St. Thomas Hosp. v. Sebelius

• Decision Date: 31 March 2010
• Docket Number: No. 3:08-1041.,3:08-1041.
• Citation: 705 F.Supp.2d 905
• Parties: ST. THOMAS HOSPITAL, Plaintiff,v.Kathleen SEBELIUS, in her capacity as Secretary of the United States Department of Health and Human Services, Defendant.
• Court: U.S. District Court — Middle District of Tennessee

705 F.Supp.2d 905

ST. THOMAS HOSPITAL, Plaintiff,v.Kathleen SEBELIUS, in her capacity as Secretary of the United States Department of Health and Human Services, Defendant.

No. 3:08-1041.

United States District Court,

M.D. Tennessee,

Nashville Division.

March 31, 2010.

COPYRIGHT MATERIAL OMITTED

John M. Scannapieco, Martha L. Boyd, Bradley Arant Boult Cummings LLP, Nashville, TN, Steven B. Roosa, Reed Smith LLP, Princeton, NJ, for Plaintiff.

Mercedes C. Maynor-Faulcon, Office of the United States Attorney, Nashville, TN, for Defendant.

MEMORANDUM

ROBERT L. ECHOLS, District Judge.

In this action, Plaintiff St. Thomas Hospital (“St. Thomas”) seeks to recover from the Defendant Secretary of Health and Human Services (“the Secretary”) additional Medicare reimbursement payments for the inpatient hospital services St. Thomas furnished to certain patients for the fiscal year ending June 30, 1996. The parties have filed cross Motions for Summary Judgment (Docket Entry Nos. 34 & 42), and those Motions have been fully briefed. (Docket Entry Nos. 38, 46, 60 & 71). In addition, Adventist Health System Sunbelt, Inc. (“Adventist Health”) has filed a “Motion for Leave to File Brief Amicus Curiae” (Docket Entry No. 57) and attaches to that Motion its brief in support of Plaintiff's position.¹

I. FACTUAL, REGULATORY AND PROCEDURAL BACKGROUND

St. Thomas is an acute care hospital and licensed Medicare provider in Nashville, Tennessee. Among other things, St. Thomas provides inpatient medical care to TennCare patients. At issue in this case is the amount of reimbursement St. Thomas received for the inpatient care provided to TennCare recipients for the fiscal year ending June 30, 1996.

Plaintiff's complaint in this case is that it was not properly reimbursed by the Secretary for the 1996 fiscal year because inpatient days for TennCare patients were not included in the calculation utilized by the fiscal intermediary acting on behalf of the Secretary.² In response, the Secretary argues that Plaintiff's position on the merits is incorrect and, more fundamentally, that this Court lacks jurisdiction because Plaintiff did not exhaust its administrative remedies and that, even if this Court had jurisdiction, Plaintiff is collaterally estopped from challenging the 1996 determination. To place the parties' arguments in context, the Court will discuss the regulatory framework, the administrative process and proceedings in this case, and Plaintiff's prior challenges to the reimbursement scheme.

A. Regulatory Background

Medicare is a federal health insurance program that provides payments for medical services for elderly and disabled persons. 42 U.S.C. §§ 1395 et seq. Reimbursement of the costs of inpatient hospital services under Medicare is governed by the Prospective Payment System (“PPS”), 42 U.S.C. § 1395ww(d). Under the PPS, payments are not based on the hospital's actual costs of treating Medicare patients, but rather on a predetermined amount for each patient depending on the patient's diagnosis at time of discharge, 42 U.S.C. § 1395ww(d)(1)-(4); 42 C.F.R. Part 412, with the presumption being that the predetermined amount should be adequate to cover the cost for inpatient services if a given hospital is run efficiently.

In 1983, Congress determined that hospitals serving a disproportionately large number of low-income patients incurred greater costs and those costs were not being met by the standard PPS calculations. Accordingly, Congress authorized the Secretary to provide an adjustment for hospitals serving a disproportionate share of low-income patients. This adjustment is called the Medicare disproportionate share hospital (“DSH”) adjustment. See 131 Cong. Rec. S10931. Thereafter, in 1986, Congress passed the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), Pub.L. No. 99-272 (1986), which included a provision creating and defining the Medicare DSH adjustment and setting forth the formula for calculating that adjustment.

Whether a hospital qualifies for the DSH adjustment, and how large an adjustment it receives if it does qualify, is determined by the hospital's “disproportionate patient percentage.” A hospital qualifies for a Medicare DSH adjustment if its “disproportionate patient percentage” meets or exceeds levels specified in 42 U.S.C. § 1395ww(d)(5)(F)(v). Those levels are determined by fractions expressed as percentages.

