Banner Heart Hosp. v. Burwell, Civil No. 14-cv-01195 (APM)

• Decision Date: 19 August 2016
• Docket Number: Civil No. 14-cv-01195 (APM)
• Parties: BANNER HEART HOSPITAL, et al., Plaintiffs, v. Sylvia M. BURWELL, Secretary, United States Department of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Columbia

201 F.Supp.3d 131

BANNER HEART HOSPITAL, et al., Plaintiffs,

v.Sylvia M. BURWELL, Secretary, United States Department of Health and Human Services, Defendant.

Civil No. 14-cv-01195 (APM)

United States District Court, District of Columbia.

Signed August 19, 2016

Michihiro M. Tsuda, Mimi Hu Brouillette, Sven C. Collins, Stephen P. Nash, Squire Patton Boggs, Denver, CO, for Plaintiffs.

Peter Bryce, US Department of Justice, Washington, DC, for Defendant.

MEMORANDUM OPINION

Amit P. Mehta, United States District Judge

I. INTRODUCTION

Under the Medicare program, hospitals and other providers are reimbursed for the cost of covered medical services they administer to eligible patients. The Centers for Medicare and Medicaid Services is the federal agency which manages the Medicare program. It makes payments to providers by using contractors, which are typically private insurance companies, known as "Medicare administrative contractors" or "fiscal intermediaries." In order to receive reimbursement, hospitals must submit to the contractors annual cost reports, which detail the covered services that they have provided during the year. The contractor then reviews the cost report, audits items in the report if necessary, and determines the total amount owed to the hospital for the year. The contractor then reimburses the hospital for the amount it is owed. If a provider of services is dissatisfied with the final reimbursement amount determined by the contractor, it can appeal that decision to the Provider Reimbursement Review Board ("the Board").

This case concerns the procedures that a provider must follow to satisfy the jurisdictional prerequisites for Board review. Plaintiffs are a group of non-profit organizations that own and operate acute care hospitals that participate in the Medicare program. They bring this action challenging the Board's final administrative decision that it did not have jurisdiction to review their challenges to certain Medicare regulations that govern the amount of "outlier" payments due to them. Outlier payments are for the treatment of extraordinarily expensive patient cases.

Plaintiffs' challenge to the outlier payment regulations, however, is not before the court. Rather, Plaintiffs here challenge only the Board's procedural decision to deny them expedited judicial review of the outlier regulations based on the Board's determination that it lacked jurisdiction to hear Plaintiffs' request. The Board concluded that it lacked jurisdiction because Plaintiffs had not complied with HHS's "self-disallowance" regulation. That regulation requires, as a precondition of Board review, that the provider "has preserved its right to claim dissatisfaction" by either (1) including in its cost report the specific items for which it seeks reimbursement, or (2) "self-disallowing" those specific items if the provider believes that the items are not allowable under Medicare rules or policy.

In industry parlance, "self-disallowance" means that a provider should report to the fiscal intermediary (i.e. , the contractor) a cost sought that it believes should be reimbursable but for the challenged Medicare regulations, but not ask for reimbursement of that specific cost because the challenged Medicare regulations impermissibly bar that type of claim. In other words, the provider must essentially challenge the validity of the Medicare regulation in its cost report to preserve its right to appeal. Plaintiffs challenge the "self-disallowance" regulation on numerous grounds, including that it violates the administrative appeal provision of the Medicare statute and the key Supreme Court precedent interpreting it, Bethesda Hosp. Ass'n v. Bowen , 485 U.S. 399, 108 S.Ct. 1255, 99 L.Ed.2d 460 (1988).

Before the court is Plaintiffs' Motion for Summary Judgment and Defendant's Cross-Motion for Summary Judgment. Upon consideration of the parties' submissions, the court concludes that the Board's application of the "self-disallowance" regulation in this case was foreclosed by the Supreme Court's decision in Bethesda. As interpreted by the Court in Bethesda , the Medicare statute does not compel providers, such as Plaintiffs here, who are challenging the legality of a Medicare regulation, to self-disallow to preserve their right to appeal to the Board. Accordingly, the Board erroneously concluded that it lacked jurisdiction to hear Plaintiffs' request for expedited judicial review. The court therefore will grant Plaintiffs' Motion for Summary Judgment and deny Defendant's Cross-Motion for Summary Judgment, and will remand this matter to the Board for further proceedings consistent with this Memorandum Opinion.

