Se. Ark. Hospice, Inc. v. Sebelius

• Decision Date: 20 February 2014
• Docket Number: No. 2:13–cv–00134–KGB.,2:13–cv–00134–KGB.
• Citation: 1 F.Supp.3d 915
• Parties: SOUTHEAST ARKANSAS HOSPICE, INC., Plaintiff v. Kathleen SEBELIUS, Secretary, United States Department of Health and Human Services, Defendant.
• Court: U.S. District Court — Eastern District of Arkansas

1 F.Supp.3d 915

SOUTHEAST ARKANSAS HOSPICE, INC., Plaintiff

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

No. 2:13–cv–00134–KGB.

United States District Court,

E.D. Arkansas,

Eastern Division.

Signed Feb. 20, 2014.

Don E. Trimble, Attorney at Law, Little Rock, AR, for Plaintiff.

Shannon S. Smith, U.S. Attorney's Office, Little Rock, AR, for Defendant.

OPINION AND ORDER

KRISTINE G. BAKER, District Judge.

Plaintiff Southeast Arkansas Hospice, Inc. (“SEARK”) brings this action against Kathleen Sebelius, the Secretary of the United States Department of Health and Human Services (“HHS”), alleging that the Secretary's regulation purportedly prohibiting SEARK from discharging hospice patients who exhaust their hospice benefits operates as a regulatory taking and that the provider agreement is an unconscionable contract of adhesion, requiring SEARK to continue to serve hospice patients even after their benefit period has ended while making no provision for payment to the hospice after the benefit period ends. Pending before the Court is SEARK's application for a temporary restraining order or preliminary injunction to stay collection of all demands for repayment pending final adjudication (Dkt. No. 8). The Court opted to consider SEARK's request as one for a preliminary injunction (Dkt. No. 10). The Secretary responded to SEARK's motion (Dkt. No. 12), and SEARK filed a “trial brief” for the preliminary injunction hearing (Dkt. No. 13). A preliminary injunction hearing was conducted on February 7, 2014. For the following reasons, SEARK's request for a preliminary injunction is denied (Dkt. No. 8).

I. Background

SEARK operates hospice-care facilities in Pine Bluff, Arkansas, and Helena, Arkansas, and receives reimbursement for hospice care provided to Medicare beneficiaries pursuant to the hospice benefit included in Medicare Part A. See42 U.S.C. §§ 1395c, 1395f(a)(7). A Medicare beneficiary may elect hospice care if at least two physicians certify that he or she is terminally ill, with a life expectancy of six months or less. See42 U.S.C. §§ 1395f(a)(7)(A), 1395x(dd)(3)(A). Medicare generally pays hospice providers a fixed amount for each day the provider provides care to an eligible beneficiary. 42 U.S.C. § 1395f(i)(1); see also42 C.F.R. § 418.302 (establishing rates). When the hospice benefit was established in 1982, beneficiaries were generally limited to six months of hospice care. See Tax Equity and Fiscal Responsibility Act of 1982, § 122, Pub.L. 97–248, 96 Stat. 324, 356 (1982). However, under an amendment included in the Balanced Budget Act of 1997, Pub.L. No. 105–33, § 4443(a), 111 Stat. 251, 423 (1997), if a beneficiary lives longer than six months, coverage may be extended for an unlimited number of 60–day periods. See42 U.S.C. § 1395d(d)(1).

To ensure that hospice care payments do not exceed the costs of treatment in a conventional setting, there is a “cap” on the total amount paid in reimbursements to hospice providers for all eligible patients in any given fiscal year. 42 U.S.C. § 1395f(i)(2)(A); H.R.Rep. No. 98–333, at 1 (1983), U.S.Code Cong. & Admin. News 1983, p. 1043. A provider's annual cap is calculated by multiplying a per-patient amount defined by statute and indexed for inflation, times the number of Medicare beneficiaries in the hospice program during that fiscal year. 42 U.S.C. § 1395f(i)(2)(A). For purposes of this calculation, the number of beneficiaries in a hospice program in a fiscal year is adjusted to reflect the portion of care provided in a previous or subsequent reporting year or in another hospice. Id. § 1395f(i)(2)(C).

Although not at issue in this case, the Court notes that the regulation implementing the cap, 42 C.F.R. § 418.309(b), previously included a “streamlined methodology” that several courts, including one in this district, have found invalid for implying a calculus contrary to the legislative intent of 42 U.S.C. § 1395f(i)(2)(C). Southeast Arkansas Hospice, Inc. v. Sebelius, 784 F.Supp.2d 1102, 1109 (E.D.Ark.2011) (collecting cases).¹ In 2011, SEARK obtained a permanent injunction enjoining the Secretary from enforcing 42 C.F.R. § 418.309(b) against SEARK as to fiscal year 2009. 784 F.Supp.2d at 1109. The regulation was amended as a result of the litigation surrounding the streamlined methodology. See42 C.F.R. § 418.309(b)- (d) (eff. Oct. 1, 2011); Aggregate Cap Calculation Methodology, 76 Fed.Reg. 47308 (Aug. 4, 2011). As amended, 42 C.F.R. § 418.309(c) now includes a “proportional” methodology consistent with the requirements of the governing statute, 42 U.S.C. § 1395f(i)(2)(C).

