Lion Health Serv. Inc. v. Sebelius

• Decision Date: 11 March 2011
• Docket Number: No. 10–10414.,10–10414.
• Citation: 635 F.3d 693
• Parties: LION HEALTH SERVICES, INC., a Texas corporation, doing business as Lion Hospice, Plaintiff–Appellee,v.Kathleen SEBELIUS, Secretary, Health and Human Services, Defendant–Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

635 F.3d 693

LION HEALTH SERVICES, INC., a Texas corporation, doing business as Lion Hospice, Plaintiff–Appellee,

v.Kathleen SEBELIUS, Secretary, Health and Human Services, Defendant–Appellant.

No. 10–10414.

United States Court of Appeals, Fifth Circuit.

March 11, 2011.

OPINION TEXT STARTS HEREWest CodenotesHeld Invalid42 C.F.R. § 418.309(b)(1) Mark Ian Agee, Dallas, TX, Brian McCracken Daucher (argued), Sheppard, Mullin, Ritcher & Hampton, L.L.P., Costa Mesa, CA, for Plaintiff–Appellee.Benjamin M. Shultz (argued), Michael S. Raab, U.S. Dept. of Justice, Civ. Div., App. Staff, Washington, DC, Donna Kathleen Webb, Asst. U.S. Atty., Fort Worth, TX, for Defendant–Appellant.Appeal from the United States District Court for the Northern District of Texas.Before KING, DeMOSS and PRADO, Circuit Judges.PRADO, Circuit Judge:

This appeal concerns the validity of 42 C.F.R. § 418.309(b)(1) (the “Regulation”), a regulation promulgated by the Secretary of the U.S. Department of Health and Human Services (the “Secretary”). The Regulation purports to implement 42 U.S.C. § 1395f(i)(2), which establishes a Medicare hospice-care provider's annual aggregate cap amount for reimbursement purposes. Lion Health Services, Inc. (“Lion”) contends that § 1395f(i)(2) unambiguously requires the Secretary to calculate a provider's number of beneficiaries per year for annual-reimbursement-cap purposes by allocating patient stays that fell into multiple years proportionally into each year. The Regulation instead uses a formula that allocates these multi-year patients into only one year. The district court granted summary judgment to Lion, finding that the Regulation was unlawful. The court set aside the Regulation and enjoined its past, present, and future use as to Lion. It also ordered the Secretary to refund Lion all monies repaid by Lion to the Medicare program pursuant to the previously calculated repayment obligations for fiscal years 2006 and 2007. We find that the district court correctly held that the Regulation was unlawful and correctly enjoined its use as to Lion. The district court abused its discretion, however, in ordering the Secretary to refund all payment obligations for the 2006 and 2007 fiscal years, because it should have remanded to the agency for a recalculation. We therefore affirm in part, and reverse and remand in part.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. Medicare Hospice Program

In 1965, Congress established Medicare under Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq. (the “Medicare Act”), and authorized the Secretary to issue regulations defining the reimbursable costs and to otherwise carry out the Medicare Act provisions. See 42 U.S.C. §§ 1395x(v)(1)(A) and 1395hh(a)(1). In 1982, Congress expanded the Medicare Act to include hospice care for terminally ill beneficiaries. See Tax Equity and Fiscal Responsibility Act of 1982, Pub.L. 97–248, § 122, 96 Stat. 356, 364. In order to initially classify a patient as “terminally ill,” both the patient's “attending physician” and the hospice medical director must certify that the patient's life expectancy is six months or less. See 42 U.S.C. §§ 1395f(a)(7) and 1395x(dd)(3)(A). The hospice-care program provides for two initial ninety-day benefit periods followed by an unlimited number of sixty-day benefit periods. See id. § 1395d(a)(4). Either the patient's attending physician or the hospice medical director may re-certify the patient as terminally ill at the end of each period, provided the doctor still deems the patient to have less than six months to live. See 42 U.S.C. § 1395f(a)(7).

While the Medicare Act allows each individual patient to receive hospice care for as long as doctors re-certify the patient's terminally-ill diagnosis, the statute caps total reimbursement payments that hospice care providers may receive from Medicare in a fiscal year.¹ The relevant hospice-care statute provides:

(A) The amount of payment made under this part for hospice care provided by (or under arrangements made by) a hospice program for an accounting year may not exceed the “cap amount” for the year (computed under subparagraph (B)) multiplied by the number of medicare beneficiaries in the hospice program in that year (determined under subparagraph (C)).

....

