Deaconess Health Services Corp. v. Shalala

• Decision Date: 16 October 1995
• Docket Number: No. 4:93 CV 1594 DDN.,4:93 CV 1594 DDN.
• Parties: DEACONESS HEALTH SERVICES CORPORATION, d/b/a Deaconess Medical Center Central Campus, Plaintiff, v. Donna E. SHALALA, Secretary of Health and Human Services, Defendant.
• Court: U.S. District Court — Eastern District of Missouri

912 F. Supp. 438

DEACONESS HEALTH SERVICES CORPORATION, d/b/a Deaconess Medical Center Central Campus, Plaintiff, v. Donna E. SHALALA, Secretary of Health and Human Services, Defendant.

No. 4:93 CV 1594 DDN.

United States District Court, E.D. Missouri, Eastern Division.

October 16, 1995.

Ronald N. Sutter, Powers, Pyles, Sutter & Verville, P.C., Harry B. Wilson, Husch and Eppenberger, St. Louis, MO, for Deaconess Health Services Corporation dba Deaconess Medical Center Central Campus.

Wesley D. Wedemeyer, Office of U.S. Attorney, St. Louis, MO, for Department of Health and Human Services sec. Donna E. Shalala.

MEMORANDUM

NOCE, United States Magistrate Judge.

This matter is before the Court upon the cross motions of the parties for summary judgment under Federal Rule of Civil Procedure 56. The parties have consented to the exercise of jurisdiction by the undersigned United States Magistrate Judge. 28 U.S.C. § 636(c).

Plaintiff, Deaconess Health Services Corporation, is a not-for-profit hospital in St. Louis, Missouri, that participates in the Medicare and Medicaid programs. Plaintiff commenced this action on July 9, 1993, challenging the construction adopted by the defendant, the Secretary of the Department of Health and Human Services ("the Secretary"), of a Medicare statute directing the Secretary to make additional Medicare payments to hospitals, such as the plaintiff, that serve "a significantly disproportionate number of low-income patients." Specifically, plaintiff challenges the Secretary's regulatory interpretation of the disproportionate share payment adjustment for inpatient hospital services under the Medicare "Prospective Payment System" (PPS). 42 U.S.C. § 1395ww(d)(5)(F); 42 C.F.R. § 412.106(b). Plaintiff seeks declaratory and injunctive relief and additional payment the hospital alleges it is owed under the Medicare statute.

Based on the record proffered by the parties, the undersigned finds the following facts undisputed:

FACTS

1. Congress enacted the Medicare program (Title XVIII of the Social Security Act) in 1965. Pub.L. No. 89-97, § 102(a); 42 U.S.C. §§ 1395 et seq. Medicare is a health insurance program that pays for covered medical care primarily to qualifying aged and disabled persons. The Medicare program consists of two main parts. Part A ("Hospital Insurance Benefits") authorizes payment for primary institutional care, including hospital, skilled nursing facility, and home health care. 42 U.S.C. §§ 1395c-1395i-4. Part B ("Supplementary Medical Insurance Benefits") authorizes payment for physicians' and other non-hospital supplemental services. 42 U.S.C. §§ 1395j-1395w-4. This case involves Medicare payment for hospital services under Part A. Medicare Part A pays the costs of inpatient hospital services and related post-hospital services, and is funded by hospital insurance taxes. 42 U.S.C. §§ 1395c, 1395d, 1395i. Part A services are furnished by "providers of services," and a hospital may participate in the Medicare program as a provider by entering into a provider agreement with the Secretary. 42 U.S.C. §§ 1395x(u), 1395cc. Plaintiff is a hospital participating in the Medicare program.

2. Congress also enacted the Medicaid program (Title XIX of the Social Security Act) in 1965. Pub.L. No. 89-97, § 121(a); 42 U.S.C. §§ 1396, et seq. Medicaid is a cooperative federal-state program that furnishes health care to indigent persons who are aged, blind, or disabled, or members of families with dependent children, who meet specified eligibility requirements. 42 U.S.C. § 1396, et seq. The program is jointly financed by the federal and state governments and is administered by the states. Id.; 42 C.F.R. § 430.0.

