Rush Univ. Med. Ctr. v. Sebelius
| Decision Date | 15 August 2013 |
| Docket Number | No. 12 C 46731,No. 12 C 4672,12 C 4672,12 C 46731 |
| Parties | RUSH UNIVERSITY MEDICAL CENTER Plaintiff, v. KATHLEEN SEBELIUS, Secretary of Health and Human Services Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
OPINION AND ORDER
Rush University Medical Center ("Rush") filed two complaints against Kathleen Sebelius ("the Secretary"), in her capacity as the Secretary of the United States Department of Health and Human Services, alleging that the Secretary improperly calculated Rush's Medicare reimbursement.2 Presently before the court are the parties' motions for summary judgment. For the following reasons, the Secretary's motion for summary judgment [dkt. 41] is granted in part and denied in part, and Rush's motion for summary judgment [dkt. 44] is granted in part and denied in part.
Rush is a tertiary care hospital and academic medical center located in Chicago, Illinois. It participates in the federal government's Medicare program as a provider of services. See 42 U.S.C. § 1395x(u). Medicare is a federally-funded health insurance program for the elderly and disabled funded by the federal government. See 42 U.S.C. § 1395 et seq. In connection with its treatment of Medicare beneficiaries, the Secretary reimburses Rush for those services. The Secretary is vested with the authority to determine the extent of reimbursable costs.
At its inception, Medicare reimbursed hospitals for the reasonable costs of inpatient hospital services. 42 U.S.C. § 1395f(b)(1). The reasonable cost was the cost that the hospital actually incurred minus costs deemed "unnecessary in the efficient delivery of needed health services." 42 U.S.C. § 1395x(v)(1)(A). Under the reasonable cost system, hospitals were reimbursed for the indirect costs of providing medical education. Id; see also 48 Fed. Reg. 39,752, 39,778 (Sept. 1, 1983). Reimbursement under this system proved too costly and, as a result, Congress authorized the Secretary to limit reimbursements to those activities arising "in the efficient delivery of needed health services." R.I. Hosp. v. Leavitt, 548 F.3d 29, 39 (1st Cir. 2008) (quoting 42 U.S.C. § 1395x(v)(1)(A)).
Historically, teaching hospitals, such as Rush, incurred high indirect patient care costs, which were the result of factors such as "increased diagnostic testing, increased numbers of procedures prescribed, higher staffing ratios, and a more severely ill population." H.R. Rep. No. 99-241(I) at 14 (1985), as reprinted in 1986 U.S.C.C.A.N. 579, 592. The revised limits on the reasonable cost system failed to take into account these indirect costs of teaching hospitals. SeeR.I. Hosp., 548 F.3d at 39 (citing 45 Fed. Reg. 21, 582, 21, 584 (April 1, 1980)). In response, the Secretary created "an automatic adjustment" to calculate the indirect effects of medical education on the costs of inpatient care. Id. (citing 45 Fed. Reg. 41,868, 41,869 (June 20, 1980)).
In 1983, Congress revised the Medicare payment methodology by creating a "prospective payment system" ("PPS"), which largely displaced the reasonable cost system. See 42 U.S.C. § 1395ww(d); Univ. of Chicago Med. Ctr. v. Sebelius, 618 F.3d 739, 741 (7th Cir. 2010). To more accurately compensate the amounts incurred by teaching hospitals, Congress granted teaching hospitals additional payments to cover the direct and indirect costs of approved educational activities. See 42 U.S.C. § 1395ww(d)(5)(B), (h). The PPS system reimbursed hospitals according to a "federal rate per given service based on a patient's diagnosis at discharge." Univ. of Chicago Med. Ctr., 618 F.3d at 741. Congress statutorily adopted the "indirect graduate medical education ("IME") adjustment," which considered "the ratio of FTE [full-time equivalent] interns and residents to beds as a variable" to measure the "effect of teaching activity on operating costs." 48 Fed. Reg. at 39,778. A hospital's IME adjustment was derived by multiplying its total PPS payment for the year by its "IME Adjustment Factor." The formula measured the level of teaching intensity at a hospital by comparing the ratio of interns and residents to patient beds. See 42 U.S.C. § 1395ww(d)(5)(B); 42 C.F.R. § 412.105.
