IHG Healthcare v. Sebelius

• Decision Date: 13 June 2010
• Docket Number: Civil Action No. H-09-3233
• Citation: 717 F.Supp.2d 696
• Parties: IHG HEALTHCARE d/b/a Grace Hospice of Texas, Plaintiff, v. Kathleen SEBELIUS, Secretary of United States Department of Health and Human Services, Defendant.
• Court: U.S. District Court — Southern District of Texas

717 F.Supp.2d 696

IHG HEALTHCARE d/b/a Grace Hospice of Texas, Plaintiff,

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

Civil Action No. H-09-3233.

United States District Court, S.D. Texas.

June 13, 2010.

Brian M. Daucher, Sheppard Mullin et al., Costa Mesa, CA, Lindsay L. Lambert, Hughes Watters et al., Houston, TX, for Plaintiff.

Kevin C. Aiman, U.S. Attorney's Office, Houston, TX, for Defendant.

Order

LYNN N. HUGHES, District Judge.

On May 7, 2010, Magistrate Judge Stephen Wm. Smith issued a memorandum and recommendation (45). The plaintiff (49) and defendant (48) objected. The memorandum and recommendation is adopted as this court's order.

Final Judgment

In accordance with the Memorandum and Recommendation (45) adopted this day, it is hereby ORDERED:

1. Grace's claim for reimbursement of its Fiscal Year 2006 medicare cap repayment is denied;

2. 42 C.F.R. § 418.309(b)(1) is unlawful and is hereby set aside;

3. The challenged hospice cap repayment demand to Grace for fiscal year 2007 is set aside;

4. HHS is enjoined from this day forward from enforcing against Grace any repayment demand pursuant to 42 C.F.R. § 418.309(b)(1). The prior stay (40) entered in this case is vacated and replaced by this permanent injunction; 5. This case is remanded to HHS for recalculation of the amount of Grace's 2007 medicare cap repayment obligation in accordance with 42 U.S.C. § 1395f(i)(2);

6. Funds previously collected by HHS for Grace's 2007 medicare cap repayment obligation shall be credited towards payment of the recalculated medicare repayment obligation. Any funds previously collected by HHS in excess of the recalculation shall be returned promptly to Grace with interest pursuant to 42 U.S.C. § 1395 oo (f)(2).

7. This court retains jurisdiction to consider any application for an award of costs and attorneys' fees.

MEMORANDUM AND RECOMMENDATION

STEPHEN WM. SMITH, United States Magistrate Judge.

This case challenges the facial validity of a payment cap regulation for hospice care under the Medicare Act. Plaintiff IHG Healthcare, Inc. d/b/a/ Grace Hospice of Texas (Grace) seeks judicial review of agency action upholding two repayment demands (covering fiscal years 2006 and 2007) issued by defendant Kathleen Sebelius, Secretary of United States Department of Health and Human Services (HHS). According to Grace, the HHS repayment demands are invalid because they were calculated pursuant to a regulation, 42 C.F.R. § 418.309(b)(1), which directly contradicts the Medicare Act.

Several dispositive motions are before the court. HHS has filed a Rule 12(b)(1) motion seeking to dismiss Grace's FY 2006 challenge for lack of subject matter jurisdiction (Dkt. 9). The parties have also filed cross-motions for summary judgment on the validity of the challenged HHS regulation (Dkts. 14, 25). The motions have been fully briefed by the parties, and oral argument was heard on February 23, 2010.

The court recommends that (1) Grace's 2006 fiscal year claim be denied because the Provider Reimbursement Review Board (PRRB) properly rejected it on procedural grounds; (2) Grace's 2007 fiscal year claim be sustained because the HHS hospice cap regulation is invalid; (3) a permanent injunction issue against future application of the invalid regulation to Grace; and (4) Grace's 2007 fiscal year claim be remanded to HHS for calculation according to the statute.

Background

Grace is a Medicare certified hospice provider in Houston, Texas. The federal government pays Grace pursuant to the Medicare program established under Title XVIII of the Social Security Act (the Medicare Act). HHS administers the program and reimburses hospices, like Grace, on a per diem basis for services rendered to Medicare beneficiaries. Total annual payments to hospices are subject to an aggregate annual provider cap. See 42 U.S.C. § 1395f(i)(2). Any provider whose annual revenues from Medicare exceed its cap is subject to a demand from HHS for repayment of the difference.¹ HHS demanded repayment from Grace in the amounts of $730,749 for Medicare fiscal year 2006 and $1, 374,496 for 2007. Grace contends these demands, calculated under HHS regulation 42 C.F.R. § 418.309(b)(1), are overstated.

Grace has already repaid the 2006 demand, and was making monthly paymentsof approximately $30,000 per month on the 2007 demand at the time suit was filed. On March 29, 2010, Grace received HHS's repayment demand for 2008. Grace was then able to show that the combined 2007 and 2008 repayment obligations would cause it irreparable harm, and the court granted Grace's motion to stay enforcement of the 2007 and 2008 repayment demands (Dkt. 40). Grace has not yet exhausted its administrative challenge to the 2008 demand, but the issues are identical and this court's ruling as to the 2008 demand would be the same as for 2007.

