Owensboro Health, Inc. v. U.S. Dep't of Health & Human Servs.

• Decision Date: 10 August 2016
• Docket Number: Nos. 15-6109,15-6110,s. 15-6109
• Citation: 832 F.3d 615
• Parties: Owensboro Health, Inc. (15–6109); Jackson Purchase Medical Center and Lake Cumberland Regional Hospital (15–6110), Plaintiffs–Appellants, v. United States Department of Health and Human Services; Sylvia Mathews Burwell, Secretary, United States Department of Health and Human Services; Centers for Medicare and Medicaid Services, Defendants–Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

832 F.3d 615

Owensboro Health, Inc. (15–6109); Jackson Purchase Medical Center and Lake Cumberland Regional Hospital (15–6110), Plaintiffs–Appellants,

v.United States Department of Health and Human Services; Sylvia Mathews Burwell, Secretary, United States Department of Health and Human Services; Centers for Medicare and Medicaid Services, Defendants–Appellees.

Nos. 15-6109

15-6110

United States Court of Appeals, Sixth Circuit.

Argued: June 9, 2016

Decided and Filed: August 10, 2016

COUNSEL ARGUED: Stephen R. Price, Sr., Wyatt, Tarrant & Combs, LLP, Louisville, Kentucky, for Appellants. Carleen M. Zubrzycki, United States Department of Justice, Washington, D.C., for Appellees. ON BRIEF: Stephen R. Price, Sr., Virginia H. Snell, Wyatt, Tarrant & Combs, LLP, Louisville, Kentucky, for Appellants. Carleen M. Zubrzycki, Alisa B. Klein, United States Department of Justice, Washington, D.C., for Appellees.

Before: BOGGS, ROGERS, and STRANCH, Circuit Judges.

OPINION

ROGERS

, Circuit Judge.

This consolidated appeal concerns the amount of additional Medicare reimbursements that the plaintiff hospitals should receive for serving a disproportionate share of low-income patients and whether the calculation of those additional Medicare reimbursements is affected by how a state chooses to allocate its Medicaid funds. The amount of additional Medicare reimbursements that a hospital is entitled to receive for serving a disproportionate share of low-income patients depends, in part, on the number of days that the hospital served patients who were “eligible for medical assistance under a State plan approved under [the Medicaid statute].” 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II)

. The hospitals contend that because Kentucky has chosen in its Medicaid plan to award additional Medicaid funds to hospitals based on how many days they treat patients who are eligible for the Kentucky Hospital Care Program (“KHCP”), a state program that provides medical coverage to low-income individuals who do not qualify for Medicaid, KHCP patient days should be counted in the calculation of the additional Medicare reimbursements. However, because the statutory term “eligible for medical assistance under a State plan approved under [the Medicaid statute]” is synonymous with “eligible for Medicaid” and because KHCP patients are, by definition, not eligible for Medicaid, the district courts correctly concluded that the statute unambiguously excludes KHCP patient days from the calculation for awarding additional Medicare reimbursements to hospitals that serve a disproportionate share of low-income patients.

I.

Under Medicare, a federally funded program that provides health insurance for the elderly and disabled, see 42 U.S.C. § 1395c

, hospitals are not reimbursed for the actual cost of treating Medicare beneficiaries. Instead, the federal government reimburses hospitals for treating Medicare patients through a “prospective payment system” based on predetermined rates for a given diagnosis, regardless of the actual cost of treatment. 42 U.S.C. § 1395ww(d). Those predetermined rates may be adjusted for specific hospitals. 42 U.S.C. § 1395ww(d)(5). This case involves one of those hospital-specific adjustments: the Medicare Disproportionate Share Hospital (“DSH”) adjustment. Under the Medicare DSH adjustment, the government pays a hospital more for treating Medicare patients if the hospital serves a “significantly disproportionate number of low-income patients.” 42 U.S.C. § 1395ww(d)(5)(F)(i)(I). The reason for this adjustment is Congress's judgment that low-income Medicare patients generally are in poorer health and therefore generally are costlier to treat. See H.R. Rep. No. 98–861, at 1356 (1984) (Conf. Rep.), reprinted in 1984 U.S.C.C.A.N. 1445, 2044; S. Rep. No. 98–23, at 54 (1983), reprinted in 1983 U.S.C.C.A.N. 143, 194.

One method of determining whether a hospital qualifies for a Medicare DSH adjustment and the amount of such adjustment is the hospital's “disproportionate patient percentage,” which serves as a proxy for the number of low-income patients treated by the hospital. 42 U.S.C. § 1395ww(d)(5)(F)(v)

. A hospital's “disproportionate patient percentage” is determined, in part, by the so-called “Medicaid fraction” or “Medicaid proxy,” which is defined as: “the number of the hospital's patient days for such period which consists of patients who (for such days) were eligible for medical assistance under a State plan approved under subchapter XIX of this chapter, but who were not entitled benefits under part A of [Medicare],” divided by “the total number of the hospital's patient days for such period.” 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II). The key dispute in this case is how to interpret the phrase “eligible for medical assistance under a State plan approved under subchapter XIX of this chapter.”

