Canonsburg Gen. Hosp. v. Sebelius

• Decision Date: 17 October 2013
• Docket Number: Civil Action No. 09–2385(BAH)
• Citation: 989 F.Supp.2d 8
• Parties: Canonsburg General Hospital, Plaintiff, v. Kathleen Sebelius, Secretary, U.S. Department of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Columbia

989 F.Supp.2d 8

Canonsburg General Hospital, Plaintiff,

v.Kathleen Sebelius, Secretary, U.S. Department of Health and Human Services, Defendant.

Civil Action No. 09–2385(BAH)

United States District Court, District of Columbia.

October 17, 2013

Sven C. Collins, Stephen P. Nash, John R. Sharp, Patton Boggs, LLP, Denver, CO, for Plaintiff, Canonsburg General Hospital.

Mitchell P. Zeff, U.S. Attorney's Office, Jonathan C. Brumer, Jeremy Vogel, U.S. Dept. of Health and Human Services Office of the General Counsel, Washington, DC, for Defendant, Kathleen Sebelius.

MEMORANDUM OPINION

BERYL A. HOWELL, United States District Judge

The plaintiff, Canonsburg General Hospital, brings this challenge, under the Administrative Procedure Act (“APA”), 5 U.S.C. §§ 553 et seq., against the Secretary of the U.S. Department of Health and Human Services (“the Secretary”), alleging that the Secretary's regulation used to calculate reimbursement for services under Medicare is arbitrary and capricious. Pending before the Court are the defendant's Motion For Summary Judgment, ECF No. 28, and the plaintiff's Cross–Motion for Summary Judgment, ECF No. 29. As explained below, the defendant's motion is granted and the plaintiff's cross-motion is denied because the plaintiff is precluded from raising this legal challenge after the same issue has already been fully adjudicated between the same parties in the District Court for the Western District of Pennsylvania.

I. BACKGROUNDA. Statutory Scheme

Medicare is a federal program that pays for health care services furnished to eligible beneficiaries—generally individuals over 65 and individuals with disabilities. See42 U.S.C. § 1395c. The Centers for Medicare and Medicaid Services (“CMS”), formerly known as the Health Care Financing Administration, ¹ is the component of the Department of Health and Human Services (“HHS”) that administers the Medicare program. SeeSt. Elizabeth's Med. Ctr. of Bos., Inc. v. Thompson, 396 F.3d 1228, 1230 (D.C.Cir.2005). The CMS reimburses healthcare providers ² for, inter alia, “the reasonable cost” of services provided to Medicare beneficiaries. See42 U.S.C. § 1395f(b)(1).

“Congress authorized the Secretary of Health and Human Services to issue regulations defining reimbursable costs and otherwise giving content to the broad outlines of the Medicare statute.” Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 506–07, 114 S.Ct. 2381, 129 L.Ed.2d 405 (1994) (citing 42 U.S.C. § 1395x(v)(1)(A)). Pursuant to this authority, the Secretary has “discretion to determine ... the ‘reasonable cost’ of services.” Id. at 507, 114 S.Ct. 2381. “Reasonable cost” is defined as “the cost actually incurred, excluding therefrom any part of the incurred cost found to be unnecessary in the efficient delivery of needed health services, and shall be determined in accordance with regulations” promulgated by HHS. 42 U.S.C. § 1395x(v)(1)(A).

Title XVIII of the Social Security Act established the Medicare program to provide health insurance for the elderly and disabled individuals. See42 U.S.C. §§ 1395 et seq.; see alsoBaptist Mem'l Hosp. v. Sebelius, 768 F.Supp.2d 295, 296 (D.D.C.2011); Milton Hosp. Transitional Care Unit v. Thompson, 377 F.Supp.2d 17, 19 (D.D.C.2005). Relevant to the instant case is Part A of the Medicare program, which authorizes payments for institutional care provided by hospitals and free-standing skilled nursing facilities (“SNFs”). See42 U.S.C. §§ 1395c–1395i(5). “Provider[s] of services,” such as SNFs, furnish Part A services after having entered into a “provider agreement” with the Secretary. Seeid.§§ 1395x(u), 1395cc.

SNFs submit claims, which are also known as “cost reports,” for reimbursement to private “Medicare administrative contractors,” who serve as fiscal intermediaries to process claims and reimburse providers on behalf of Medicare. See42 U.S.C. §§ 1395kk–1(a)(4). If the SNF disagrees with a fiscal intermediary's reimbursement decision, the provider may appeal the decision to the Provider Reimbursement Review Board (“PRRB”), a five-member body appointed by the Secretary. See id. § 1395oo. At her discretion, the Secretary may reverse, affirm, or modify any PRRB decision. Id. § 1395oo(f); see also42 C.F.R. § 405.1875. The Secretary's decision or, if the Secretary takes no action, the PRRB's decision, constitutes a final agency action, and a provider has the right to challenge such a decision in federal district court within sixty days of issuance. See42 U.S.C. § 1395oo(f).