Grace alleges that the HHS hospice cap regulation is facially invalid because it contradicts the Medicare Act, specifically 42 U.S.C. § 1395f(i)(2)(C). Grace seeks a declaration that the regulation is invalid, an injunction against its enforcement, and a remand to HHS for calculation of reimbursements due under the method mandated by statute.

Analysis

Before addressing the merits of Grace's regulatory challenge, it is necessary to consider certain preliminary issues concerning Grace's FY 2006 claim which, unlike its FY 2007 claim, was not timely presented to the agency below.

A. The FY 2006 Claim

1. Does the court have subject matter jurisdiction?

A provider dissatisfied with an NPR may obtain a hearing before the PRRB if the amount in controversy is over $10,000 and a request for hearing is filed within 180 days after notice of program reimbursement. 42 U.S.C. § 1395 oo(a)(1). A provider is entitled to judicial review of any final decision of the PRRB. 42 U.S.C. § 1395 oo(f)(1).

It is undisputed that Grace did not timely file its request for hearing before the PRRB within 180 days of receiving its NPR for 2006. When it did file such a request, it asked to PRRB to grant leave to file a late appeal for good cause pursuant to 42 C.F.R. § 405.1836. The PRRB denied leave, citing 42 C.F.R. § 405.1836(b) and (c), which provide that good cause may be found only in extraordinary circumstances, and that a change in law does not constitute good cause. The PRRB expressly informed Grace that judicial review of its denial of leave was available.² Nevertheless, HHS moves for dismissal on grounds that this court lacks subject matter jurisdiction over the FY 2006 claim because of Grace's untimely request for hearing.

In analyzing defendant's Rule 12(b)(1) motion, the court is mindful of repeated Supreme Court admonitions to heed the critical distinction between "true jurisdictional conditions" and "claim-processing rules." See Reed Elsevier, Inc. v. Muchnick, --- U.S. ----, 130 S.Ct. 1237, 1244, 176 L.Ed.2d 17 (2010) ("Our recent cases evince a marked desire to curtail such 'drive-by jurisdictional rulings,' " citing Arbaugh v. Y & H Corp., 546 U.S. 500, 511, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006); Kontrick v. Ryan, 540 U.S. 443, 456, 124 S.Ct. 906, 157 L.Ed.2d 867 (2004)). The general approach to distinguish jurisdictional conditions from claim-processing requirements was described in Arbaugh:

If the Legislature clearly states that a threshold limitation on a statute's scope shall count as jurisdictional, then courts and litigants will be duly instructed and will not be left to wrestle with the issue. But when Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as nonjurisdictional in character.

546 U.S. at 515-16, 126 S.Ct. 1235 (internal footnote and citation omitted).

The issue in Arbaugh was whether Title VII's employee numerosity requirement set a threshold for federal court jurisdiction, as opposed to a substantive element of a Title VII claim. Because the numerosity requirement was not clearly labeled as jurisdictional, did not appear in Title VII's jurisdiction-granting section, and had never before been construed by the Supreme Court as jurisdictional, the Court concluded that it could not fairly be read to "speak in jurisdictional terms or in any way refer to the jurisdiction of the district courts." Id. at 515, 126 S.Ct. 1235 (quoting Zipes v. Trans World Airlines, Inc., 455 U.S. 385, 394, 102 S.Ct. 1127, 71 L.Ed.2d 234 (1982) (holding that Title VII's 180-day charge filing requirement was not a jurisdictional prerequisite to suit)).

The Supreme Court adhered to this approach most recently in Reed, finding that the Copyright Act's registration requirement was a precondition to filing an infringement suit that did not limit the subject matter jurisdiction of a district court. Writing for the Court, Justice Thomas explained:

A statutory condition that requires a party to take some action before filing a lawsuit is not automatically "a jurisdictional prerequisite to suit." Zipes, 455 U.S. at 393, 102 S.Ct. 1127 (emphasis added). Rather, the jurisdictional analysis must focus on the "legal character" of the requirement, id., at 395, 102 S.Ct. 1127, which we discerned by looking to the condition's text, context, and relevant historical treatment, id. at 393-95, 102 S.Ct. 1127;.... We similarly have treated as nonjurisdictional other types of threshold requirements that claimants must complete, or exhaust, before filing a lawsuit.

130 S.Ct. at 1246-47 (one internal footnote and citation omitted). Because the registration requirement in 17 U.S.C. § 411(a) "imposes a precondition to filing a claim that is not clearly labeled jurisdictional, is not located in a jurisdiction-granting provision, and admits of congressionally authorized exceptions," it was ruled nonjurisdictional. Id. at 1247.

The threshold requirement urged here as a jurisdictional bar by HHS fits the same mold as those considered and rejected by Reed and Zipes. Section 1395 oo(a) allows a provider to obtain a hearing...