“[S]ubchapter XIX of this chapter” refers to Medicaid. See 42 U.S.C. §§ 1396

–1396w–5. In Medicaid, each state creates a unique plan to provide medical coverage for low-income individuals. The state plan establishes eligibility criteria for coverage under the plan as well as the nature and scope of medical care provided under the plan. 42 C.F.R. § 430.10. If the Secretary of Health and Human Services approves the state's plan, the federal government makes matching payments to the state for the “medical assistance” that is provided to individuals who qualify under the state's plan. 42 U.S.C. § 1396b(a)(1). Unlike Medicare, in which the federal government does not reimburse providers for the actual cost of treating patients, in Medicaid, the federal government provides matching payments to the state for “the total amount expended [by the state] ... as medical assistance under the State plan.” Id. The state then distributes the federal funds to the medical providers as described in its Medicaid plan. 42 C.F.R. § 430.0.

Like Medicare, Medicaid requires an upward rate adjustment for providers serving a disproportionate share of low-income patients. 42 U.S.C. § 1396a(a)(13)(A)(iv)

. However, the Medicaid DSH adjustment operates differently than the Medicare DSH adjustment. While the Medicare DSH adjustment is defined uniformly for all states by the Medicare statute, 42 U.S.C. § 1395ww(d)(5)(F)(I), in Medicaid, each state “specifically defines the hospitals” that qualify for its Medicaid DSH adjustment in its state Medicaid plan, 42 U.S.C. § 1396r–4(a). Further, while the Medicaid proxy in the Medicare DSH adjustment counts only days on which hospitals treated patients who “were eligible for medical assistance under a State plan approved under [the Medicaid statute],” 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II), a state's Medicaid DSH adjustment may be based on “the costs, volume, or proportion of services provided to patients eligible for medical assistance under a State plan approved under [the Medicaid statute] or to low-income patients ,” 42 U.S.C. § 1396r–4(c)(3)(B) (emphasis added).

Additionally, the purpose of the Medicaid DSH adjustment is different from the purpose of the Medicare DSH adjustment. As explained above, the purpose of the Medicare DSH adjustment is to make the Medicare reimbursements closer to the actual cost of treating Medicare patients who are in poorer health and therefore are more expensive to treat; however, it is not necessary to account for this purpose through the Medicaid DSH adjustment, because the federal government already pays the states based on the actual amount they spend on Medicaid patients. See 42 U.S.C. § 1396b(a)(1)

. Instead, the purpose of the Medicaid DSH adjustment is to assist facilities in providing care to “the uninsured patients that they serve, since these facilities [that qualify for the Medicaid DSH adjustment] are unlikely to have large numbers of privately insured patients through which to offset their operating losses on the uninsured.” H.R. Rep. No. 103–111, at 211

(1993), reprinted in 1993 U.S.C.C.A.N. 378, 538.

Kentucky's Medicaid DSH definition includes patients who qualify for a state program known as the Kentucky Hospital Care Program (“KHCP”). Kentucky's Medicaid DSH definition is based on the number of days a hospital incurs costs for “indigent patients.” Indigent patients—meaning patients who qualify for KHCP—are defined as patients “without health insurance or other source of third party payment with incomes below 100% of the federal poverty level.” Kentucky law further provides that individuals must be ineligible for Medicaid in order to qualify for coverage under KHCP. See Ky. Rev. Stat. § 205.640(5)

.

In this case, hospitals submitted cost reports to their fiscal intermediaries (the entities that distribute Medicare funds) that included both Medicaid and KHCP patient days in their Medicare DSH adjustment calculations. The Eastern District of Kentucky hospitals' cost reports were for the years 2005–2007, while the Western District of Kentucky hospital's cost reports were for the years 2003–2005. The fiscal intermediaries disagreed with the hospitals and excluded KHCP patient days from the hospitals' Medicare DSH adjustments. The hospitals appealed to the Provider Reimbursement Review Board (“PRRB”), which affirmed the fiscal intermediaries' decisions. The hospitals then appealed the PRRB's decisions to the Administrator of the Centers for Medicare & Medicaid Services, whose decisions constitute the final administrative decisions of the Secretary. The Administrator affirmed the PRRB's decisions. The hospitals timely sought judicial review of the Administrator's decisions.

The hospitals and the Secretary both filed motions for summary judgment in the district courts. Both the Eastern and Western Districts of Kentucky affirmed the Administrator's decisions. Applying the framework set forth in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc. , 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984)

, the Eastern District held that “eligible for medical assistance under a State plan approved under subchapter XIX”...