Hospice providers typically receive Medicare payments through a fiscal intermediary. The fiscal intermediary is responsible for calculating the hospice cap for the relevant accounting year. When it is determined that a provider exceeded its aggregate cap for an accounting year, the fiscal intermediary issues a demand for the overage known as a Notice of Program Reimbursement (“NPR”). See42 C.F.R. § 418.308(d). Under 42 U.S.C. § 1395 oo(a), a hospice provider may challenge an NPR and seek a hearing before the Provider Reimbursement Review Board (“PRRB”), so long as the amount in controversy is at least $10,000.00 and the provider requests a hearing before the PRRB within 180 days after receipt of the NPR demand. If the provider is dissatisfied with the PRRB's ruling, it may obtain judicial review by filing a civil action within 60 days of the PRRB's final determination. Id. § 1395 oo(f)(1). The PRRB has the authority to affirm, modify, or reverse a final determination of the fiscal intermediary, 42 U.S.C. § 1395 oo(d), and the PRRB's decision constitutes a final agency ruling, unless it is appealed to the Secretary, id.,§ 1395 oo(f)(1). When the provider challenges the validity of a regulation itself, however, the PRRB lacks the authority to declare regulations invalid. See Bethesda Hosp. Ass'n v. Bowen, 485 U.S. 399, 406, 108 S.Ct. 1255, 99 L.Ed.2d 460 (1988) (“Neither the fiscal intermediary nor the Board has the authority to declare regulations invalid.”). “In this situation, once the PRRB has determined ‘that it is without authority to decide the question’ because the ‘action of the fiscal intermediary ... involves a question of law or regulations,’ the provider may obtain ‘expedited judicial review.’ ” Lion Health Servs., Inc. v. Sebelius, 635 F.3d 693, 697 (5th Cir.2011) (quoting 42 U.S.C. § 1395 oo(f)(1)). “Thus, the provider brings an action against the Secretary in federal district court, which the court tries pursuant to the standards of the Administrative Procedure Act.” Id.; see5 U.S.C. § 701 et seq.;42 U.S.C. § 1395 oo(f)(1); 42 C.F.R. § 405.1842.

SEARK voluntarily entered into a provider agreement with the Secretary in October 2004. SEARK agreed as the provider of services “to conform to the provisions of section 1866 of the Social Security Act and applicable provisions in 42 CFR” to receive payment under Title XVIII of the Social Security Act (Dkt. No. 8, at 83). SEARK now brings this instant action contending the provider agreement, together with the relevant regulations, violates the Takings Clause of the Fifth Amendment and constitutes an unconscionable contract of adhesion.² Specifically, SEARK takes issue with the prohibition on discharging patients who exceed the cap amount. SEARK seeks a preliminary injunction to stay enforcement of seven demands for repayment.

Between January and May 2013, SEARK's fiscal intermediary, Palmetto GBA, sent five NPRs to SEARK's respective facilities. SEARK's Pine Bluff location received NPRs demanding overpayment in the amount of $157,885.00 for the fiscal year ending October 31, 2010, and $155,640.00 for the fiscal year ending October 31, 2011. SEARK's Helena facility received NPRs demanding overpayment in the amount of $177,166.00 for the fiscal year ending October 31, 2010, and $235,392.00 for the fiscal year ending October 31, 2011. SEARK's Helena facility also received a revised NPR demanding $121,805.00 in overpayments for the fiscal year ending October 31, 2009. Each NPR provided that all payments to SEARK would be withheld unless SEARK submitted within 15 days either the full amounts demanded or a request for an extended repayment schedule with an initial payment. SEARK's Chief Executive Officer, Dr. Clifford Flowers, testified that he has submitted a repayment plan and initial payment for each of these NPRs. SEARK has appealed these five NPRs to the PRRB.

The record indicates that, at each hearing request on its appeals and in a May 13, 2013, request for expedited judicial review (“EJR”), SEARK requested that cap determination be recalculated using the patient-by-patient proportional methodology described in 42 C.F.R. § 418.309(c) and, citing 42 C.F.R. § 418.26, asserted that its provider agreement with Medicare resulted in a regulatory taking, an unconscionable contract, and illegal subsidization. In its EJR, SEARK also alleged its provider agreement requiring compliance with the Medicare regulations at issue is an unfair and deceptive business practice. The PRRB issued its rulings on August 30, 2013. The PRRB remanded the cap determinations to the Medicare Administrative Contractor (the “MAC”) for recalculation under the requested methodology except for the NPR to the Helena facility for fiscal year ended October 31, 2009, which had already been appealed and recalculated. The PRRB concluded that it lacks jurisdiction over the challenge to the validity of 42 C.F.R. § 418.26.

SEARK received two additional NPRs on January 10, 2014, for the fiscal year ending October 31, 2012. For fiscal year ending October 31, 2012, SEARK received one NPR for its Helena facility for $323,104.00, and one NPR for its Pine Bluff facility for $117,580.00. These NPRs also threatened withholding of funds unless SEARK submitted within 15 days either the full amounts demanded or a request...