Breckinridge Health, Inc. v. Price

• Decision Date: 23 August 2017
• Docket Number: No. 16–6269,16–6269
• Citation: 869 F.3d 422
• Parties: BRECKINRIDGE HEALTH, INC., et al. Plaintiffs–Appellants, v. Thomas E. PRICE, in his official capacity as Secretary of the United States Department of Health and Human Services, Defendant–Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

869 F.3d 422

BRECKINRIDGE HEALTH, INC., et al. Plaintiffs–Appellants,
v.
Thomas E. PRICE, in his official capacity as Secretary of the United States Department of Health and Human Services, Defendant–Appellee.

No. 16–6269

United States Court of Appeals, Sixth Circuit.

Argued: April 27, 2017
Decided and Filed: August 23, 2017

ARGUED: David M. Dirr, Dressman Benzinger Lavelle PS, Crestview Hills, Kentucky, for Appellants. Carleen M. Zubrzycki, United States Department of Justice, Washington, D.C., for Appellee. ON BRIEF: David M. Dirr, Mathew R. Klein, Richard G. Meyer, Dressman Benzinger Lavelle PS, Crestview Hills, Kentucky, for Appellants. Carleen M. Zubrzycki, Michael S. Raab, United States Department of Justice, Washington, D.C., for Appellee.

Before: GUY, SILER, and DONALD, Circuit Judges.

AMENDED OPINION

BERNICE BOUIE DONALD, Circuit Judge.

Various Kentucky hospitals (collectively, "Appellants") sought Medicare reimbursement

869 F.3d 424

for certain state taxes they paid on their gross revenue. The United States Department of Health and Human Services ("HHS") offset the amount of Appellants' Medicare reimbursement by the Medicaid Disproportionate Share Hospital ("DSH") payments Appellants received, reasoning that those payments effectively refunded the taxes paid. The district court affirmed this decision. Because the net effect of the Medicaid DSH payment was to reimburse Appellants for the tax, HHS's decision was not arbitrary, capricious, or manifestly contrary to the Medicare statute. Accordingly, we AFFIRM the district court's judgment.

I.

Appellants are Critical Access Hospitals and are reimbursed by Medicare for the reasonable and necessary costs of providing services to Medicare patients. The federal Medicaid program requires states to create a plan to provide additional payments to hospitals, like Appellants, that serve a disproportionate share of low-income patients. 42 U.S.C. § 1396a(a)(13)(A)(iv). In Kentucky, these DSH payments are matched at 70% by the federal government. Kentucky's contribution to DSH programs comes from two sources: Kentucky Provider Tax Revenue ("KP–Tax") and payments from state university hospitals. The KP–Tax is a 2.5% tax on the gross revenue of various hospitals, including Appellants. Ky. Rev. Stat. § 142.303(1). The KP–Tax revenue is deposited into the Medical Assistance Revolving Trust ("MART"), Ky. Rev. Stat. § 205.640(2), which in turn is used to fund the DSH payments, Ky. Rev. Stat. § 205.640(3)(a). The amount of DSH payments a hospital receives is unrelated to the amount of KP–Tax it paid. Also, during the years at issue, DSH payments covered only approximately 45% of the costs Appellants incurred providing care to indigent patients.

Appellants filed cost reports in 2009 and 2010 claiming their entire KP–Tax payment as a reasonable cost for reimbursement under the Medicare Act. Up until that point, they had received full reimbursement under the reasonable cost statute. However, for 2009 and 2010, the Medicare Administrative Contractor denied full reimbursement, offsetting the KP–Tax cost by the amount of Medicaid DSH payments Appellants received. The Provider Reimbursement Review Board ("PRRB") upheld the offsets, concluding that when Appellants received a Kentucky Medicaid DSH payment, they were actually receiving a refund of some or all of the KP–Tax they paid. So it concluded that the reimbursable Medicare cost "actually incurred" was the gross amount Appellants paid for the KP–Tax, minus the Medicaid DSH payments it received.

Appellants appealed this decision, but the Administrator of the Centers for Medicare and Medicaid Services issued a final decision declining to modify the PRRB's decision. Appellants then filed the instant action, asserting violations of the Administrative Procedure Act. The parties filed cross-motions for summary judgment.

The district court upheld the offset decision. Relying heavily on Abraham Lincoln Memorial Hospital v. Sebelius , 698 F.3d 536 (7th Cir. 2012), the district court agreed with the PRRB that the net economic impact of Appellants' receipt of the DSH payment in relation to the cost associated with the KP–Tax assessment indicated that the DSH payments served to reduce Appellants' expenses such that they constituted a refund. So, the district court concluded that the KP–Tax payment was properly offset by the DSH payment. Next, the district court rejected Appellants' argument that the PRRB's decision

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was inconsistent with the Final Rule of August 16, 2010, which, according to Appellants, requires a payment to be made specifically for the purpose of reimbursing a tax in order for the claimed reimbursement to be offset by the payment. The district court concluded that the Rule merely requires evidence that the DSH payment and the KP–Tax are related prior to offsetting the KP–Tax by the DSH payment. Finally, the district court rejected Appellants' argument that the offset decision deviated from longstanding practice, reasoning that an agency does not establish policy simply by not taking administrative action.¹

II.

Where, as here, Congress left it up to HHS to determine what constitutes a reasonable cost meriting reimbursement, we give its judgment controlling weight unless it is "arbitrary, capricious, or manifestly contrary to the statute." Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc. , 467 U.S. 837, 843–44, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Our inquiry is not whether the HHS's interpretation is the best one; instead, we give substantial deference to its interpretation unless an "alternative reading is compelled by the regulation's plain language or by other indications of the Secretary's intent." Thomas Jefferson Univ. v. Shalala , 512 U.S. 504, 512, 114 S.Ct. 2381, 129 L.Ed.2d 405 (1994) (quoting Gardebring v. Jenkins , 485 U.S. 415, 430, 108 S.Ct. 1306, 99 L.Ed.2d 515 (1988) ). In the Medicare context, "broad deference is all the more warranted when, as here, the regulation concerns a complex and highly technical regulatory program, in which the identification and classification of relevant criteria necessarily require significant expertise and entail the exercise of judgment grounded in policy concerns." Atrium Med. Ctr. v. HHS , 766 F.3d 560, 568 (6th Cir. 2014) (quoting Thomas Jefferson Univ. , 512 U.S. at 512, 114 S.Ct. 2381 ) (internal quotation marks omitted).

III.

a.

Under the Medicaid program, a state plan must provide that payments made to hospitals include an upward rate adjustment for hospitals that serve a disproportionate number of low-income patients that have special needs. 42 U.S.C. § 1396a(a)(13)(A)(iv) ; Owensboro Health, Inc. v. HHS , 832 F.3d 615, 618 (6th Cir. 2016). The purpose of this adjustment is to give relief to those hospitals that have few privately insured patients to counteract the losses incurred from a large volume of uninsured patients. Owensboro Health , 832 F.3d at 618–19 (quoting H.R. Rep. No. 103-111, at 211 (1993)). In Kentucky, this upward adjustment, or DSH payment, is determined by regulation. 907 KAR 10:820 § 4.

Under Kentucky law, providers are also required to pay a 2.5% tax on gross revenues. Ky. Rev. Stat. § 142.303(1). The provider taxes, or KP–Tax assessment payments, are deposited into the MART fund. Ky. Rev. Stat. § 205.640(2). These "provider tax revenues and state and federal matching funds shall be used to fund the disproportionate share program." Ky. Rev. Stat. § 205.640(3)(a).

b.

A hospital may also enter into an agreement with the Secretary to render services to Medicare patients, in most...