Cottage Health System v. Sebelius

• Citation: 631 F.Supp.2d 80
• Decision Date: 07 July 2009
• Docket Number: Civil Action No. 08-098 (JDB).
• Parties: COTTAGE HEALTH SYSTEM, Plaintiff, v. Kathleen SEBELIUS,<SMALL><SUP>1</SUP></SMALL> Secretary, U.S. Department of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Columbia

631 F.Supp.2d 80

COTTAGE HEALTH SYSTEM, Plaintiff, v. Kathleen SEBELIUS,¹ Secretary, U.S. Department of Health and Human Services, Defendant.

Civil Action No. 08-098 (JDB).

United States District Court, District of Columbia.

July 7, 2009.

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Christopher L. Keough, King & Spalding, LLP, Washington, DC, for Plaintiff.

Jeremy S. Simon, U.S. Attorney's Office, Washington, DC, Lawrence J. Harder, Department of Health and Human Services, Baltimore, MD, for Defendant.

MEMORANDUM OPINION

JOHN D. BATES, District Judge.

The Secretary of the Department of Health and Human Services ("defendant" or "the Secretary"), through the Centers for Medicare and Medicaid Services ("CMS"), is responsible for administering the Medicare statute, Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq. Cottage Health System ("plaintiff") seeks judicial review of the Secretary's decision to deny it certain supplemental medical education payments authorized by the Balanced Budget Act of 1997 ("BBA '97"), Pub.L. No. 105-33, 111 Stat. 251. Plaintiff also seeks review of the Secretary's decision not to count medical residents providing patient care in non-hospital settings in calculating medical education payments.

Now before the Court are the parties' cross-motions for summary judgment. For the reasons explained below, the Court will grant in part and deny in part each party's motion for summary judgment and will remand the case to the Secretary for further proceedings.

BACKGROUND

I. Statutory and Regulatory Background

A. Claims Under Medicare Parts A & C

The Medicare program is divided into several parts, of which parts A and C are relevant here. Part A covers "inpatient hospital services" furnished to Medicare beneficiaries by participating providers, like hospitals. 42 U.S.C. § 1395d(a)(1). CMS itself is directly responsible for the costs of part A services. Id. To coordinate billing by and payment to hospitals under part A, Medicare contracts with fiscal intermediaries (usually private insurance companies) pursuant to 42 U.S.C. § 1395h. Claims for payment under part A are governed by the regulations set forth at 42 C.F.R. § 424.30 et seq., which provide that "[c]laims must be filed in all cases except when services are furnished on a prepaid capitation basis by a health maintenance organization (HMO), a competitive medical plan (CMP), or a health care prepayment plan (HCPP)." The regulations also provide time limits for filing claims with the fiscal intermediary:

(a) Basic limits. Except as provided in paragraph (b) of this section, the claim must be mailed or delivered to the intermediary or carrier, as appropriate—

(1) On or before December 31 of the following year for services that were furnished during the first 9 months of a calendar year; and

(2) On or before December 31 of the second following year for services that were furnished during the last 3 months of the calendar year.

42 C.F.R. § 424.44.

Medicare part C was created by BBA '97. Under part C, beneficiaries may receive Medicare benefits through private health insurance plans called "Medicare + Choice" plans. See 42 U.S.C. § 1395w-21(a)(1). Such plans—referred to by the parties as "Medicare HMOs"— are themselves responsible for the costs of part C services. Medicare HMOs receive payment in advance from CMS according to a complex formula, and the Medicare HMOs themselves coordinate billing and payment with the hospitals once services have been provided. See 42 U.S.C. § 1395mm(a). The regulations governing claims under part A expressly do not apply for services furnished to Medicare HMO enrollees. 42 C.F.R. § 424.30 (excepting claims for services "furnished on a prepaid capitation basis by a [Medicare HMO]").

Claims for services provided are submitted by hospitals—either to fiscal intermediaries (for services provided under part A) or to Medicare HMOs (for services provided under part C)—and paid over the course of the year. At year-end, hospitals file cost reports with the fiscal intermediaries, which reconcile interim payments made over the course of the year with actual reimbursement due. See 42 C.F.R. § 405.1803. The fiscal intermediary makes a final determination, which is appealable to the Provider Reimbursement Review Board ("PRRB"). 42 U.S.C. § 1395oo (a). The PRRB's decision is subject to further review by the CMS Administrator, and a hospital may seek review of the Administrator's decision in federal district court. See 42 U.S.C. § 1395oo (f).

