Catholic Health Initiatives Iowa Corp. v. Sebelius

• Decision Date: 11 June 2013
• Docket Number: No. 12–5092.,12–5092.
• Citation: 718 F.3d 914
• Parties: CATHOLIC HEALTH INITIATIVES IOWA CORPORATION, Doing Business as Mercy Medical Center–Des Moines, Appellee v. Kathleen SEBELIUS, Secretary, United States Department of Health and Human Services, Appellant.
• Court: U.S. Court of Appeals — District of Columbia Circuit

718 F.3d 914

CATHOLIC HEALTH INITIATIVES IOWA CORPORATION, Doing Business as Mercy Medical Center–Des Moines, Appellee

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

No. 12–5092.

United States Court of Appeals,District of Columbia Circuit.

Argued April 15, 2013.

Decided June 11, 2013.

Appeal from the United States District Court for the District of Columbia, (No. 1:10–cv–00411).

Stephanie R. Marcus, Attorney, U.S. Department of Justice, argued the cause for appellant. With her on the briefs were Stuart F. Delery, Acting Assistant Attorney General, Ronald C. Machen Jr., U.S. Attorney, and Anthony J. Steinmeyer, Attorney.

Christopher L. Keough argued the cause for appellee. With him on the brief were J. Harold Richards and Hyland Hunt.

John M. Faust was on the brief for amici curiae Southwest Consulting Associates, LP, et al. in support of appellee.

Kenneth R. Marcus was on the brief for amicus curiae Quality Reimbursement Services, Inc. in support of appellee.

Before: GARLAND, Chief Judge, ROGERS, Circuit Judge, and SILBERMAN, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge SILBERMAN.

SILBERMAN, Senior Circuit Judge:

Catholic Health Initiatives challenged a decision of the Secretary of Health and Human Services denying certain Medicare reimbursements that Catholic Health believed it was owed under the Medicare statute. The district court held that the Secretary's decision was unlawful because the agency, in calculating reimbursements owed for a 1997 cost-reporting period, had retroactively applied a 2004 rulemaking without congressional authorization. We reverse. The policy on which the agency relied in this case was first announced in an adjudication in 2000, not in the 2004 rulemaking. We further conclude that the agency's interpretation of the statute is permissible, and the denial of reimbursements was not arbitrary and capricious. Catholic Health has not shown that it relied to its detriment on the position the agency allegedly held before 2000.

I

The federal Medicare program provides health insurance for the elderly and disabledand reimburses qualifying hospitals for services provided to eligible patients. The Medicare statute has five parts, two of which are relevant in this case. Part A establishes the requirements that individuals must meet to be eligible for Medicare benefits and provides such individuals insurance for hospital and hospital-related services. See42 U.S.C. § 1395c. These benefits include coverage for “inpatient hospital services,” id. § 1395d, which generally refers to overnight stays in a hospital. But Part A coverage for inpatient hospital services is limited to a certain number of days, after which coverage is exhausted. Specifically, Medicare beneficiaries are entitled to coverage for the first 90 days of their stay, and they may then elect to use up to 60 “lifetime reserve days” beyond the first 90 days. 42 C.F.R. § 409.61(a); see also42 U.S.C. § 1395d.

Part E of Medicare sets out “Miscellaneous Provisions,” including a prospective payment system for reimbursing hospitals that provide inpatient hospital services covered under Part A. 42 U.S.C. § 1395ww(d). Hospitals receive reimbursement based on prospectively determined national and regional rates, not on the actual amount they spend, and they also receive payment adjustments for some hospital-specific factors. See id. § 1395ww(d)(2) & (d)(5)(F)(i)(I). The adjustment at issue in this case is the “disproportionate share hospital” (DSH) adjustment, under which the government pays more to hospitals that “serve[ ] a significantly disproportionate number of low-income patients.” Id. § 1395ww(d)(5)(F)(i)(I). This provision is based on Congress's judgment that low-income patients are often in poorer health, and therefore costlier for hospitals to treat. See Adena Reg'l Med. Ctr. v. Leavitt, 527 F.3d 176, 177–78 (D.C.Cir.2008).

A hospital's adjustment is based on its “disproportionate patient percentage” (DPP), 42 U.S.C. § 1395ww(d)(5)(F)(v)—a higher DPP means greater reimbursements because the hospital is serving more low-income patients. This figure, however, is not the actual percentage of low-income patients served; rather, it is an indirect, proxy measure for low income. The DPP is statutorily defined as the sum of two fractions, often called the “Medicare fraction” and the “Medicaid fraction.” The Medicare fraction is:

[T]he fraction (expressed as a percentage), the numerator of which is the number of such hospital's patient days for such period which were made up of patients who (for such days) were entitled to benefits under part A of [Medicare] and were entitled to supplementary security income [SSI] benefits ..., and the denominator of which is the number of such hospital's patient days for such fiscal year which were made up of patients who (for such days) were entitled to benefits under part A of [Medicare]....