(C) For purposes of subparagraph (A), 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 under subsection (d) of this section 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.

Id. § 1395f(i)(2) (emphasis added). The statute requires an annual recalculation of the individual patient “cap amount” based on changes in the Consumer Price Index. See id. § 1395f(i)(2)(B).

In 1983, the Secretary promulgated 42 C.F.R. § 418.309, a regulation purporting to implement 42 U.S.C. § 1395f(i)(2), the portion of the Medicare Act concerning the calculation of a hospice-care provider's annual aggregate cap amount. The annual aggregate cap amount restricts the maximum dollar amount that Medicare may reimburse a hospice care provider in any given fiscal year, calculated based on the number of individual patients treated in that fiscal year multiplied by the individual patient cap amount. The Regulation provides in relevant part:

For purposes of [the cap amount] calculation, the number of Medicare beneficiaries includes—

(1) Those Medicare beneficiaries who have not previously been included in the calculation of any hospice cap and who have filed an election to receive hospice care, in accordance with § 418.24, from the hospice during the period beginning on 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) .

Thus, the Regulation deals with patients whose hospice care stay extends into more than one fiscal year by using a single-year allocation method—allocating each individual patient cap amount to a single fiscal year based upon the date on which the patient elects for hospice care—rather than a proportional allocation method. A proportional method would allocate each individual patient cap amount to different fiscal years based on the exact proportion of care received by a patient in each relevant fiscal year. Under the Regulation's single-year approach, a patient who elects to receive hospice care on or before September 27, 2005, would be counted as receiving care only in FY05, even if the patient continues to receive hospice care in FY06. A patient who elects to receive hospice care on September 28, 2005, however, would be counted as receiving care only in FY06, even though she may have started receiving hospice care during FY05.

A hospice-care provider's Medicare bills are calculated and paid by a Medicare contractor called a “fiscal intermediary” shortly after the provider submits them. See 42 U.S.C. § 1395g(a); see also 42 C.F.R. §§ 413.64(b) and 418.302(d)-(e). Then, at the close of each fiscal year, the intermediary uses the Regulation to calculate a hospice care provider's aggregate cap amount for that fiscal year. See 42 C.F.R. § 418.308(c). If a provider's total reimbursement payments received from the intermediary over the course of the fiscal year exceed its aggregate cap amount for that year, the intermediary demands that the provider refund the amount of the overpayments to Medicare. See id. § 418.308(d).

If a hospice-care provider is not satisfied with the intermediary's refund demand and the amount in controversy is at least $10,000, the provider may administratively challenge that demand before the Provider Reimbursement Review Board (the “PRRB”). See 42 U.S.C. § 1395oo(a). When the provider challenges the validity of a regulation itself, however, the PRRB lacks the authority to declare regulations invalid. See Bethesda Hosp. Ass'n v. Bowen, 485 U.S. 399, 406, 108 S.Ct. 1255, 99 L.Ed.2d 460 (1988) (“Neither the fiscal intermediary nor the Board has the authority to declare regulations invalid.”). In this situation, once the PRRB has determined “that it is without authority to decide the question” because the “action of the fiscal intermediary ... involves a question of law or regulations,” the provider may obtain “expedited judicial review.” 42 U.S.C. § 1395oo(f)(1). Thus, the provider brings an action against the Secretary in federal district court, which the court tries pursuant to the standards of the Administrative Procedure Act, 5 U.S.C. § 701 et seq. (the “APA”). See id. § 1395oo(f)(1); 42 C.F.R. § 405.1842.

B. Lion's Lawsuit

Lion is a Medicare-certified hospice-care provider based in Hurst, Texas. It is one of dozens of hospice-care providers that over the past several years have filed lawsuits in district courts nationwide challenging the validity of the Secretary's single-year allocation method of calculation prescribed by 42 C.F.R. § 418.309(b)(1). On October 22, 2008, a fiscal intermediary notified Lion that calculations made pursuant to the Regulation indicated that Lion had exceeded its aggregate cap amount by $1,137,113 for FY06. In a similar letter dated July 8, 2009, the intermediary informed Lion that it had also exceeded its aggregate cap amount by $1,214,637 for FY07. Each letter demanded that Lion make refund payments to Medicare in the stated amounts, which Lion has been repaying on a monthly extended repayment schedule.

Lion timely filed administrative appeals with the PRRB and sought expedited judicial review on the question of whether the Regulation is invalid because it conflicts with Congress's unambiguous intent as provided in its authorizing statute, 42 U.S.C. § 1395f(...