3. States that choose to participate in the Medicaid program must submit a "state plan" that fulfills the broad requirements imposed by the statute and regulations. 42 U.S.C. § 1396a. Within those broad federal rules, each state determines the type and range of services that are covered, the rules for eligibility, and the payment levels for services. 42 C.F.R. § 430.0. The statute specifies the amount, duration, and scope of medical services which must be covered as well as those which may be covered at state option. See 42 U.S.C. §§ 1396a(a)(10), 1396d. All states must furnish certain minimum benefits, including "inpatient hospital services." See 42 U.S.C. §§ 1396a(a)(10)(A), 1396d(a)(1). The statute also specifies the groups of individuals who must be entitled as well as those who may be entitled at state option. See 42 U.S.C. §§ 1396a(a)(10). Under the Medicaid program, states must provide medical assistance to certain "categorically needy" persons, defined as those persons whose income is below a certain identified level and who are either aged, blind, or disabled, or members of families with dependent children. 42 U.S.C. § 1396a(a)(10)(A). The statute also permits states, at their option, to provide medical assistance to other groups of "categorically needy" persons, and to certain "medically needy" individuals (individuals who would be categorically needy except for their slightly higher income and resources). See 42 U.S.C. § 1396a(a)(10)A(ii). Because of the considerable discretion left to states in formulating state plans, Medicaid programs vary greatly from state to state, both with regard to eligible persons (groups of persons covered) and covered services (benefits provided).

4. Among the benefits covered by Medicare are hospital services. For cost reporting years beginning before October 1, 1983, the Medicare program reimbursed hospital services on a "reasonable cost" basis. 42 U.S.C. § 1395f(b). Effective with cost reporting periods beginning on or after October 1, 1983, Congress adopted a prospective payment system ("PPS") to reimburse most hospitals, including plaintiff, for operating costs of inpatient hospital services. 42 U.S.C. § 1395ww(d). Under PPS, a hospital's actual costs do not determine the Medicare payment that the hospital will receive for its operating costs. Instead, Medicare payments are based upon predetermined nationally applicable rates set on a per-discharge basis. Hospitals are paid a fixed amount for each patient based on one of approximately 490 diagnosis-related groups, subject to certain payment adjustments. 42 U.S.C. § 1395ww(d)(1)-(d)(4); 42 C.F.R. Part 412.

5. When Congress enacted Medicare PPS in 1983, it authorized the Secretary to provide an adjustment, called the disproportionate share adjustment, to PPS payments for hospitals that serve a disproportionate share of low income patients. 42 U.S.C. § 1395ww(d)(5)(F). See Social Security Amendments of 1983, Pub.L. No. 98-21, § 601(e), codified at 42 U.S.C. § 1395ww(d)(5)(C)(i) (1983). This reflected Congressional judgment that low-income patients are usually in poorer health and cost more to treat than others. Rye Psychiatric Hospital Center, Inc. v. Shalala, 52 F.3d 1163, 1164 (2d Cir.1995), cert. denied, ___ U.S. ___, 116 S.Ct. 299, 133 L.Ed.2d 205 (1995). The Secretary, however, declined to make such an adjustment. 48 Fed.Reg. 39,783 (1983). Congress then directed the Secretary, by December 31, 1984, to develop and publish a disproportionate share definition and identify hospitals that met that definition. Deficit Reduction Act of 1984, Pub.L. No. 98-369, § 2315(h), codified at 42 U.S.C. § 1395ww note. By July 1985, the Secretary had not yet complied with this congressional mandate, which resulted in a group of hospitals obtaining a court order directing the Secretary to implement the disproportionate share statutory provision. See Samaritan Health Center v. Heckler, 636 F.Supp. 503 (D.D.C.1985). In 1986, after the Secretary issued disproportionate share criteria (50 Fed.Reg. 53,398-53,400 (1985)), Congress amended the Medicare statute to prescribe a statutory definition of disproportionate share hospitals. Consolidated Omnibus Budget Reconciliation Act of 1985, Pub.L. No. 99-272, § 9105 (1986); Samaritan Health Center v. Bowen, 646 F.Supp. 343, 345-47 (D.D.C.1986); 42 U.S.C. § 1395ww(d)(5)(F).

6. As amended, the Medicare statute directs the Secretary to make an add-on payment for PPS hospitals which serve "a significantly disproportionate number of low-income patients." 42 U.S.C. § 1395ww(d)(5)(F)(i)(I). Hospitals qualify under this standard if their "disproportionate patient percentage" exceeds certain thresholds, and the amount of the add-on disproportionate share payment for qualifying hospitals depends on the extent to which their disproportionate patient percentage exceeds the thresholds. 42 U.S.C. § 1395ww(d)(5)(F)(v), (vii). The Medicare statute defines "disproportionate patient percentage" for a cost reporting period as "the sum of —

(I) the 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 this title and were entitled to supplemental security income benefits (excluding any State supplementation) under title XVI of this Act, and the denominator 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 this title, and

(II) the 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 plan approved under title XIX Medicaid, but who were not entitled to benefits under part A of this title, and the denominator of which is the total number of the hospital's patient days for such period.

42 U.S.C. § 1395ww(d)(5)(F)(vi) (emphasis added). The second fraction, which has been referred to as the "Medicaid low income proxy," is the subject of the dispute in this case. The Medicaid fraction is just one factor used in determining Medicare reimbursement....