Hospice of New Mexico, LLC v. Sebelius

• Decision Date: 05 March 2010
• Docket Number: No. CIV 09-00145 RB-LFG.,CIV 09-00145 RB-LFG.
• Parties: HOSPICE OF NEW MEXICO, LLC, a New Mexico Corporation, Plaintiff, v. Kathleen SEBELIUS, Secretary of the United States Department of Health and Human Services, Defendant.
• Court: U.S. District Court — District of New Mexico

691 F. Supp.2d 1275

HOSPICE OF NEW MEXICO, LLC, a New Mexico Corporation, Plaintiff, v. Kathleen SEBELIUS, Secretary of the United States Department of Health and Human Services, Defendant.

No. CIV 09-00145 RB-LFG.

United States District Court, D. New Mexico.

March 5, 2010.

Brian M. Daucher, Sheppard, Mullin, Ritcher & Hampton LLP, Costa Mesa, CA, Arlyn G. Crow, Albuquerque, NM, for Plaintiff.

Manuel Lucero, U.S. Attorney's Office, Albuquerque, NM, for Defendant.

MEMORANDUM OPINION

ROBERT C. BRACK, District Judge.

THIS MATTER came before the Court on the parties' cross-motions for summary judgment. (Docs. 13 & 15.) For the reasons set forth below, the Court finds that 42 C.F.R. § 418.309(b)(1) is invalid and should be set aside, Plaintiff's Motion for Summary Judgement/Stay (Doc. 15) is GRANTED, and Defendant's Motion for Summary Judgment (Doc. 13) is GRANTED IN PART and DENIED IN PART.

I. PROCEDURAL BACKGROUND

The case involves the validity of federal regulation 42 C.F.R. § 418.309(b)(1), promulgated by the Secretary of the Department of Health and Human Services. The Department of Health and Human Services (HHS) is the federal agency responsible for administering Medicare and reimbursing hospice care providers for services given to Medicare beneficiaries.

Plaintiff filed a Complaint (Doc. 1) in this matter on February 13, 2009, and an Amended Complaint (Doc. 11) on August 25, 2009. In a joint status/scheduling conference conducted July 27, 2009, the parties agreed that the matter could be resolved through summary judgment, as the case primarily involves a legal question—the validity of 42 C.F.R. § 418.309(b)(1). (Doc. 9.) A Joint Notice of Briefing Complete (Doc. 28) was filed on October 20, 2009. Oral argument was held on February 25, 2010.

II. STATEMENT OF FACTS

Plaintiff Hospice of New Mexico requests that this Court invalidate federal regulation 42 C.F.R. § 418.309(b)(1), which sets out the rules for calculating the statutory cap on Medicare reimbursements available to hospice care providers who provide services to terminally ill Medicare beneficiaries. Plaintiff asserts that the regulation is invalid and contrary to Congress' statutory mandate under 42 U.S.C. § 1395f(i)(2)(C), that it is arbitrary and capricious, and that it amounts to an unlawful taking in violation of the Fifth Amendment. Prior to addressing the parties' arguments with respect to the validity of 42 C.F.R. § 418.309(b)(1), a brief review of the history of Medicare benefits for hospice care is in order.

A. Hospice Medicare Benefits and the Statutory Cap

In 1982, Congress amended the Medicare Act to provide coverage for hospice care. See Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, § 122, 96 Stat. 324 (codified at 42 U.S.C. § 1395c). In order to receive Medicare benefits for hospice care, a Medicare beneficiary must be terminally ill, meaning that the "individual's life expectancy is 6 months or less." 42 U.S.C. § 1395x(dd)(3)(A). If a terminally ill Medicare beneficiary elects to receive hospice care, he or she waives all rights to Medicare payments for treatments of the underlying illness. 42 U.S.C. § 1395d(d)(2)(A). To continue to receive benefits for hospice care, the Medicare beneficiary must elect hospice care for subsequent benefit periods; the first two periods last ninety days, and any subsequent periods last sixty days. 42 U.S.C. § 1395d(d)(1). There is, however, no limit on the number of benefit periods for which a Medicare beneficiary may request hospice care. 42 U.S.C. § 1395d(a)(4) and (d)(1). The only requirement is that each election be accompanied by a certification from the patient's physician that he or she is suffering from a terminal illness. 42 U.S.C. § 1395f(a)(7).

The amount that Medicare will reimburse a hospice care provider—such as Plaintiff Hospice of New Mexico—is limited by an annual statutory cap. See 42 U.S.C. § 1395f(i)(2)(A). Any payments made to a hospice care provider during a fiscal year in excess of the statutory cap must be returned to Medicare.¹ The fiscal year for hospice care providers—i.e., the period for which the Medicare reimbursements are calculated—runs from November 1 to October 31. Congress' intent in enacting such a benefits cap for hospice care was to ensure that Medicare would not expend more money in a year for hospice care than what would be expended in treating a patient in a traditional setting. See H.R.Rep. No. 98-333, at 1 (1983), U.S. Code Cong. & Admin.News 1983, at 1043, reprinted at 1983 WL 25325.