“Seeking to encourage Medicare-certified providers to operate efficiently, Congress has instructed the Secretary ... to cap payments under these programs at what [s]he determines to be reasonable cost limits (‘RCLs') and apply statutory norms in the determination.” St. Elizabeth's Med. Ctr. of Boston, Inc., 396 F.3d at 1230 (citing 42 U.S.C. §§ 1395f(b), 1395x(v), 1395yy). Accordingly, the Secretary promulgated regulations pertaining to RCLs and also outlined certain exemptions and exceptions where these cost limits may be adjusted. See 39 Fed.Reg. 20164 (June 6, 1974); 39 Fed.Reg. 10260 (Mar. 19, 1974); see also42 C.F.R. § 413.30. “Exemptions from [RCLs] imposed under [42 C.F.R. § 413.30] may be granted to a new SNF,” 42 C.F.R. § 413.30(d), and a provider who receives such an exemption is “not affected at all by the cost limits and is reimbursed under the standard rules.” 44 Fed.Reg. 31,802 (June 1, 1979); see also64 Fed.Reg. 42610, 42611 (Aug. 5, 1999); 63 Fed.Reg. 42797 (Aug. 11, 1998).

“An exception differs from an exemption,” 44 Fed.Reg. 31,802 (1979), since an exception provides that RCLs may be adjusted upward under specific, enumerated circumstances “to the extent that the costs are reasonable, attributable to the circumstances specified, separately identified by the SNF ..., and verified by the intermediary.” 42 C.F.R. § 413.30(e). Relevant to the instant case, an “atypical service” exception applies where (1) “the actual cost of services furnished ... exceeds the applicable limit because the services are atypical in nature and scope, compared to the services generally furnished by SNFs ... similarly classified;” and (2) “[a]typical services are furnished because of the special needs of the patients treated and are necessary in the efficient delivery of needed health care.” 42 C.F.R. § 413.30(e)(1).

When determining what RCL is to be applied, SNFs are categorized into four groups based upon two primary criteria: (1) location in an urban or rural area, and (2) “freestanding” or “hospital-based.” See generally42 U.S.C. § 1395yy(a). Each group has its own RCL. Id. Initially, the RCLs were set at 115 percent of the mean per diem costs for routine services at SNFs within each peer group. See44 Fed.Reg. 51542, 51545 (Aug. 31, 1979). The RCLs were later lowered to their present level of 112 percent of mean per diem cost. See45 Fed.Reg. 58699, 58700 (Sept. 4, 1980). Under this arrangement, RCLs for hospital-based SNFs were found to be significantly higher than those for freestanding SNFs, leading Congress to include in the Deficit Reduction Act of 1984 (“DEFRA”) a direction to the Secretary to reduce the RCL for hospital-based SNFs. 42 U.S.C. §§ 1395yy(a)(3)-(4). According to several studies cited in the legislative history of the DEFRA, half of the higher cost difference for hospital based SNFs compared to lower cost, freestanding SNFs, was attributable to intensity of care or mix of patient cases and the other half was likely caused by inefficiency.³St. Francis Health Care Ctr. v. Shalala, (“St.Francis”) 205 F.3d 937, 940 n.3 (6th Cir.2000) (citing Pub.L. No. 98–369, § 2319(b), 98 Stat. 494, 1082 (later codified at 42 U.S.C. § 1395yy(a))).

DEFRA responded to the higher cost of hospital-based SNFs attributable to inefficiency by lowering the hospital-based SNF RCLs from 112 percent of the peer group mean to half the cost difference between the 112 percent level for hospital-based SNFs and freestanding SNFs. St. Francis, 205 F.3d at 940. In other words, the hospital-based SNF RCL was capped at the amount representing the sum of the 112 percent level RCL for freestanding SNFs plus half the difference between the 112 percent level RCL for hospital-based SNFs and freestanding SNFs.⁴Id.; see also42 U.S.C. §§ 1395yy(a)(3)-(4). Notwithstanding the DEFRA required reduction in hospital-based SNF–RCLS, “[i]t is undisputed that for 15 years the Secretary interpreted the regulation as permitting a provider to recover all reasonable costs that exceeded the limits if it was demonstrated that it met the exception requirements.” See Administrative Record (“AR”) at 41 (PRRB Order), ECF No. 9.

In 1994, the Secretary issued Health Care Financing Administration Transmittal No. 378, which added a new section, PRM § 2534.5, to the Medicare Provider Reimbursement Manual (“PRM”). See PRM § 2534.5; see also Def.'s Mem. Supp. Mot. Summ. J. (“Def.'s Mem.”), Ex. 1, ECF No. 28; Pl.'s Mem. Opp'n Def.'s Mot. Summ. J. (“Pl.'s Mem.”), Ex. A, ECF No. 30–1. PRM § 2534.5 states that when “determining reasonable cost, the provider's per diem costs in excess of the cost limit are ... compared to per diem costs of a peer group of similarly classified providers.” PRM § 2534.5; Def.'s Mem., Ex. 1, at 9; Pl.'s Mem, Ex. A, at 9. For hospital-based SNFs, the qualifying amount for reimbursement under an exception is measured from 112 percent of the SNF's peer group mean per diem cost, not the SNF's peer group RCL. PRM § 2534.5, Def.'s Mem., Ex. 1, at 10; Pl.'s Mem., Ex. A, at 10. Consequently, hospital-based SNFs are precluded from being reimbursed for costs incurred through provision of atypical services that are in excess of the RCL but below the 112 percent peer group mean per diem threshold.

B. The Plaintiff

Canonsburg General Hospital (“Canonsburg” or “the plaintiff”) is a hospital located in Pennsylvania that participated in the Medicare program during all years relevant to the instant case. See Compl. ¶ 6,...