The IME Adjustment Factor is determined by the following formula: IME Adjustment Factor = c x ((1 + r)n - 1), where c is an adjustment factor established annually by Congress, r is the ratio of FTEs to beds, and n is approximately .405 (a statutorily established factor representing the effect of teaching activity on the hospital's indirect costs). See 42 U.S.C. § 1395ww(d)(5)(B), (d)(5)(B)(ii). An intern or resident must be in an approved medicaleducation program and assigned to one or two specified areas to be included in the FTE count. See 42 C.F.R. § 412.105(f)(1)(ii). The first area is "[t]he portion of the hospital subject to the prospective payment system" and the second is "[t]he outpatient department of the hospital." 42 C.F.R. § 412.105(f)(1)(ii)(A); (B). In general, reduction in the number of beds and/or an increase in the number of FTEs in the IME ratio results in a larger reimbursement to the Medicare provider.3
At the close of each fiscal year,4 Rush filed a cost report with a Medicare fiscal Intermediary ("the Intermediary"). The cost report determined Rush's Medicare reimbursement. See 42 C.F.R. § 413.24(f). In fiscal years 1993, 1994, and 1996, Rush submitted Medicare cost reports and the Intermediary issued Notices of Program Reimbursement ("NPRs"), which identified the reimbursement amounts due to Rush for each of those fiscal years. See 42 C.F.R. § 405.1803.
Rush filed administrative appeals of its 1993, 1994, and 1996 NPRs before the Provider Reimbursement Review Board ("Board") contesting whether the Intermediary had accurately determined Rush's bed count, and whether the Intermediary was correct in excluding research rotations of residents participating in approved medical education programs when calculating Rush's IME adjustment. See 42 U.S.C. § 1395oo(a); 42 C.F.R. § 405.1835. The Board ruled in Rush's favor on the bed count issue and against Rush regarding the resident research issue. Namely, the Board found that the following number of beds should have been excluded from Rush's bed count: 86.91 beds in FY 1993, 17.38 beds in FY 1994, and 51.01 beds in FY 1996. Specifically, the Board affirmed the Intermediary's decision to exclude the following number of interns and residents: 52 interns and residents in FY 1993; 47 interns and residents in FY 1994; and 63 interns and residents in FY 1996.
The Board concluded that the beds in controversy were taken out of service and were thus unavailable. The Board relied on testimony regarding how beds were taken out of and placed back into service, memoranda relating to closure, and room and bed master price indices. The Board concluded that it took Rush at least seventy-two hours to put the beds at issue back into service thus making them unavailable. In addition, the Board concluded that inpatient beds used to house outpatient observation patients should have been removed from the available bed count. Last, the Board concluded that the time spent by a resident not associated with patient care was excludable and thus removed residents engaged in research activities from the IME adjustment.
The Administrator5 reviewed the Board's decision and found that the Intermediary ruled correctly on all of the disputed issues, thereby reversing the Board's decision regarding the bed count issue and affirming the Board's decision regarding exclusion of resident research activity. See 42 U.S.C. § 1395oo(f)(1). The Administrator found that Rush failed to provide adequate documentary and testimonial support for its position that it could not timely place beds taken out of service back in service. The Administrator noted that, in other cases where beds had been deemed unavailable, providers had supported their positions with additional evidence that Rush omitted. In addition, the Administrator concluded that without supporting documentation showing that Rush used beds for observational purposes, Rush failed to carry its burden of showing that its bed total should be lowered for the number of beds used for observational purposes. Last, the Administrator affirmed the Board's decision finding that research time of the residents not associated with patient care was properly excluded from the IME adjustment.
Summary judgment obviates the need for a trial where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56 (a). To determine whether any genuine issue of fact exists, the court must pierce the pleadings and assess the proof as presented in depositions, answers to interrogatories, admissions, and affidavits that are part of the record. Fed. R. Civ. P. 56(e) & advisory committee notes (1963 amend.). "With cross-motions, [the court's] review of the record requires that [it] construe all inferences in favor of the party against whom the motion under consideration is made."O'Regan v. Arbitration Forums, Inc., 246 F.3d 975, 983 (7th Cir. 2001) (internal quotation marks omitted).
The court's review of the Secretary's reimbursement decisions is governed by 42 U.S.C. § 1395oo(f)(1), which incorporates the standard of review from the Administrative Procedures Act ("APA"). Abraham Lincoln Mem. Hosp. v. Sebelius, 698 F.3d 536, 547-48 (7th Cir. 2012). Under the APA, an agency's decision may only be set aside if it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law" or "unsupported by substantial evidence." 5 U.S.C. § 706(2)(A), (E); Fal-Meridian, Inc. v. U.S. Dep't of Health & Human Servs., 604 F.3d 445, 450 (7th Cir. 2010).
"The arbitrary or capricious standard of review is a deferential one which presumes that agency actions...
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