The first fraction, known as the “Medicare fraction” or “Medicare Low Income Proxy” involves a calculation of the number of “patient days” that a hospital spends serving patients who are entitled to Medicare Part A benefits and Supplemental Security Income. 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I). That fraction is not at issue in the case.

The second fraction, which is at issue in this case, is known as the “Medicaid fraction” or “Medicaid Low Income Proxy.” The Medicaid fraction is defined as follows:

the fraction (expressed as a percentage), the numerator of which is the number of the hospital's patient days for such period which consist of patients who (for such days) were eligible for medical assistance under a State plan approved under subchapter XIX of this chapter [i.e., the Medicaid program], but who were not entitled to benefits under part A of this subchapter [i.e., the Medicare program], and the denominator of which is the total number of the hospital's patient days for such period.

42 U.S.C. § 1395ww(d)(5)(F)(vi)(II). Obviously, the more patient days which are included in the numerator of the Medicaid fraction, the higher a hospital's DSH percentage. Conversely, if patient days are excluded from the numerator of the Medicaid fraction, a hospital's DSH percentage will fall and the hospital will receive less reimbursement from the federal government.

At this point, it is necessary to note the distinction between Medicare and Medicaid. The Medicaid program, which is codified in Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq., is a cooperative federal-state program designed to provide health care benefits to indigent persons who are aged, blind, disabled, or members of families with dependent children. 42 U.S.C § 1396, et seq. To participate in the Medicaid program, a state must submit to the Secretary a “plan for medical assistance” that meets federal guidelines and identifies the categories of individuals who will receive medical assistance under the plan and the specific kinds of medical care and services that will be covered by the plan. In order to receive matching federal funds, the plan must be approved by the Secretary. 42 U.S.C. § 1396a.

While states have some leeway and flexibility in crafting a plan, there are limitations under the Medicaid statute, such as the income and resource limits for eligible recipients. Nevertheless, to encourage states to create innovative programs that are likely to assist in providing medical assistance to low income individuals, Section 1115 of Title XIX, 42 U.S.C. § 1315, authorizes the Secretary to waive certain provisions of the Medicaid statutes. Such programs are known as Section 1115 “demonstration projects” or “waiver programs.”

The Secretary may approve a demonstration project if, “in the judgment of the Secretary,” the demonstration project is “likely to assist in promoting [Medicaid] objectives.” 42 U.S.C. § 1315(a). A demonstration project may provide benefits to individuals who do not otherwise qualify under the Medicaid statute, or may provide benefits not otherwise authorized by the Medicaid statute because the “Secretary may waive compliance with any of the requirements of section ... 1396a,” such as the income limits. 42 U.S.C. § 1315(a)(1). Individuals who are not eligible for medical assistance under a Medicaid state plan approved under Title XIX, but who are eligible for benefits under a demonstration project approved under section 1115, are referred to as “expansion waiver populations” or “expansion populations.” ³ The patient days associated with the inpatient care of expansion waiver populations are sometimes referred to as “expansion waiver days.”

TennCare is a state demonstration project for eligible participants in Tennessee and the central issue in this case relates to payment for the days St. Thomas spent treating such patients. St. Thomas claims that the expansion waiver days attributable to TennCare patients were excluded improperly from St. Thomas' Medicare DSH calculation for the 1996 cost report year. St. Thomas' position is that the days spent by it in providing treatment to TennCare patients must be included in the Medicare DSH calculation because TennCare was the vehicle through which Tennessee provided medical assistance to its indigent populations and TennCare was approved by the Secretary to be part of the Medicaid program under Title XIX. In other words, St. Thomas takes the position that because TennCare patients receive benefits under Section 1115, those patients are entitled to be treated as if they were eligible for medical assistance under Title XIX. The Secretary takes the position that this argument is not supported by the text of either the Medicare DSH provision or the Social Security Act demonstration project provision, nor is it supported by the relevant legislative history, and, in fact, was expressly repudiated by Congress in the Deficit Reduction Act of 2005. The parties' arguments necessitate an overview of how DSH calculations have been treated over the years.

Prior to 2000, Section 1115 days for purposes of the Medicare DSH calculation were treated inconsistently by fiscal intermediaries, with some including the expansion waiver population in the DSH adjustments, and others not including those populations.⁴ In an effort to rectify the differing treatment, the Secretary, on January 20, 2000, issued an interim final rule. That rule indicated that “[u]nder current policy ... [p]atient days of the expanded eligibility groups ... were not to be included in the Medicare DSH...