Little Co. of Mary Hosp. and Health Care Centers v. Shalala

• Decision Date: 27 January 1999
• Docket Number: No. 98-1932,98-1932
• Citation: 165 F.3d 1162
• Parties: LITTLE COMPANY OF MARY HOSPITAL AND HEALTH CARE CENTERS, Plaintiff-Appellant, v. Donna SHALALA, Secretary of Health and Human Services, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1162

165 F.3d 1162

60 Soc.Sec.Rep.Ser. 12

LITTLE COMPANY OF MARY HOSPITAL AND HEALTH CARE CENTERS, Plaintiff-Appellant, v. Donna SHALALA, Secretary of Health and Human Services,

Defendant-Appellee.

No. 98-1932.

United States Court of Appeals, Seventh Circuit.

Argued Nov. 5, 1998.

Decided Jan. 27, 1999.

Kurt L. Hudson (argued), Hinshaw & Culbertson, Chicago, IL, for Plaintiff-Appellant.

Thomas P. Walsh, Office of the United States Attorney, Civil Division, Chicago, IL, James R. Goeser (argued), Social Security Administration, Office of the General Counsel, Region V, Chicago, IL, for Defendant-Appellee.

Before POSNER, Chief Judge, and FLAUM and MANION, Circuit Judges.

POSNER, Chief Judge.

A hospital that serves Medicare patients and provides medical education as well is entitled to a medical-education subsidy from the federal government. 42 U.S.C. §§ 1395ww(d)(5)(B), (h)(3). The plaintiff is such a hospital, and claiming that it had been shortchanged by the government sought judicial review in the district court, as was its right, 42 U.S.C. § 1395oo(f)(1), and having lost there renews its complaint with us.

The amount of the payment is determined by a pair of complicated formulas, one for "indirect medical education" reimbursement, 42 U.S.C. § 1395ww(d)(5)(B); 42 C.F.R. § 412.118 (1987), and the other for "graduate medical education" reimbursement. 42 U.S.C. § 1395ww(h)(3); 42 C.F.R. § 413.86. The differences between them are not relevant to this case, so we'll limit discussion to the first, the IME reimbursement; everything we say about it is equally applicable to the GME reimbursement.

Only one element of the IME formula is at issue in this case, and that is the number of beds the hospital has. The smaller that number, other things being equal, such as the number of patients, the greater the subsidy the hospital is entitled to. E.g., Medicare Program: Fiscal Year 1986 Changes to the Inpatient Hospital Prospective Payment System, 51 Fed.Reg. 16772, 16775 (May 6, 1986). The consequence is that the higher the ratio of patients to beds, the greater the subsidy. From the bed count are excluded "beds assigned to newborns," 42 C.F.R. § 412.118(b) (1987), but there is an exception for "beds in intensive care units," even if the bed is occupied by a newborn. Medicare Provider Reimbursement Manual, § 2202.7(II)(A) and Note, 2 CCH Medicare and Medicaid Guide p 6096, p.2057-3 (1988). The regulation has since been changed to exclude "beds or bassinets in healthy newborn nursery," 42 C.F.R. § 412.105(b), but the new regulation does not apply to this case.

Why the subsidy is inverse to the ratio of beds to patients, and why beds for newborns in intensive care are counted (newborns are not eligible for Medicare), are mysteries that the briefs pass over in silence, as did the district judge in his opinion, and that neither counsel was able to elucidate at argument. It is very difficult to apply a regulation without a clue to its purpose, so we asked the parties to submit supplemental briefs addressing the issue. The government explains in its supplemental brief, plausibly enough, that the care of healthy newborns is unlikely to involve skills or experience having significant spillover benefits for Medicare patients, but that the care of a sickly newborn in an intensive-care unit may have such benefits since the elderly are frequently in need of intensive care. Hence the beds assigned to newborns who are in intensive care are included in the bed count in the formula.

This produces the paradox that the more newborns a hospital has in intensive care, the lower the Medicare education subsidy, since, other things being equal, the subsidy is smaller the greater the number of beds counted. But the government explains that among the other things held constant is the number of interns and residents. The government has found that the higher the ratio of that number to the number of beds (and the fewer the number of beds, holding number of interns and residents constant, the higher that ratio will be), the more teaching the hospital will be doing. Medicare Program: Fiscal Year 1986 Changes to the Inpatient Hospital Prospective Payment System, supra, 51 Fed.Reg. at 16775. For if the hospital has fewer beds, it probably has a smaller medical staff, and hence a higher ratio of interns and residents to fully trained doctors--the teachers. The higher that ratio, the more training the fully trained doctors must do. Suppose Hospital A has 300 beds, 75 interns and residents, and 25 fully trained doctors, and Hospital B has 600 beds, 75 interns and residents, and 125 fully trained doctors (so that in both hospitals there is one doctor for every three beds). The fully trained doctors in Hospital A will have much heavier teaching loads than the fully trained doctors in B because the ratio of interns and residents to fully trained doctors is so much higher in A (3:1) than in B (3:5).

Because the subsidy thus is greater the fewer the beds that are counted, and beds occupied by newborn infants are counted only if the beds are in an intensive-care unit, it is in the interest of the government, which wants to minimize its expenditures, to classify as many beds for newborns as possible as intensive-care beds, while it is in the hospital's interest to classify as many beds for newborns as possible as non-intensive-care beds. (Remember the theory: the more beds there are, holding number of interns and residents constant, the more fully trained doctors there must be to handle the increased patient load and therefore the less teaching each one must do.) The plaintiff in this case has what it calls an intermediate-care unit for newborns with health problems, and no unit that provides more intensive care for newborns. Illinois law forbids it to provide intensive care for newborns. See 77 Ill. Admin. Code § 250.1820(f). If any of the newborns in its intermediate-care unit require intensive care, the hospital is required to ship them off to the University of Chicago Hospitals, which operate the only intensive-care units in Chicago for newborns that Illinois recognizes. The hospital also points out that its intermediate-care unit for newborn infants provides less care, as measured by such indicators as the ratio of registered nurses to patients, than the typical...