Milton S. Hershey Med. Ctr. v. Becerra
| Decision Date | 17 May 2021 |
| Docket Number | C/w 19-cv-3763,C/w 19-cv-3788,Civil Action No. 19-2680 (TJK),C/w 19-cv-3411,C/w 20-cv-460 |
| Parties | MILTON S. HERSHEY MEDICAL CENTER et al., Plaintiffs, v. XAVIER BECERRA, Defendant. |
| Court | U.S. District Court — District of Columbia |
Plaintiffs in these consolidated cases are teaching hospitals that receive Medicare reimbursement payments for training physicians in their residency programs. They challenge a regulation promulgated by Defendant, the Secretary of Health and Human Services, that affects the number of their full-time equivalent residents used to calculate those payments. Plaintiffs allege that, at least as applied to them, the regulation conflicts with the Medicare statute and that it is an arbitrary and capricious exercise of agency discretion under the Administrative Procedure Act. Before the Court are two cross-motions for summary judgment filed by Plaintiffs and one filed by Defendant. The Court holds that Defendant's application of the regulation to compute Plaintiffs' full-time equivalent residents was contrary to law because the regulation effectively changed the weighting factors statutorily assigned to residents and fellows. Thus, the Court will grant Plaintiffs' motions, deny Defendant's, and remand to the agency so that it may recalculate Plaintiffs' reimbursement payments consistent with this Opinion.
Under Subsection (h) of the Medicare Act, 42 U.S.C. § 1395ww(h), the Center for Medicare and Medicaid Services (CMS) of the Department of Health and Human Services reimburses hospitals prospectively for costs associated with "resident stipends, supervisory physician salaries, and administrative costs." Cong. Res. Serv., Federal Support for Graduate Medical Education: An Overview 11 (updated Dec. 27, 2018), https://fas.org/sgp/crs/misc/R44376.pdf ("CRS Report"). These reimbursements, known as direct graduate medical education ("DGME") payments, are the product of a hospital's "patient load"2 and its "approved amount." 42 U.S.C. § 1395ww(h)(3)(A). The approved amount, in turn is calculated by multiplying the per-resident amount ("PRA")3 by the weighted average number of full-time equivalent ("FTE") residents employed by the hospital. § 1395ww(h)(3)(B). The weighted average number of FTEs is the average of "the actual full-time equivalent resident counts for the cost reporting period and the preceding two cost reporting periods." § 1395ww(h)(4)(G). Thus, this DGME formula may be represented as follows:
PRA × 3 Year Weighted FTE Average × Medicare Patient Load = DGME Payment
This case involves a dispute over the calculation of one of the three elements that go into calculating a hospital's DGME payment: each hospital's weighted number of FTE residents. The Medicare statute dictates that the Secretary "shall establish rules consistent with [subparagraph (h)(4)]" to determine the weighted number of FTEs. § 1395ww(h)(4)(A). Twoother portions of subparagraph (h)(4), described in more detail below, are important to the parties' dispute: the weighting factors for FTE residents based on the duration of their employment, and the "cap" on the number of FTEs a hospital may count for purposes of a cost reporting period.
First, the statute sets different weights for residents depending on whether they are within their initial residency period ("IRP") of five years. See § 1395ww(h)(4)(C); § 1395ww(h)(5)(F). When students graduate from medical school, they often continue their training in a residency program, gaining experience in a specialty field. CRS Report at 2. This training period lasts three to five years and is reflected in the statute as the five-year IRP. Id.; § 1395ww(h)(5)(F). Some residents complete a fellowship, receiving further training in a subspecialty. CRS Report at 3. Thus, fellowships typically occur outside the IRP.4 Under the statute, the Secretary's rules for calculating the weighted average number of FTEs "shall provide . . . for a resident who is in the resident's initial residency period . . . , the weighting factor is 1.00, . . . and . . . for a resident who is not in the resident's initial residency period . . . , the weighting factor is .50." § 1395ww(h)(4)(C). Thus, the statute requires that (1) residents must be weighted at 1.0, such that their time is fully counted; and (2) fellows must be weighted at 0.5, with half their time factoring into the FTE calculation. Id.
Second, in 1997, Congress amended the statute to set a limit on how many FTEs a hospital may factor into the count, before application of the weighting factors. As amended, that part of the statute reads:
[F]or purposes of a cost reporting period beginning on or after October 1, 1997 . . . the total number of full-time equivalent residents before application of weighting factors . . . may notexceed the number . . . of such full-time equivalent residents for the hospital's most recent cost reporting period ending on or before December 31, 1996.
Pub. L. No. 105-33, § 4623, 111 Stat. 251, 477-78 (1997) (). Under this provision, a hospital cannot claim for purposes of reimbursement any residents or fellows above that hospital's 1996 levels. See id.
