St. Francis Health Care Centre v. Shalala
| Decision Date | 13 July 1998 |
| Docket Number | No. 3:97 CV 7559.,3:97 CV 7559. |
| Citation | 10 F.Supp.2d 887 |
| Parties | ST. FRANCIS HEALTH CARE CENTRE, Plaintiff, v. Donna A. SHALALA, etc., Defendant. |
| Court | U.S. District Court — Northern District of Ohio |
Dennis P. Witherell, Rolf H. Scheidel, Shumaker, Loop & Kendrick, Toledo, OH, for St. Francis Health Care Center.
Holly Taft Sydlow, Office of the U.S. Attorney, Toledo, OH, for Donna A. Shalala.
Thomas C. Fox, Gina M. Cavalier, Reed, Smith, Shaw & McClay, Washington, DC, for
Catholic Health Association of the United States.
This case presents the issue of whether the interpretive guideline promulgated by the Defendant Secretary of the United States Department of Health and Human Services ("the Secretary") and set forth in Transmittal No. 378, Provider Reimbursement Manual § 2534.5, is a proper interpretation of 42 U.S.C. § 1395yy and 42 C.F.R. § 413.30(f), for determining the amount of the exception from the routine cost limits imposed by the Medicare program on reimbursements to providers at hospital-based skilled nursing facilities. The matter is before the Court on cross motions for summary judgment. An amicus curiae brief has been filed by the Catholic Health Association. For the following reasons, the Secretary's motion will be granted. Plaintiff's motion will be denied.
The relevant facts are not in dispute. Plaintiff St. Francis Health Care Centre ("St. Francis") operates a 36-bed rehabilitation hospital and a 40-bed hospital-based skilled nursing facility ("HB-SNF") in Green Springs, Ohio. Unlike most skilled nursing facilities ("SNFs"), St. Francis is largely dedicated to comprehensive rehabilitation, rather than maintenance, of its patients; during the time at issue 84-90% of St. Francis' patients received comprehensive rehabilitation therapy. As a result of the rehabilitative services rendered by Plaintiff, the average length of stay for all patients was much shorter than that of patients in typical HB-SNFs. However, the per diem costs were significantly higher.
The Medicare program reimburses eligible SNF's for the "reasonable cost" of covered services provided to Medicare beneficiaries. 42 U.S.C. § 1395x(u) & (v)(1)(A). Costs for "routine services" such as nursing, room, board, and administrative expenses are ordinarily subject to a statutory limit. For a freestanding skilled nursing facility ("FS-SNF") the routine cost limit ("RCL") is equal to 112%1 of the mean per diem routine service cost for similarly classified FS-SNF's. 42 U.S.C. § 1395yy(a)(1) & (2). For a HB-SNF, the RCL is equal to 112% of the mean per diem routine service cost for similarly classified FS-SNFs, plus one half of the amount by which the mean per diem routine service cost for similarly classified HB-SNF's exceeds the limit for similarly classified FS-SNF's. 42 U.S.C. § 1395yy(a)(3) & (4). Thus, if 112% of the mean per diem routine service cost for FS-SNF's is $80 and 112% of the mean per diem routine service cost for HB-SNF's is $120, the RCL for the FS-SNF will be $80, and the RCL for the HB-SNF will be $100 ($80 plus half of $40).
The RCL's are not absolute, however. The Medicare statute also provides that "[t]he Secretary may make adjustments in the limits ... with respect to any skilled nursing facility to the extent the Secretary deems appropriate." 42 U.S.C. § 1395yy(c). Based on that authorization, the Secretary has promulgated regulations providing that the RCLs:
may be adjusted upward for a provider [if] ... [t]he provider can show that the —
(i) Actual cost of items or services furnished by a provider exceeds the applicable limit because such items or services are atypical in nature and scope, compared to the items or services generally furnished by providers similarly classified; and
(ii) Atypical items or services are furnished because of the special needs of the patients treated and are necessary in the efficient delivery of needed health care.
In July of 1994, the Health Care Financing Administration ("HCFA") promulgated an interpretive guideline for determining the amount of the exception from the RCL's imposed by the Medicare program on reimbursements to providers at HB-SNFs. This methodology, contained in Transmittal No. 378, Provider Reimbursement Manual § 2534.5, provides that a HB-SNF can be granted an exception to the RCLs only to the extent that the HB-SNFs costs exceed 112% of the mean per diem routine service cost of HB-SNFs. As a necessary corollary, the guideline denies an exception to the cost limit unless a provider's total per them costs exceed the 112% level, because the excess in cases where the total costs are below the 112% level will always equal zero.
