Bethesda Health, Inc. v. Azar

• Decision Date: 23 July 2019
• Docket Number: Civil Action No. 18-875 (RMC)
• Citation: 389 F.Supp.3d 32
• Parties: BETHESDA HEALTH, INC., et al., Plaintiffs, v. Alex M. AZAR II, Secretary of the Department of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Columbia

389 F.Supp.3d 32

BETHESDA HEALTH, INC., et al., Plaintiffs,

v.Alex M. AZAR II, Secretary of the Department of Health and Human Services, Defendant.

Civil Action No. 18-875 (RMC)

United States District Court, District of Columbia.

Signed July 23, 2019

Christopher P. Kenny, Elizabeth N. Swayne, Justin A. Torres, Mark D. Polston, King & Spalding LLP, Washington, DC, for Plaintiffs.

Johnny Hillary Walker, III, Doris Denise Coles-Huff, U.S. Attorney's Office for the District of Columbia, Washington, DC, for Defendant.

ROSEMARY M. COLLYER, United States District Judge

This case concerns the application of a mathematical intersection between the federal Medicare program and the joint state/federal Medicaid program insofar as inpatient hospital care is reimbursed by Medicare. Hospitals that treat significant numbers of low-income patients receive a higher amount per Medicare patient as a "disproportionate share hospital (DSH) adjustment."

The size of the DSH adjustment to a given hospital is determined in part by the percentage of the hospital's total patient days attributed to Medicaid -eligible patients; the more patients a hospital treats who are "eligible for Medicaid," the greater its DSH adjustment and the greater its reimbursement rate under Medicare . The phrase "eligible for Medicaid" thus plays an important role in determining the amount of federal funding a hospital receives, and much ink has been spilled over its meaning in various contexts. This case is one such example.

Plaintiffs are a group of hospital organizations¹ in the State of Florida which provide uncompensated inpatient hospital services to uninsured and underinsured patients. These patients would not typically be "eligible for Medicaid." However, in 2006 Florida authorized, and the Secretary of the Department of Health and Human Services (HHS) approved, a Medicaid "demonstration project" which reformed Florida's Medicaid program and established, inter alia , a federally-matched $1 billion Low Income Pool (LIP). Funds from the LIP were used to reimburse hospitals for the uncompensated inpatient hospital services provided to uninsured and underinsured patients.

The Medicare statute and its regulations allow patients to be "deemed eligible for Medicaid"—even if they are not—and counted towards a hospital's DSH adjustment if those patients are "eligible for inpatient hospital services" under a Medicaid demonstration project. The question here is whether the uninsured and underinsured patients whose uncompensated inpatient hospital services were reimbursed by the LIP, with the Secretary's blessing, so qualify. The Secretary has already answered "no." Plaintiffs challenge this answer as arbitrary and capricious. Both Parties move for summary judgment.

The Court concludes that the uninsured and underinsured patients whose uncompensated inpatient hospital services were reimbursed by the LIP as part of a demonstration project were "eligible for Medicaid" within the meaning of the statute and regulation and should have had their patient days included in the relevant DSH calculations. Accordingly, the Court will grant Plaintiffs' motion for summary judgment and deny the government's cross-motion. The matter will be remanded for further proceedings.

I. BACKGROUND

A. The Medicaid Statute and Medicaid Demonstration Projects

Although this is a Medicare case, a brief introduction to Medicaid is necessary for context. Medicaid was adopted in Title XIX of the Social Security Act (the Act), 42 U.S.C. § 1396 et seq. It is a joint federal-state program which "offers federal funding to States to assist pregnant women, children, needy families, the blind, the elderly, and the disabled in obtaining medical care." Nat'l Fed'n of Indep. Bus. v. Sebelius , 567 U.S. 519, 541, 132 S.Ct. 2566, 183 L.Ed.2d 450 (2012). To receive federal funding under Medicaid, a state must submit a plan for medical assistance for approval to the Centers for Medicare and Medicaid Services (CMS), the agency within HHS which administers both Medicaid and Medicare. This so-called State plan specifies who will receive medical care and what care they will receive, among other details of the State plan's administration. Once a State plan is approved, CMS provides federal funds to the state matching, to varying degrees, the amount the state itself "expended ... as medical assistance under the State plan." 42 U.S.C. § 1396b(a)(1). The more "medical assistance" hospitals provide to Medicaid patients under a State plan, the more payments the state makes to those hospitals, and the more CMS reimburses the state.