The regulation at the center of the parties' dispute was originally promulgated by the Secretary in 1997 "to address situations in which a hospital increases the number of FTE residents over the cap." 63 Fed. Reg. 26,318, 26,330 (May 12, 1998). Today, as amended, it reads:
If the hospital's number of FTE residents in a cost reporting period beginning on or after October 1, 2001, exceeds the [1996 cap], the hospital's weighted FTE count (before application of the limit) . . . will be reduced in the same proportion that the number of FTE residents for that cost reporting period exceeds the number of FTE residents for the most recent cost reporting period ending on or before December 31, 1996.
42 C.F.R. § 413.79(c)(2)(iii). Thus, the regulation operates as follows:
1996 Cap/Unweighted FTEs × Weighted FTEs = Post-Regulation Weighted FTEs
See ECF No. 32-1 at 148-50 (). The regulation operates to reduce the weighted number of FTEs a hospital may claim for reimbursement when that hospital's unweighted FTE count exceeds the 1996 cap. See id. When a hospital exceeds the cap, its weighted FTE count is reduced commensurate with the amount by which the hospital exceeds the cap. Id. For example, assuming a cap of 100, and that a hospital meets that cap by employing 90 residents and 10 fellows, after weighting the fellows at 0.5, its post-regulation weighted FTE count is 95:
100/100 × 95 = 95
But if that hospital adds 10 more fellows (for a total of 90 residents and 20 fellows), thereby exceeding the cap, its post-regulation weighted FTE count is reduced as follows:
100/110 × 100 = 90.91
Several parties, including some plaintiffs in this case, commented on this regulation during the rulemaking process. See generally ECF No. 32-1 at 10-23. But none of the comments asserted that this provision was unlawful on the grounds asserted here. See id.
Five suits are now consolidated before this Court. In all of them, hospitals challenge their DGME reimbursements for various fiscal years dating back as far as 2005.5 Minute Order of May 18, 2020. Each hospital trained residents in the fiscal year 1996. See, e.g., ECF No. 32-1 at 154-179 (Hershey plaintiffs); ECF No. 11 ("Am. Compl.") ¶ 40. For every fiscal year at issue, Plaintiffs exceeded their 1996 caps and employed fellows. See ECF No. 32-1 at 159-184 (Lines 5.00, 6.00, 8.00). And CMS's third-party contractor applied 42 C.F.R. § 413.79(c)(2)(iii) to derive the weighted average number of FTEs and calculate each Plaintiff's DGME reimbursements.6 Id. (Line 9.00). As a result, Plaintiffs allege that their reimbursements were unlawfully reduced. For example, the Hershey plaintiffs assert that their reimbursements werecollectively reduced by $12,850,321 during the relevant years. Case No. 19-cv-02680, ECF No. 17 ( ) 23; see also ECF No. 32-1 at 158.
Subject to certain procedural requirements, hospitals may appeal their reimbursement decisions to the Provider Reimbursement Review Board (Board) within CMS. See 42 U.S.C. § 1395oo(a). However, the Board lacks the legal authority to decide the validity of a Medicare regulation. 42 C.F.R. § 405.1867. And when faced with such a question, it may grant expedited judicial review to allow the appealing parties to file an action in federal court. 42 U.S.C. § 1395oo(f)(1); 42 C.F.R. § 405.
Here, each hospital timely appealed their DGME decisions to the Board, see, e.g., ECF No. 32-1 at 145 (Hershey plaintiffs), and each contested the application of 42 C.F.R. § 413.79(c)(2)(iii) to their reimbursement calculation. See id. The hospitals alleged that the regulation unlawfully reduced the capped payment to which they were entitled, and that it reduced the weighting factor for fellows. The Board granted expedited judicial review, concluding that it lacked authority to decide whether the regulation was valid. Id. at 156. The hospitals then filed various suits in this district, alleging that the regulation is contrary to law and arbitrary and capricious. Defendant moved to consolidate the five pending actions, and the hospitals in four cases agreed to consolidate. See ECF No. 13 at 2. The Vermont plaintiffs opposed consolidation, arguing that their litigation was at a more advanced stage. See ECF No. 16; Minute Order of May 18, 2020. On April 15, 2020, the plaintiffs in Vermont filed a motion for summary judgment. Case No. 19-cv-02763, ECF No. 20 ("Vermont Mot."). The four other plaintiffs filed their joint motion on April 24, 2020. Pls. Mot. On May 18, 2020, the Court consolidated all five cases. See Minute Order of May 18, 2020. Defendant's cross-motion, ECF No. 26, responds to both motions.
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