AMISUB (PSL) v. COLO. DEPT. OF SOCIAL SERVICES, Action No. 88-F-1024.
| Decision Date | 14 September 1988 |
| Docket Number | Action No. 88-F-1024. |
| Citation | 698 F. Supp. 217 |
| Parties | AMISUB (PSL), INC., d/b/a AMI St. Luke's Hospital, AMI Presbyterian Denver Hospital, Inc., and AMI Presbyterian Aurora Hospital, Inc. Plaintiffs, v. The STATE OF COLORADO DEPARTMENT OF SOCIAL SERVICES, and Irene M. Ibarra, Executive Director of the State of Colorado, Department of Social Services, Defendants. |
| Court | U.S. District Court — District of Colorado |
L. Richard Freese, Jr., Sharon E. Caulfield, Denver, Colo., Patric Hooper, Los Angeles, Cal., for plaintiffs.
Wade Livingston, Sue Warren, Denver, Colo., for defendants.
This matter comes before the court on a trial to the court on the merits. Plaintiffs challenge the State of Colorado's system for reimbursment of Medicaid costs to hospitals. Plaintiffs argue that the State Plan violates 42 U.S.C. § 1396a(a), because the State Plan does not provide for meeting the reasonable costs of hospitals which serve Medicaid patients. Jurisdiction is proper before this court under 28 U.S.C. § 1331.
The court has examined the pleadings, briefs and argument of counsel, and enters these findings of fact and conclusions of law.
1. Plaintiff hospitals are duly licensed by the State of Colorado to provide acute care hospital services. Plaintiff hospitals also participate in the Colorado Medicaid program as providers of inpatient hospital services. Plaintiff hospitals function as tertiary care centers for the Denver area.
2. Defendant Irene M. Ibarra is the Executive Director of the State Medicaid Agency. Defendant State of Colorado Department of Social Services is the single State agency designated by the federal government to administer the Medicaid program in Colorado.
3. Title XX of the Social Security Act, 42 U.S.C. §§ 1397-1397f, the Medicaid law, authorizes federal grants to States for medical assistance to low-income persons who are aged, blind, disabled, or members of families with dependant children. The program is jointly financed by the federal and state governments and administered by the States. The States, in accordance with federal law, decide eligible beneficiary groups, types and ranges of services, payment level for services, and administrative and operative procedures. Payment for services are made directly to the individuals or entities that furnish the services. 42 C.F.R. § 430.0.
4. For hospital admissions occurring on or after July 1, 1988, the State Medicaid Agency has implemented a Diagnostically Related Group (DRG) type system for reimbursing Colorado hospitals for providing inpatient hospital services to Medicaid beneficiaries. The system calls for classifications of ailments or hospitalizations, each of which is assigned a relative weight. When a hospital has treated a medicaid patient, the relative weight is multiplied by a base rate to determine the payment to the hospital. Plaintiff hospitals do not challenge the DRG system itself, or the relative weights assigned to each DRG. Rather, they challenge the base rates.
5. A different base rate was determined for each of three peer groups of hospitals: (a) urban hospitals, (b) rural hospitals, and (c) rural referral centers. Therefore, hospitals within each peer group are assumed to have similar costs. In addition, a Base Rate is defined for out-of-state hospitals.
6. The base rates were computed as follows: First, reimbursable Medicare costs are determined through reasonable cost standards set forth in 42 U.S.C. § 1395x(v)(1)(A) and 42 C.F.R. § 413.1 et seq. Not all actual costs incurred by hospitals are allowable costs under these Medicare reasonable cost principles. Moreover, Allowable Costs are only reimbursed to the extent they are reasonable in amount. To calculate the Medicaid base rate for each peer group under 10 C.C.R. 2505-10, § 8.356.20, an average Medicare reimbursable cost per discharge for each peer group is calculated. This average is based on the total costs obtained from the peer group hospitals' most recently audited Medicare/Medicaid cost reports (currently the 1985 reports) divided by the number of Medicare discharges for each hospital. The Medicare allowable costs of each hospital are adjusted to neutralize cost differences between hospitals in the peer groups resulting from differences in the severity of the conditions of the Medicare patients treated at each hospital. The peer group hospitals' average Medicare cost per discharge obtained from the 1985 cost report is updated by an inflation factor (currently approximately 3% per year) to reflect current input prices. Then, the Medicare average cost per discharge is multiplied by .88 to obtain the Medicaid average cost per discharge (thus assuming that Medicaid costs are lower than Medicare costs).
7. Finally, the State Medicaid Agency multiplies the figure obtained above by .54 (that is, reduces it by 46%). The .54 figure is known as the final adjustment factor, and is based on the sums historically appropriated by the State legislature for Medicaid payment for inpatient hospital services. It is the ratio of the Legislature's budget appropriation to the figure obtained through the process described in the last paragraph. Thus, the figure has no relation to the actual costs of hospital services.
8. The Colorado State Legislature has appropriated $57,427,405 for reimbursing inpatient hospital services for the fiscal year beginning July 1, 1988 (fiscal year 1989). Of that sum, approximately $41,000,000 is projected to be paid for hospital services covered by the new DRG system. Because the total sum to be paid for inpatient hospital services is limited to the total sum appropriated by the State Legislature, there will have to be a concomitant decrease in payments to other categories of inpatient hospital services if payments in any category exceed the sums projected, unless the State Legislature appropriates supplemental funds. The State Medicaid Agency has also requested permission from the Legislature to overspend its 1988 fiscal year budget for inpatient hospital services since the sum appropriated for that year did not cover the actual amounts required to be paid to providers under the previous system for reimbursing providers of inpatient hospital services. If permission to overspend is granted, the additional funds will be paid out of the 1989 fiscal year appropriation. The amount to be paid by...
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Amisub (PSL), Inc. v. State of Colo. Dept. of Social Services
...Plaintiffs, three licensed Colorado hospitals (hereinafter "appellants" or "Hospitals") appeal from a final judgment against them. 698 F.Supp. 217. As Medicaid providers, they challenged the State of Colorado's system for reimbursement of inpatient hospital services as violative of 42 U.S.C......