Generally, under a traditional State plan, CMS only matches state expenditures for "medical assistance," a term limited by statute to certain enumerated services provided to certain enumerated classes of individuals. See 42 U.S.C. § 1396d(a) (defining "medical assistance"). Title XI § 1115(a) of the Social Security Act, 42 U.S.C. § 1315(a), however, authorizes the Secretary to waive some of Medicaid's statutory requirements for experimental state "demonstration projects" which, in the Secretary's judgment, will "assist in promoting the objectives of [Medicaid]." Id . These demonstration projects—also known as § 1115 waivers—"enable the states to try new or different approaches to the efficient and cost-effective delivery of health services, or to adapt their programs to the special needs of particular areas or groups of recipients," 42 C.F.R. § 430.25, and a state's costs towards a demonstration project "shall, to the extent and for the period prescribed by the Secretary, be regarded as expenditures under the State plan." 42 U.S.C. § 1315(a)(2)(A). In plain English, the law allows a state to adopt a demonstration project, with prior approval from the Secretary, to "provide benefits to people who wouldn't otherwise be eligible for Medicaid benefits; and the costs of these benefits are treated as if they are matchable Medicaid expenditures." Forrest Gen. Hosp. v. Azar , 926 F.3d 221, 224 (5th Cir. 2019). Patients not normally eligible for Medicaid who nonetheless receive Medicaid benefits under a demonstration project are known as "expansion waiver populations." See Cookeville Reg'l Med. Ctr. v. Leavitt , 531 F.3d 844, 846 (D.C. Cir. 2008).

B. The Medicare Statute and the Disproportionate Share Hospital Adjustment

Medicare, adopted as Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq. , is a federal program which provides health insurance to those who qualify, mostly senior persons receiving Social Security Income benefits at retirement or those receiving Social Security Disability Income due to a covered disability. It is a huge program, paid for by taxes. See Azar v. Allina , ––– U.S. ––––, 139 S. Ct. 1804, 1808, 204 L.Ed.2d 139 (2019). Part A of Medicare reimburses hospitals for the costs of inpatient medical care to such patients. Critically, Medicare no longer reimburses hospitals for their actual operating costs. Described most simply, CMS reimburses hospitals "at a fixed amount per patient" for each day of inpatient hospital services provided, according to a patient's diagnosis. Billings Clinic v. Azar , 901 F.3d 301, 303 (D.C. Cir. 2018). That fixed amount per patient day differs among hospitals and is adjusted annually upwards or downwards based on various local factors. As relevant here, Congress has determined that "[h]ospitals that serve a disproportionate share of low-income patients have higher [M]edicare costs per case," H.R. Rep. No. 99-241, pt. 1, at 16 (1985), and those hospitals receive an upward adjustment to their Medicare reimbursement, which is known as the disproportionate share hospital (DSH) adjustment.²

To determine whether a hospital serves a disproportionate share of low-income patients, CMS looks to its "disproportionate patient percentage," which is calculated by adding together two fractions known as the Medicare fraction and the Medicaid fraction. Together these two fractions "provide a proxy for the total low-income patient percentage."³ Catholic Health Initiatives Iowa Corp. v. Sebelius , 718 F.3d 914, 916 (D.C. Cir. 2013). This case involves only the Medicaid fraction,

the numerator of which is the number of the hospital's patient days for such period which consist of patients who (for such days) were eligible for medical assistance under a State plan approved under subchapter XIX [i.e. , Medicaid], but who were not entitled to benefits under part A of this subchapter [i.e. , Medicare], 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). Put simply, for the purposes of this case, hospitals must count how many in-hospital days were spent treating "patients who ... were eligible for medical assistance under a State plan approved under [Medicaid]." The effect of this fraction is that "the more a hospital treats patients who are eligible for medical assistance under ... Medicaid , the more money it receives for each patient covered by Medicare ." Adena Reg'l Med. Ctr. v. Leavitt , 527 F.3d 176, 178 (D.C. Cir. 2008) (internal marks omitted) (emphasis in original).

That said, the meaning of the phrase "patients who ... were eligible for medical assistance under a State plan approved under [Medicaid]" is not as obvious as it may sound. This is because there is a second part to the definition of the Medicaid fraction:

In determining under [the Medicaid fraction] the number of the hospital's patient days for such period which consist of patients who (for such days) were eligible for medical assistance under a State plan approved under [Medicaid], the Secretary may, to the extent and for the period the Secretary deems appropriate, include patient days of patients not so eligible but who are regarded as such because they receive benefits under a demonstration project approved under subchapter XI.

42 U.S.C. § 1395ww(d)(5)(F)(vi)(II) (emphasis added). This means that hospitals may count "...