Prime Healthcare Servs. Huntington Beach, LLC v. Hargan

• Decision Date: 13 December 2017
• Docket Number: No. CV 16-8102 PA (GJSx),CV 16-8102 PA (GJSx)
• Court: U.S. District Court — Central District of California
• Parties: PRIME HEALTHCARE SERVICES - HUNTINGTON BEACH, LLC, d/b/a Huntington Beach Hospital, Plaintiff, v. ERIC D. HARGAN, in his official capacity as Acting Secretary of the U.S. Department of Health and Human Services, Defendant.

PRIME HEALTHCARE SERVICES - HUNTINGTON BEACH, LLC,d/b/a Huntington Beach Hospital, Plaintiff, v. ERIC D. HARGAN,in his official capacity as Acting Secretary of the U.S. Department of Healthand Human Services, Defendant.

No. CV 16-8102 PA (GJSx)

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

December 13, 2017

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Plaintiff Prime Healthcare Services - Huntington Beach LLC ("Plaintiff"), which owns and operates Huntington Beach Hospital, brought this action pursuant to the Administrative Procedure Act ("APA"), 42 U.S.C. § 1395ff(b)(1)(A) (incorporating the judicial review procedure of 42 U.S.C. § 405(g)), for judicial review of a final decision by Eric D. Hargan, in his official capacity as Acting Secretary of the U.S. Department of Health and Human Services ("Secretary" or "Defendant"),¹ that Plaintiff received an overpayment of $5,380.30 for inpatient services that were not medically reasonable and necessary.

Following the filing, consideration, and review of the Administrative Record ("AR") (Docket No. 45), the parties' Opening and Responsive Trial Briefs, the submission of their respective Proposed Findings of Fact and Conclusions of Law, and their objections to each other's Proposed Findings of Fact and Conclusions of Law, the Court, makes the following findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a). Any finding of fact that constitutes a conclusion of law is hereby adopted as a conclusion of law, and any conclusion of law that constitutes a finding of fact is hereby adopted as a finding of fact.

I. Findings of Fact

A. Statutory and Regulatory Background

1. Medicare is a federally funded health insurance program for the elderly and disabled. See 42 U.S.C. § 1395, et seq. Medicare coverage is limited to services that are medically "reasonable and necessary." See Palomar Med. Ctr. v. Sebelius, 693 F.3d 1151, 1155 (9th Cir. 2012) (citing 42 U.S.C. § 1395y(a)(1)(A)). In the absence of a national or local coverage determination, the regional Medicare Administrative Contractor responsible for administering benefits claims generally determines whether a claim is medically reasonable and necessary. See 68 Fed. Reg. 63692, 63693 (Sept. 26, 2003) (final rule).

2. Medicare service providers submit claims for reimbursement for covered services, and Medicare Administrative Contractors make initial determinations of coverage and amount. See Palomar Med. Ctr., 693 F.3d at 1154-55 (citing 42 U.S.C. § 1395ff(a); 42 C.F.R. § 405.920). In exercising their regulatory functions, contractors conduct post-payment audits to ensure that payments are made in accordance with applicable Medicare payment criteria. When audited, a Medicare provider seeking payment must provide sufficient evidence to establish the medical reasonableness and necessity of the services billed to Medicare. See 42 U.S.C. §§ 1395g(a), 1395l(e), 1395gg; 42 C.F.R. § 411.15(k)(1).

3. Initial determinations are appealable through a four-step administrative process. First, if the claimant is dissatisfied with the initial determination, it may request that the same contractor conduct a "redetermination." 42 U.S.C. § 1395ff(a)(3); 42 C.F.R. § 405.940. Second, if the claimant is dissatisfied with the contractor's redetermination, it may request a "reconsideration" by a "qualified independent contractor" ("QIC"). 42 U.S.C. § 1395ff(b)(1)(A) & (c)(2); 42 C.F.R. § 405.960. Third, a still dissatisfied claimant may request a hearing before an administrative law judge. 42 U.S.C. § 1395ff(b)(1)(A), (E) & (d)(1); 42 C.F.R. § 405.1002. Finally, the claimant may seek review of the ALJ's decision by the Medicare Appeals Council, Departmental Appeals Board. 42 U.S.C. § 1395ff(d)(2); 42 C.F.R. § 405.1100.

4. Once this administrative process is exhausted, the claimant may then seek judicial review, as provided in 42 U.S.C. § 405(g), of the final agency decision of the ALJ or the Medicare Appeals Council, as applicable. 42 U.S.C. § 1395ff(b)(2)(C); 42 C.F.R. § 405.1136.

5. The Medicare Act provides for a process called "escalation," whereby a service provider can bypass steps in the administrative appeals process if a decision is not issued within the statutorily set time period. If, for instance, the Medicare Appeals Council does not issue a determination within 90 days, a service provider may seek judicial review in federal court. 42 U.S.C. § 1395ff(d)(3); 42 C.F.R. § 405.1100(c).

