Children's Hosp. of the King's Daughters, Inc. v. Price

• Citation: 258 F.Supp.3d 672
• Decision Date: 20 June 2017
• Docket Number: ACTION NO. 2:17cv139.
• Parties: CHILDREN'S HOSPITAL OF THE KING'S DAUGHTERS, INC., Plaintiff, v. Thomas E. PRICE, Secretary, Department of Health and Human Services; Patrick Conway, Acting Administrator, Centers for Medicare and Medicaid Services; and Centers for Medicare and Medicaid Services, Defendants.
• Court: U.S. District Court — Eastern District of Virginia

258 F.Supp.3d 672

CHILDREN'S HOSPITAL OF THE KING'S DAUGHTERS, INC., Plaintiff,

v. Thomas E. PRICE, Secretary, Department of Health and Human Services; Patrick Conway, Acting Administrator, Centers for Medicare and Medicaid Services;andCenters for Medicare and Medicaid Services, Defendants.

ACTION NO. 2:17cv139.

United States District Court, E.D. Virginia, Norfolk Division.

Signed June 20, 2017

Hunter W. Sims, Jr., Esquire, Stephen E. Noona, Esquire, Kaufman & Canoles, P.C., Bridget S.M. McCabe, Esquire, Christopher H. Marraro, Esquire, Geraldine E. Edens, Esquire, Susan F. Harris, Esquire, Baker Hostetler LLP, for Plaintiff.

Carol Federighi, Esquire, U.S. Department of Justice, Washington, D.C., Daniel P. Shean, Assistant United Attorney, Norfolk, VA, for Defendants.

OPINION AND ORDER

REBECCA BEACH SMITH, CHIEF JUDGE

This matter comes before the court on the Plaintiff's Motion for Emergency Injunctive Relief ("Motion"), ECF No. 7, and accompanying Memorandum in Support. ECF No. 8. The Plaintiff seeks to enjoin the Defendants' enforcement of FAQ 33, which would reduce a statutory payment adjustment to hospitals, like the Plaintiff, that serve a disproportionate share of Medicaid patients, and would force such hospitals to repay a portion of the payment adjustment from prior years. On March 23, 2017, the court granted the Defendants' Unopposed Motion for Extension of Time. ECF No. 25. On March 31, 2017, the Defendants filed a Memorandum in Opposition to Plaintiff's Motion for Emergency Injunctive Relief ("Opposition"). ECF No. 26. On April 6, 2017, the Plaintiff filed under seal a Reply Supporting its Motion for Injunctive Relief ("Reply"). ECF No. 34. The parties appeared before the court on May 22, 2017, for oral argument. ECF No. 45. Following the hearing, the Plaintiff submitted a Supplemental Brief in Support of Motion for Preliminary Injunction ("Supplemental Brief"), ECF No. 47, and the Defendants submitted a Response to the Declaration of Dominic Patrick Madigan, ECF No. 46, and a Response to Plaintiff's Supplemental Brief in Support of Motion for Preliminary Injunction ("Response to Supplemental Brief"). ECF No. 50. On June 6, 2017, the court ordered the Defendants to not enforce FAQ 33 against the Plaintiff, until at least fourteen (14) days after the court rendered a decision on the Plaintiff's Motion. ECF No. 49.

I. BACKGROUND

The Plaintiff is a not-for-profit pediatric hospital that has served the Norfolk, Virginia region for over 120 years. Ryan Decl. ¶¶ 2, 4. It is Virginia's only freestanding, full-service children's hospital that serves children from birth until age 21. Id.¶ 2. Its Pediatric Intensive Care Unit is the region's only civilian critical care facility for infants, children, and adolescents suffering from acute, life-threatening illnesses and injuries, and the Plaintiff offers the region's only level IV Neonatal Intensive Care Unit, pediatric emergency center, cancer and blood disorders program, child abuse program, and pediatric surgery program. Id.¶ 3. A majority of the children who have inpatient stays are eligible for Medicaid. Compl. ¶ 3. The Plaintiff's Medicaid Inpatient Utilization Ratio ("MIUR") (the ratio of Medicaid inpatient days to total hospital days) was 69.65% in 2012 and 71.21% in 2013. Id.; see also Ryan Decl. ¶ 5. By contrast, in 2012 the second highest MIUR for Virginia general hospitals was only 41.99%. Ryan Decl. ¶ 5; Commonwealth of Virginia, Schedule of Annual Reporting Requirements for the Medicaid State Plan Rate Year Ended June 30, 2012, ECF No. 9–1.

Medicaid, 42 U.S.C. § 1396, et seq., is a cooperative federal-state program through which the federal government provides financial assistance to states, so that states can provide medical care to individuals who so qualify for financial assistance through the program. 42 U.S.C. § 1396 ; see Wilder v. Va. Hosp. Ass'n, 496 U.S. 498, 502, 110 S.Ct. 2510, 110 L.Ed.2d 455 (1990). Medicaid's primary purpose is to provide "(1) medical assistance on behalf of families with dependent children and of aged, blind, or disabled individuals, whose income and resources are insufficient to meet the costs of necessary medical services, and (2) rehabilitation and other services to help such families and individuals attain or retain capability for independence or self-care." 42 U.S.C. § 1396–1. State participation is voluntary, but participating states must comply with various federal requirements in order to receive federal funds. Wilder, 496 U.S. at 502, 110 S.Ct. 2510. Medicaid provides benefits to children with certain serious illnesses, without regard to their family's income, and about one in three children in the United States are covered by Medicaid. Ryan Decl. ¶¶ 5–6 (explaining that Medicaid covers babies weighing less than 1200 grams and children with severe anomalies, heart ailments, cancer, and significant musculoskeletal and neurological conditions); see also 42 U.S.C. §§ 1396a(cc), 1382c(a)(3)(C) (describing disability criteria for children).