Id. § 1395ww(d)(5)(F)(vi)(I). The Medicaid fraction is:

[T]he fraction (expressed as a percentage), 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 [Medicaid plan], but who were not entitled to benefits under part A of [Medicare], and the denominator of which is the total number of the hospital's patient days for such period.

Id. § 1395ww(d)(5)(F)(vi)(II).

This language is downright byzantine and its meaning not easily discernible. The Medicare and Medicaid fractions represent two distinct and separate measures of low income—SSI (i.e., welfare) and Medicaid, respectively—that when summed together, provide a proxy for the total low-income patient percentage. The Medicare fraction effectively asks, out of all patient days from Medicare beneficiaries, what percentage of those days came from Medicare beneficiaries who also received SSI benefits? The Medicaid fraction in turn asks, out of all patient days in total, what percentage of those days came from patients who received benefits under Medicaid, but not under Medicare? (The exclusion of Medicare beneficiaries in the Medicaid numerator is to avoid double counting such individuals in both fractions). As we provided in Northeast Hospital Corp. v. Sebelius, 657 F.3d 1, 3 (D.C.Cir.2011), a visual representation of the two fractions is given below:

+-------------------------------------------+
                ¦       ¦Medicare fraction¦Medicaid fraction¦
                +-------------------------------------------+
                

+-----------------------------------------------------------------------------+
                ¦             ¦Patient days for patients      ¦Patient days for patients      ¦
                ¦Numerator    ¦“entitled to benefits under    ¦“eligible for [Medicaid]” but  ¦
                ¦             ¦part A” and “entitled to SSI   ¦not “entitled to benefits under¦
                ¦             ¦benefits”                      ¦part A”                        ¦
                +-------------+-------------------------------+-------------------------------¦
                ¦             ¦Patient days for patients      ¦                               ¦
                ¦Denominator  ¦“entitled to benefits under    ¦Total number of patient days   ¦
                ¦             ¦part A”                        ¦                               ¦
                +-----------------------------------------------------------------------------+
                

Many aspects of the DSH adjustment have been challenged over the years, but the issue in our case is how to interpret the phrase “entitled to benefits under part A” in the Medicaid fraction numerator. 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II). Specifically, does this language include individuals who meet the statutory criteria for Medicare eligibility, but who have exhausted their coverage under section 1395d? The answer in turn affects the treatment of patient days for those eligible for both Medicaid and Medicare, but who have exhausted their Medicare benefits (“dual-eligible exhausted days”). If such patients are deemed “entitled to benefits under part A” (even though their Part A coverage is exhausted), then they would not be included in the Medicaid fraction, because the statute specifically excludes from this numerator those “entitled to benefits under part A.” Of course, even if dual-eligible exhausted days are excluded from the Medicaid fraction, they could still be included in the Medicare fraction, assuming the patients were also entitled to SSI benefits. The parties dispute whether the general effect of interpreting “entitled to benefits under part A” in this manner would be to increase or decrease DSH payments, but in at least some cases, including dual-eligible exhausted days in the Medicaid fraction will result in a higher DPP, and therefore in greater payments to hospitals.¹

A hospital's adjustment is calculated in the first instance by a fiscal intermediary, which is typically a private insurance companyacting as the agent of the Secretary. See42 C.F.R. §§ 421.1, 421.3, 421.100–.128. A hospital may appeal an intermediary's decision to the Provider Reimbursement Review Board, an administrative body appointed by the Secretary, which may affirm, modify, or reverse the intermediary's decision. 42 U.S.C. § 1395 oo(a), (d) & (h). The Secretary in turn may affirm, modify, or reverse the decision of the Board. Id. § 1395 oo(f).

* * *

Catholic Health Initiatives owns and operates Mercy Medical Center, a hospital in Des Moines. In the 1997 fiscal period, the Hospital discharged two patients who had been inpatients since 1992, and whose patient days included many dual-eligible exhausted days—that is, for much of these patients' stays, they were both eligible for Medicaid and enrolled in Medicare, but they had exhausted their Medicare coverage for inpatient hospital services. The Hospital filed cost reports with its fiscal intermediary, and in 1999, the intermediary issued an adjustment payment determination for the Hospital's 1997 cost-reporting period. That determination initially included...