To calculate a hospice care provider's annual reimbursement cap, HHS takes the per patient cap and multiplies it by the number of beneficiaries that have elected to receive hospice care from the given hospice program during that fiscal year. The per patient cap of $6,500 is adjusted annually using the Consumer Price Index to account for inflation; for fiscal year 2006, it was $20,585.39, and for fiscal year 2007, it was $21,410.04.

The original, per patient cap of $6,500 is not at issue in this case; instead, the parties dispute the proper method for calculating the number of beneficiaries. The statute provides, in relevant part, that:

the number of Medicare beneficiaries in a hospice program in an accounting year is equal to the number of individuals who have made an election . . . with respect to the hospice program and have been provided hospice care by (or under arrangements made by) the hospice program under this part in the accounting year, such number reduced to reflect the proportion of hospice care that each such individual was provided in a previous or subsequent accounting year or under a plan of care established by another hospice program.

42 U.S.C. § 1395f(i)(2)(C) (emphasis added). The statute requires that when calculating the number of beneficiaries for a hospice care provider in a given fiscal year, the number should be "reduced to reflect the proportion of hospice care" that was actually provided to the program's patients, as opposed to care provided to the patient by another hospice care provider or during another year. Thus, if a beneficiary received care for only part of the year—either because he was with another hospice care provider or did not elect hospice care for the entire year—then, in calculating the hospice care provider's reimbursement cap, the number of beneficiaries must be proportionally reduced to reflect this situation.

The Secretary of HHS promulgated two regulations providing specific methodologies for calculating the number of beneficiaries under 42 U.S.C. § 1395f(i)(2)(C). Instead of attempting to perform a fractional adjustment of the amount of care that each beneficiary received in a particular year, the Secretary decided that it would be easier to reflect the proportion of hospice care actually provided in a given year by counting "each beneficiary only in the reporting year in which the preponderance of the hospice care would be expected to be furnished." 48 Fed. Reg. 38146, 38158 (Aug. 22, 1983). The Secretary, thus, proposed the following regulation, which provides that, in calculating the number of Medicare beneficiaries receiving hospice care in a given fiscal year, one should only include:

Those Medicare beneficiaries who have not previously been included in calculation of any hospice cap and who have filed an election to receive hospice care. . . from the hospice during the period beginning September 28 (35 days before the beginning of the cap period) and ending on September 27 (35 days before the end of the cap period).

42 C.F.R. § 418.309(b)(1).

The regulation contemplates an average length of hospice services per patient of 70 days. Consequently, a hospice care provider will receive 100% of the statutory allowance during the current fiscal year for patients electing to receive hospice care on or before September 27 (35 days before the end of the fiscal year); and a hospice care provider will receive 100% of the statutory allowance during the subsequent year for patients electing to receive hospice care after September 27. The Secretary of HHS believed that this method would "produce a reasonable estimate of the proportionate number of beneficiaries to be counted in each cap period," simplify the process for calculating the number of beneficiaries for a given accounting year, and result in less delay in the calculation of the hospice care providers' reimbursement caps. See 48 Fed.Reg. 38146, 38158 (Aug. 22, 1983). Thus, it was hoped that the regulation would "achieve the intent of the statute without being burdensome." Id.

For many years, this simplified method of calculating the statutory cap appears to have functioned well, and most hospice care providers were able to provide services without exceeding their caps. Recently, however, increasing numbers of hospice care providers from states throughout the nation have been exceeding their caps. See generally Marc Adler, The Government's Cap on Dying: Why Is the Medicare Hospice Benefit Cap Being Exceeded and How Should This Problem Be Addressed?, 4 NAELA J. 201 (2008). Plaintiff Hospice of New Mexico believes that federal regulation 42 C.F.R. § 418.309(b)(1) is to blame. While the regulation contemplates an average length of hospice care of 70 days, Plaintiff asserts that the average length of care for a Hospice of New Mexico patient during fiscal years 2006 and 2007 was 193 days; and during 2005, the average length of care for hospice patients in fifteen states exceeded 70 days, including New Mexico, which had an average of 101 days. Plaintiff argues that this shift to longer periods of hospice care has resulted in too many beneficiaries being allocated to prior years, and as a result, the reimbursement cap for subsequent years being underestimated.

Nonetheless, Defendant disputes that it is the increasing length of hospice stays in many states that has affected the calculation of the reimbursement cap under 42 C.F.R. § 418.309...