The federal and state governments share the cost of Medicaid. States must establish "a scheme for reimbursing health care providers for the medical services provided to needy individuals." Wilder, 496 U.S. at 502, 110 S.Ct. 2510. States submit the proposed plans to the Centers for Medicare and Medicaid Services ("CMS"), which must "make a determination as to whether it conforms to the requirements for approval." 42 U.S.C. § 1316(a)(1) ; see also id.§ 1396a(b) (describing approval by the Secretary). If CMS approves the state's plan, the federal government provides reimbursement to the state for a portion of the cost of its Medicaid benefits and plan administration, and the state pays the remainder of its Medicaid expenses. See id.§ 1396b. The Virginia Department of Medical Assistance Services ("DMAS") administers the Medicaid program in Virginia. See id.§ 1396a(a)(5) (requiring states to establish or designate a state agency to "administer or to supervise the administration of the plan").

Congress amended the Medicaid Act in 1981 to ensure that payments to Medicaid-eligible hospitals took into account "hospitals which serve a disproportionate number of low-income patients with special needs." Id.§ 1396a(a)(13)(A)(iv). Congress's intent "was to stabilize the hospitals financially and preserve access to health care services for eligible low-income patients." Va., Dep't of Med. Assistance Servs. v. Johnson, 609 F.Supp.2d 1, 3 (D.D.C. 2009). The amendment created a "payment adjustment" for qualifying hospitals. 42 U.S.C. § 1396r–4(c). The payment adjustment is available to any hospital that treats a disproportionate share of Medicaid patients (a disproportionate share hospital or "DSH"). Id.§ 1396r–4(d). The program was amended again in 1993 to include a hospital-specific limit ("HSL"), which stated that DSH payments may not exceed the:

costs incurred during the year of furnishing hospital services (as determined by the Secretary and net of payments under this subchapter, other than under this section, and by uninsured patients) by the hospital to individuals who either are eligible for medical assistance under the State plan or have no health insurance (or other source of third party coverage) for services provided during the year.

Id. § 1396r–4(g)(1)(A).¹ Accordingly, a DSH hospital's total uncompensated cost includes two parts: the cost of services to Medicaid-eligible individuals, net of paymentsunder the Medicaid Act (the Medicaid shortfall); and the costs of hospital services to uninsured patients, net of payments by such patients (the uninsured component). See id. By statute, the Medicaid shortfall is calculated by subtracting Medicaid payments from the allowable expenses for eligible patients. See id.

Congress amended the Medicaid Act in 2003 to require that each state provide an annual report and audit of its DSH program. By statute, "[o]nly the uncompensated care costs of providing inpatient hospital and outpatient hospital services to individuals described in [ Section 1396r–4(g)(1)(A) ] are included in the calculation of the hospital-specific limits." Id. § 1396r–4(j)(2)(c). The state must recoup within one year any overpayments revealed by the audit, or the federal government may reduce its future contribution. Id.§ 1396b(d)(2)(C).

On December 19, 2008, CMS promulgated a final rule (hereinafter the "2008 Rule") implementing the statutory reporting and auditing requirement. See Medicaid Program; Disproportionate Share Hospital Payments, 73 Fed. Reg. 77904 (Dec. 19, 2008). The 2008 Rule requires that states annually submit information "for each DSH hospital to which the State made a DSH payment." 42 C.F.R. § 447.299(c). One such piece of information is the hospital's "total annual uncompensated care costs," defined in the regulation as:

The total annual uncompensated care cost equals the total cost of care for furnishing inpatient hospital and outpatient hospital services to Medicaid eligible individuals and to individuals with no source of third party coverage for the hospital services they receive less the sum of regular Medicaid [fee-for-service] rate payments, Medicaid managed care organization payments, supplemental/enhanced Medicaid payments, uninsured revenues, and Section 1011 payments.

Id.§ 447.299(c)(16). Under the 2008 Rule, any audits of DSH payments made prior to Fiscal Year 2011 would not result in the recoupment or reduction of federal funds used for DSH payments. See 73 Fed. Reg. at 77906, 77924.

On January 10, 2010, CMS posted on its website answers to several "frequently asked questions" ("FAQs") regarding the 2008 Rule's audit and reporting requirements. See Additional Information on the DSH Reporting and Auditing Requirement, https://www.medicaid.gov/medicaid/financing-and-reimbursement/ downloads/part–1–additional-info-on-dsh-reporting-and-auditing.pdf (last visited June 19, 2017). FAQ 33 is at issue in this matter. FAQ 33 and CMS's response are as follows:

33.

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