The functional effect of PRM § 2534.5 is to create an irrebuttable presumption that half of a HB-SNF's actual costs between the FS-SNF 112% level and the HB-SNF 112% level are unreasonable.2 Thus, a HB-SNF with hypothetical per diem costs as listed in the chart below would be entitled to the following maximum reimbursement rates:
Calculation of HB-SNF Actual Amount
Routine Cost Limits Costs Reimbursed
$150 $130
$140 $120
$130 $110
$120—112% of HB-SNF mean $120 $100
$110 $100
$100—statutory RCL $100 $100
$ 90 $ 90
$80—112 of FS-SNF mean $ 80 $ 80
A HB-SNF with actual costs at or below the statutory RCL is entitled to reimbursement of 100% of its reasonable costs. A HB-SNF with actual costs between the statutory RCL and the HB-SNF 112% level is entitled to reimbursement in the statutory amount. A HB-SNF with actual costs above the HB-SNF 112% level is entitled to reimbursement in the statutory amount, plus reasonable atypical costs in excess of the HB-SNF 112% level.
In fiscal years 1991 and 1992, Plaintiff's costs exceeded the RCLs by $135,395 and $138,077, respectively. Plaintiff requested upward adjustments from the RCLs for both years on the ground that it was providing atypical services. The HCFA denied Plaintiff's requests because Plaintiff's costs in both years were below the HB-SNF 112% level,3 and the HCFA took the position that such costs were not reimbursable.
Plaintiff then filed an administrative appeal with the Provider Reimbursement Review Board ("PRRB"), which ruled unanimously in favor of Plaintiff. The PRRB held that PRM § 2534.5 impermissibly confused "atypical costs" with the concept of "cost of atypical services." The Board found that § 2534.5 was an unreasonable interpretation of the Medicare regulations because it created an irrebuttable presumption that costs below the 112% level could not be for atypical services, and improperly denied recovery to providers that were furnishing typical services at costs below the cost limit, and exceeded the limit only because of the costs of their atypical services.
The Administrator of the HCFA reversed. The Administrator found that the guideline requiring the HB-SNF's costs to be compared to 112% of the group's mean per diem costs was an appropriate method of applying the reasonable cost requirements. The Administrator found that Congress had set the statutory reimbursement level for HB-SNFs lower than their true mean costs because of certain inefficiencies associated with hospital-based care, and that the payment "gap" created by the 112% minimum was due to those presumed inefficiencies, rather than to a failure on the part of the Secretary to reimburse HB-SNFs for their reasonable costs for atypical services. The Administrator found further that PRM § 2534.5 did not effect a substantive change in the Secretary's procedure for evaluating exceptions to the cost limitations, and therefore public notice and comment was not required. That determination became the final decision of the Secretary.
Plaintiff then brought this action challenging the Secretary's final decision upholding PRM § 2534.5. Plaintiff argues that PRM § 2534.5 is facially invalid because it conflicts with the applicable Medicare statute and its implementing regulations. The parties have fully briefed the issue. The Court heard oral argument on June 15, 1998. The Court discusses the parties' contentions below.
As an initial matter, the Court sets forth the relative burdens of the parties once a motion for summary judgment is made. Summary judgment must be entered "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Of course, the moving party always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any," which it believes demonstrate the absence of a genuine issue of material fact. Id. at 323, 106 S.Ct. at 2553. The burden then shifts to the nonmoving party who "must set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986) (quoting Fed.R.Civ.P. 56(e)).
Once the burden of production has so shifted, the party opposing summary judgment cannot rest on its pleadings or merely reassert its previous allegations. It is not sufficient "simply [to] show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). Rather, Rule 56(e) "requires the nonmoving party to go beyond the [unverified] pleadings" and present some type...
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St. Francis Health Care v. Shalala
...summary judgment. The district court denied St. Francis's motion, and granted the Secretary's motion. See St. Francis Health Care Centre v. Shalala, 10 F.Supp.2d 887 (N.D. Ohio 1998). This timely appeal B. The Medicare reimbursement plan developed by Congress has been refined over the years......