fortunately, the narrow question presented in this case does not require the Court to venture too far down the statute's labyrinthine paths.¹

At a general level, “[t]he federal Medicare program provides health insurance for the elderly and disabled and reimburses qualifying hospitals for services provided to eligible patients.” Catholic Health Initiatives–Iowa Corp. v. Sebelius, 718 F.3d 914, 915–16 (D.C. Cir.2013). The Medicare statute itself is divided into five “Parts,” two of which are implicated here. “Part A covers medical services furnished by hospitals and other institutional providers.” Northeast Hosp. Corp. v. Sebelius, 657 F.3d 1, 2 (D.C. Cir.2011) (citing 42 U.S.C. §§ 1395c–1395i–5). Part E, also relevant to this dispute, sets forth “various ‘Miscellaneous Provisions,’ one of which is the Prospective Payment System (“PPS”) for reimbursing Part A inpatient hospital services.” Id. at 3 (citing 42 U.S.C. § 1395ww(d)). “Under the PPS, Medicare reimburses a hospital for services based on prospectively determined national and regional rates rather than on the actual amount the hospital spends.” Id. (citing 42 U.S.C. § 1395ww(d)). This prospective payment rubric also entails some adjustments based on hospital-specific factors, one of which is the “disproportionate share hospital” (“DSH”) adjustment. See42 U.S.C. § 1395ww(d)(5)(F)(i)(I). Through the DSH adjustment, the government pays more to hospitals that “serve[ ] a significantly disproportionate number of low-income patients,” id., “based on Congress's judgment that low-income patients are often in poorer health, and therefore costlier for hospitals to treat,” Catholic Health, 718 F.3d at 916 (citing Adena Reg'l Med. Ctr. v. Leavitt, 527 F.3d 176, 177–78 (D.C. Cir.2008)).

A hospital's potential DSH adjustment is based on its “disproportionate patient percentage” or “DPP,” a formula that serves as a “ ‘proxy measure’ for the number of low-income patients a hospital serves.” Northeast Hosp., 657 F.3d at 3 (quoting H.R. REP. NO. 99–241, pt. 1, at 17 (1985)). The DPP is defined by statute as the sum of two fractions, commonly referred to as the “Medicare fraction” and the “Medicaid fraction.” These fractions “represent two distinct and separate measures of low income—SSI (i.e., welfare) and Medicaid, respectively—that when summed together, provide a proxy for the total low-income patient percentage.” Catholic Health, 718 F.3d at 916. The Medicare fraction is:

[T]he fraction (expressed as a percentage), the numerator of which is the number of such hospital's patient days for such period which were made up of patients who (for such days) were entitled to benefits under [Medicare] Part A ... and were entitled to supplementary security income [SSI] benefits ... and the denominator of which is the number of such hospital's patient days for such fiscal year which were made up of patients who (for such days) were entitled to benefits under [Medicare] Part A.

42 U.S.C. § 1395ww(d)(5)(F)(vi)(I). And the Medicaid fraction is:

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

Id. § 1395ww(d)(5)(F)(vi)(II). As our Court of Appeals recently observed, “[t]his language is downright byzantine.” Catholic Health, 718 F.3d at 916. In an effort to simplify things somewhat, the Court provides a visual chart depicting these fractions:

Medicare fraction

Medicaid fraction

Numerator

Patient days for patients “entitled to benefits under Part A” and “entitled to SSI benefits”

Patient days for patients “eligible for [Medicaid]” but not “entitled to benefits under Part A”

Denominator

Patient days for patients “entitled to benefits under Part A”

Total number of patient days

Seeid. at 917. This case turns on the propriety of the Secretary's interpretation of the phrase “entitled to benefits under Part A,” as used in the numerator of the Medicaid fraction.

For purposes of Medicare reimbursements, a “fiscal intermediary,” generally a private insurance company acting on the Secretary's behalf, initially calculates a hospital's DSH adjustment. See42 C.F.R. §§ 421.1, 421.3, 421.100–.128. If a hospital disputes the intermediary's calculations, it may then appeal the determination to the Provider Reimbursement Review Board (“PRRB”), an administrative tribunal appointed by the Secretary. See42 U.S.C. § 1395oo(a), (h). From there, the Secretary is authorized to review a PRRB determination on her own motion, but she has delegated that authority to the Administrator of the Centers for Medicare and Medicaid Services (“CMS”). Id. § 1395oo(f). Finally, if a provider is dissatisfied with the final decision of the CMS Administrator, it may then seek judicial review by initiating a civil action in district court. Id.

B. Factual and Procedural Background

Allina owns and operates five Minnesota-based hospitals—United Hospital, Abbott Northwestern Hospital, Buffalo Hospital, Mercy Hospital, and Unity Hospital—all of which participate in the federal Medicare program. ( See Dkt. No. 1 (“Compl.”) at ¶ 9). This dispute centers around DSH adjustment amounts calculated for these hospitals for varying fiscal years ranging from 1993 to 2003. In particular, the parties dispute the role that so-called dual-eligible exhausted benefit days and Medicare secondary payer (“MSP”) days serve in the Medicaid fraction of the DSH adjustment formula. The term “dual-eligible” refers to patients who are eligible to receive benefits under both Medicare Part A and a state Medicaid program, generally the elderly poor. See McCreary v. Offner, 172 F.3d 76, 78 (D.C.Cir.1999). Dual-eligible exhausted days, in turn, are patient days for individuals who are eligible for both Medicare and Medicaid, but who have exhausted their Medicare benefits for the days at issue.²See CatholicHealth, 718 F.3d at 917. MSP days are, roughly speaking, patient days for which a party other than Medicare—such as a state Medicaid program or an employer-sponsored health plan—has paid for patient services in full, and for which Medicare makes no payment by statute. See42 U.S.C. § 1395y(b)(2).³ The parties' dispute in this case is whether patients falling within these categories of patient days—dual-eligible exhausted days and MSP days—were “entitled to benefits under Part A,” as used in the Medicaid fraction of the DPP formula.⁴

The Allina hospitals' fiscal intermediary, in originally calculating the applicable DSH adjustments for the periods at issue, determined that the contested days should be excluded from the numerator of the Medicaid fraction. In other words, the intermediary concluded that such patients did not fall into the category of individuals who were “not entitled to benefits under [Medicare] Part A.” ( See Administrative Record (“AR”) at 24–25). The Hospitals then appealed the intermediary's determination to the PRRB, and the Board reversed, finding that the days in question should be counted in the Medicaid fraction. (AR at 21–30).⁵ According to the PRRB, “[b]ecause there is no right to payment from Medicare once a patient has exhausted its benefits, or [when] services are covered/paid by a primary payor other than Medicare are non-covered, these days ... would be included in [the] Medicaid fraction.” (AR at 27). From there, the Acting Deputy Administrator of CMS opted to review the matter, ultimately reversing the PRRB's decision and upholding the intermediary's original determination. (AR at 2–11). That is, the Acting Deputy Administrator concluded that the contested days should be excluded from the Medicaid fraction of the DSH adjustment formula. Allina then sought review in this Court.

The matter is presently before the Court on Allina's ...