B. Medical Education Payments

The Medicare program also pays teaching hospitals for certain costs related to graduate medical education. Medicare makes both an "indirect graduate medical education payment" ("IME") and a "direct graduate medical education payment" ("GME"). IME payments are intended to reimburse teaching hospitals providing services to Medicare beneficiaries for their higher-than-average operating costs. See 42 U.S.C. §§ 1395f(b), 1395ww(d). Medicare makes a payment for each Medicare beneficiary discharged by a hospital. See 42 U.S.C. §§ 1395ww(d), 1395w-21(i)(1). The per-discharge payment increases depending on the hospital's ratio of medical residents to beds—i.e., the higher the number of residents or the higher the number of discharges, the greater the IME payment. See 42 U.S.C. § 1395ww(d)(5)(B).

The GME payment, on the other hand, is a payment intended to compensate teaching hospitals for the direct costs of graduate medical education incurred because of services provided to a Medicare beneficiary. 42 U.S.C. § 1395ww(h). The amount of the GME payment depends on the number of full-time residents and the Medicare "patient load." Hence, like the IME payment, the GME payment increases when the number of Medicare patients or the number of residents rises. See id.

Both GME and IME payments, then, depend on the number of residents and the number of Medicare patients receiving services from a hospital. A hospital may include residents training in non-hospital settings in its resident count. Under the Medicare statute, such residents are included if (1) their time is related to patient care and (2) the hospital incurs substantially all of the costs of their training in the non-hospital setting. See 42 U.S.C. §§ 1395ww(h)(4)(E), 1395ww(d)(5)(B)(iv). The regulations governing resident counts, however, contain a third requirement— that the hospital have a written agreement with the non-hospital site establishing that the hospital will incur the costs of the residents' training. See 42 C.F.R. §§ 413.86(f) (2002), 412.105(f)(1)(ii)(C) (2002).

Before the passage of BBA '97, only services provided to Medicare part A or B beneficiaries were counted in calculating IME and GME payments. That is, the "per-discharge" multiplicand for IME payments did not include discharges of part C Medicare HMO enrollees, and the "patient load" multiplicand for GME payments did not include part C Medicare HMO enrollees. BBA '97, however, directed the Secretary to make additional IME and GME payments, phased in over five years, for services provided to Medicare HMO enrollees under part C. See BBA '97 §§ 4622, 4624 (codified at 42 U.S.C. §§ 1395ww(d)(11), 1395ww(h)(3)(D)(I)).

II. Factual Background and Administrative Proceedings

A. Factual Background

Plaintiff is a not-for-profit corporation that owns and operates Santa Barbara Cottage Hospital, a teaching hospital in Santa Barbara, California. Am. Compl. ¶ 13. From 1998 through 2001—the periods at issue in this case—plaintiff operated three medical residency training programs. Id. ¶ 31. To receive IME and GME payments related to services provided to Medicare part A beneficiaries, plaintiff submitted claim forms (labeled "UB-92" forms) containing "encounter data" (i.e., the number of Medicare part A beneficiary discharges) directly to its fiscal intermediary, as required by 42 C.F.R. § 424.30, and received payment accordingly. See id. ¶ 32.

To receive the additional IME and GME payments authorized by BBA '97 for services provided to Medicare HMO enrollees, plaintiff submitted UB-92 forms containing encounter data to the Medicare HMO, not the fiscal intermediary. See id. ¶ 94. Plaintiff avers that it also submitted encounter data directly to the fiscal intermediary after cost periods had ended: on November 2, 2000 for the cost period ending December 31, 1998, id. ¶ 92; on March 27, 2002 for the cost period ending December 31, 1999, id. ¶ 98; and on June 10, 2003 for the cost period ending December 31, 2000, id. 102.² The fiscal intermediary did not provide plaintiff with the additional payment authorized by BBA '97 for the 1998-2001 cost periods. Id. ¶ 103.

Plaintiff's IME and GME payments also did not account for residents providing care in non-hospital settings. In August 2002, having determined that plaintiff lacked an adequate written agreement, the fiscal intermediary excluded residents' time spent in non-hospital settings. Id. ¶¶ 129-30. In 2005, plaintiff entered into memoranda of understanding ("MOUs") with the non-hospital sites. Plaintiff alleges that the MOUs clarified and memorialized the terms of its pre-existing agreement regarding residents' training in non-hospital sites. Id. ¶ 131. The fiscal intermediary nonetheless determined that the post-dated MOUs did not satisfy the regulations.

B. PRRB's Decision

Plaintiff timely sought review of the fiscal intermediary's decision before the PRRB. The PRRB held a hearing on November 8, 2006 and issued a decision on September 28, 2007. See Administrative Record ("A.R.") at 25-48. Two issues were presented to the PRRB: "(1) [w]hether the Intermediary improperly disallowed [GME] and [IME] payments with respect to discharges of Medicare beneficiaries who were enrolled in [Medicare HMOs] in fiscal years ending December 31, 1998, 1999, 2000, and 2001; and (2) [w]hether the Intermediary improperly disallowed residents' time spent in non-provider settings...