II. BACKGROUND

A. Statutory and Regulatory Framework

1. The Medicare Statute

The Medicare statute, 42 U.S.C. § 1395 et seq ., establishes a federal health insurance program for the disabled and the elderly. A hospital or other provider of medical services participates in the Medicare program under a "provider agreement" with the Secretary of Health & Human Services—the named Defendant in this case. 42 U.S.C. § 1395cc. Part A of the Medicare program provides insurance for participating hospitals and pays them for covered medical services furnished to Medicare-eligible individuals. 42 U.S.C. §§ 1395c to 1395i–4.

Since 1983, Medicare has reimbursed hospitals for covered services through a prospective payment system ("PPS"). 42 U.S.C. § 1395ww(d) ; see also UMDNJ – Univ. Hosp. v. Leavitt , 539 F.Supp.2d 70, 71–72 (D.D.C.2008) (citations omitted). Under the PPS, payments to hospitals are made based on pre-determined flat rates for each of more than 450 diagnosis-related groups of treatments and services. See generally 42 C.F.R. § 412 (PPS regulations). Put simply, a hospital records the diagnosis of each patient, treats that patient, and then is later reimbursed based on a previously-determined rate for that specific diagnosis. Id . The PPS system also allows for "outlier" payments, which are payments made to reimburse the treatment of particularly weak or ill patients that require more robust and, therefore, more expensive treatment. 42 U.S.C. § 1395ww(d)(5)(A) ; 42 C.F.R. §§ 412.80 -412.86. As discussed below, Plaintiffs' challenge to these outlier regulations put in motion the events that led to this lawsuit.

To secure payment from the Centers for Medicare and Medicaid Services (CMS) for covered services, hospitals must submit an annual cost report to a contractor, which is typically a private insurance company, known as a "Medicare administrative contractor" or "fiscal intermediary" that acts as an agent for the Secretary. 42 U.S.C. § 1395h(a). An annual cost report sets out in detail the covered services provided by the hospital to Medicare-eligible patients. 42 C.F.R. §§ 413.20(c), 413.24(f). The contractor then reviews the cost report, audits items in the report if necessary, and eventually issues a written Notice of Program Reimbursement, which reflects its determination as to the total amount owed to the hospital for Medicare-covered services provided throughout the year. See 42 C.F.R. § 405.1803.

The Medicare statute provides an avenue for redress—an appeal to the Provider Reimbursement Review Board—to providers who are dissatisfied with the reimbursement amounts awarded by the fiscal intermediary. The jurisdictional prerequisites to Board review are set forth in 42 U.S.C. § 1395oo(a). That statute provides, as relevant here, that a provider of services may obtain a hearing before the Board regarding the results of the contractor's review of its cost report if such provider:

(1)(A)(i) is dissatisfied with a final determination of the organization serving as its fiscal intermediary ... as to the amount of total program reimbursement due the provider ... for the period covered by such [cost] report ...

(2) the amount in controversy is $10,000 or more, and

(3) such provider files a request for a hearing within 180 days after notice of the intermediary's final determination.

42 U.S.C. § 1395oo(a).

Once an appeal is properly before the Board, the Medicare statute provides that "[t]he Board shall have the power to affirm, modify, or reverse a final determination of the fiscal intermediary with respect to a cost report and to make any other revisions on matters covered by such cost report (including revisions adverse to the provider of services) even though such matters were not considered by the intermediary in making such final determination ." 42 U.S.C.A. § 1395oo(d) (emphasis added). The Supreme Court in Bethesda observed that "[t]his language allows the Board, once it obtains jurisdiction pursuant to subsection (a), to review and revise a cost report with respect to matters not contested before the fiscal intermediary. The only limitation prescribed by Congress is that the matter must have been ‘covered by such cost report.’ " 485 U.S. at 406, 108 S.Ct. 1255. Our Court of Appeals has put it this way: "[O]nce Board jurisdiction pursuant to subsection (a) obtains, anything in the original cost report is fair game for a challenge by virtue of subsection (d)." HCA Health Servs. of Oklahoma, Inc. v. Shalala , 27 F.3d 614, 617 (D.C.Cir.1994).

2. The Claim Preservation Regulation

In 2008, HHS promulgated 42 C.F.R. § 405.1835 (2008), which is the regulation at the heart of the parties' dispute in this case. Interpreting the jurisdictional requirements of Board review set forth in 42 U.S.C. § 1395oo(a), section 405.1835 provided, as pertinent here, that "[a] provider ... has a right to a Board hearing ... for specific items claimed for a cost reporting period" "only if" "[t]he provider has preserved its right to claim dissatisfaction." 42 C.F.R. § 405.1835(a)(1). The regulation noted that a hospital could preserve that right in one of two ways. It could "include [ ] a claim for specific item(s) on its cost report for the period where the provider seeks payment that it believes to be in accordance with Medicare policy." Id. § 405.1835(a)(1)(i). Or, "where...