6. The Medicare Act provides that with respect to all Medicare items or services, "no payment may be made under Part A or Part B for any expenses incurred for items or services . . . which. . . are not reasonable and necessary for the diagnosis or treatment of illness or injury. . . ." 42 U.S.C. § 1395y(a)(1)(A); 42 C.F.R. § 411.15(k)(1).

7. Congress has vested final authority in the Secretary to determine what items or services are "reasonable and necessary." 42 U.S.C. § 1395ff(a); Heckler v. Ringer, 466 U.S. 602, 617 (1984) (citing 42 U.S.C. § 1395ff(a)). Congress likewise has vested discretion in the Secretary to determine what information to require as a condition of payment. See Maximum Comfort, Inc. v. Sec'y of Health & Human Servs., 512 F.3d 1081, 1088 (9th Cir. 2007); Cmty. Hosp. v. Thompson, 323 F.3d 782, 789 (9th Cir. 2003) (noting that the Medicare statute "specifically granted the Secretary broad discretion as to what information to require as a condition of payment to providers under the Medicare program"). Consistent with this authority, the Secretary has promulgated policies and regulations relating to the "reasonable and necessary" requirement, which place the burden of establishing the reasonableness and necessity of medical care squarely on the entity submitting the claim. 42 U.S.C. § 1395l(e); 42 C.F.R. § 424.5(a)(6).

8. The statutory provisions governing Part A do not define the term "inpatient." See 42 U.S.C. §§ 1395d(a), 1395x(b), 1395x(i). The Secretary, however, through the Centers for Medicare & Medicaid Services ("CMS"), defined the term "inpatient" in CMS's Medicare Benefits Policy Manual in effect at the time of the claim at issue as:

[A] person who has been admitted to a hospital for bed occupancy for purposes of receiving inpatient hospital services. Generally, a patient is considered an inpatient if formally admitted as inpatient with the expectation that he or she will remain at least overnight and occupy a bed even though it later develops that the patient can be discharged or transferred to another hospital and not actually use a hospital bed overnight.

CMS, Publ'n No. 100-02, Medicare Benefits Policy Manual ("Policy Manual"), Ch. 1, § 10; Barrows v. Burwell, 777 F.3d 106, 108 & n.5 (2d Cir. 2015) (quoting the language of Ch. 1, § 10 of the Policy Manual in effect at the time of the claim). The Policy Manual states that when deciding whether to admit a patient, "[p]hysicians should use a 24 hour period as a benchmark, i.e., they should order admission for patients who are expected to need hospital care for 24 hours or more, and treat other patients on an outpatient basis." Policy Manual, Ch. 1, § 10. The Policy Manual further articulates "a number of factors" that a physician should also consider, "including the patient's medical history and current medical needs, the types of facilities available to inpatients and outpatients, the hospital's by-laws and admissions policies, and the relative appropriateness of treatment in each setting." Id. The Policy Manual, moreover, provides that whether the admission is "not covered or non-covered" is not to be based solely on the length of time the patient actually spends in the hospital. Id.

9. As an alternative to admitting an individual as an inpatient, a hospital may instead place the patient on "observation status," in which case the services he or she receives will be considered outpatient "observation services." The Policy Manual defines "observation services" as:

[A] well-defined set of specific, clinically appropriate services, which include ongoing short term treatment, assessment, and reassessment before a decision can be made regarding whether patients will require further treatment as hospital inpatients or if they are able to be discharged from the hospital. Observation services are commonly ordered for patients who present to the emergency department and who then require a significant period of treatment or monitoring in order to make a decision concerning their admission or discharge.

. . .

In the majority of cases, the decision whether to discharge a patient from the hospital following resolution of the reason for the observation care or to admit the patient as an inpatient can be made in less than 48 hours, usually in less than 24 hours. In only rare and exceptional cases do reasonable and necessary outpatient observation services span more than 48 hours.

Policy Manual, Ch. 6, § 20.6(A). "The purpose of observation is to determine the need for further treatment or for inpatient admission." Id. at § 20.6(B).

10. Because patients on observation status are not yet "inpatients," the services they receive while on observation status are covered under Part B as outpatient services. Id. § 20.6(B) ("When a physician orders that a patient receive observation care, the patient's status is that of an outpatient."). This distinction is significant because coverage of outpatient services under Part B is usually reimbursed at a lower rate than the same services billed as inpatient services under Part A. See Alexander v. Cochran, No. CV11-1703, 2017 WL 522944, at *1 (D. Conn. Feb. 8, 2017).

B. Overpayment to Plaintiff for Services Provided to N.V.

11. On March 15, 2011, at approximately 8:47 p.m., N.V., a 68-year-old woman, presented at the emergency department at Huntington Beach Hospital complaining of chest pains and some mild dizziness. (AR 231-232.) N.V. reported that the chest pain lasted for about 45 minutes, was non-radiating,...