Tenn. Hosp. Ass'n v. Azar, No. 17-5970

CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)
Writing for the CourtKAREN NELSON MOORE, Circuit Judge.
PartiesTENNESSEE HOSPITAL ASSOCIATION; TAKOMA REGIONAL HOSPITAL; DELTA MEDICAL CENTER; PARKWEST HOSPITAL, Plaintiffs-Appellees/Cross-Appellants, v. ALEX M. AZAR, II, in his official capacity as Secretary of Health and Human Services; SEEMA VERMA, Administrator of the Centers for Medicare and Medicaid Services; CENTERS FOR MEDICARE AND MEDICAID SERVICES, Defendants-Appellants/Cross-Appellees.
Docket NumberNo. 17-6033,No. 17-5970
Decision Date14 November 2018

TENNESSEE HOSPITAL ASSOCIATION; TAKOMA REGIONAL HOSPITAL;
DELTA MEDICAL CENTER; PARKWEST HOSPITAL, Plaintiffs-Appellees/Cross-Appellants,
v.
ALEX M. AZAR, II, in his official capacity as Secretary of Health and Human Services;
SEEMA VERMA, Administrator of the Centers for Medicare and Medicaid Services;
CENTERS FOR MEDICARE AND MEDICAID SERVICES, Defendants-Appellants/Cross-Appellees.

No. 17-5970
No. 17-6033

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Argued: June 14, 2018
November 14, 2018


RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit I.O.P. 32.1(b)

File Name: 18a0252p.06

Appeal from the United States District Court for the Middle District of Tennessee at Nashville.
No. 3:16-cv-03263—Waverly D. Crenshaw, Jr., Chief District Judge.

Before: MOORE, KETHLEDGE, and STRANCH, Circuit Judges.

COUNSEL

ARGUED: Tara S. Morrissey, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellants/Cross-Appellees. William H. West, BAKER DONELSON BEARMAN CALDWELL & BERKOWITZ, PC, Nashville, Tennessee, for Appellees/Cross-Appellants. ON BRIEF: Tara S. Morrissey, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellants/Cross-Appellees. William H. West, BAKER DONELSON BEARMAN CALDWELL & BERKOWITZ, PC, Nashville, Tennessee, for Appellees/Cross-Appellants.

Page 2

MOORE, J., delivered the opinion of the court in which STRANCH, J., joined, and KETHLEDGE, J., joined in the result. KETHLEDGE, J. (pp. 24-28), delivered a separate opinion concurring in the judgment.

OPINION

KAREN NELSON MOORE, Circuit Judge. This case marks the latest in a string of lawsuits brought by hospitals across the country challenging efforts by the Centers for Medicare and Medicaid Services ("CMS") to direct states to recoup certain reimbursements made under the Medicaid program. Here, plaintiffs are the Tennessee Hospital Association and three of its member hospitals, Takoma Regional Hospital, Delta Medical Center, and Parkwest Hospital. These hospitals serve a disproportionate share of Medicaid-eligible patients and are thereby entitled to supplemental payments under the Medicaid Act, known as "DSH payments" or "DSH payment adjustments." The Medicaid Act limits the amount of DSH payments each hospital can receive in a given year, and CMS contends that plaintiffs in this case miscalculated their DSH payment-adjustments for fiscal year 2012 and received extra payments as a result. Plaintiffs, in turn, insist that CMS's approach to calculating DSH payment adjustments is out of step with the Medicaid Act and the regulations that CMS implemented in 2008 pursuant to the Medicaid Act. The district court agreed with plaintiffs and held that CMS's methodology was inconsistent with both the Medicaid Act and CMS's 2008 regulation. Although we agree that CMS's policy is inconsistent with its 2008 rule and cannot be enforced against plaintiffs unless it is promulgated pursuant to notice-and-comment rulemaking, we disagree with the district court's conclusion that CMS's policy exceeds the agency's authority under the Medicaid Act. We therefore AFFIRM the final judgment of the district court on the sole ground that CMS may not enforce an invalidly promulgated policy against plaintiffs and REMAND for further proceedings consistent with this opinion.

Page 3

I. BACKROUND

Plaintiffs in this case—the Tennessee Hospital Association and three of its member hospitals—are challenging efforts by the Centers for Medicare and Medicaid Services ("CMS") to direct Tennessee to recoup certain reimbursements paid to the hospitals under the Medicaid program. Plaintiffs are "Disproportionate Share Hospitals" ("DSH"), which means that they serve a disproportionate share of Medicaid-eligible and low-income patients. 42 U.S.C. §§ 1396a(a)(13)(A)(iv); 1396r-4(b). As DSH hospitals, plaintiffs receive supplemental "DSH payments" under the Medicaid Act to help offset the cost of caring for indigent individuals. See id. § 1396r-4(c). The Medicaid Act limits the amount of funds any given DSH hospital can receive in a given year to its uncompensated cost of care—i.e., the cost of caring for Medicaid-eligible and uninsured patients less certain payments made on behalf of those patients. Id. § 1396r-4(g)(1)(A).

Congress amended the Medicaid Act in 2003 to require states to audit and report the amount of DSH payments distributed to each hospital. Id. § 1396r-4(j). In 2008, CMS issued a final rule pursuant to notice-and-comment rulemaking implementing the 2003 auditing requirements. See Medicaid Program; Disproportionate Share Hospital Payments, 73 Fed. Reg. 77,904 (Dec. 19, 2008). To "permit verification of the appropriateness of [each hospital's DSH] payments," the rule requires "each DSH hospital to which the State made a DSH payment" to submit certain data to CMS. 42 C.F.R. § 447.299(c) (2016).1 The preamble to the rule refers to the various categories of required data as "data elements," 73 Fed. Reg. at 77,948, and we adopt that terminology here. For the purposes of this case, the most relevant data elements are displayed in the chart below.

Page 4

Provision
Data Element
Description
42 C.F.R. § 447.299(c)(9)
Total Medicaid
IP/OP2 Payments
The sum of the "IP/OP Medicaid fee-
for-service (FFS) basic rate
payments,"3 the "IP/OP Medicaid
managed care organization payments,"4
and the "Supplemental/enhanced
Medicaid IP/OP payments."5
42 C.F.R. § 447.299(c)(10)
Total Cost of
Care for
Medicaid IP/OP
Services
"The total annual costs incurred by
each hospital for furnishing inpatient
hospital and outpatient hospital
services to Medicaid eligible
individuals."
42 C.F.R. § 447.299(c)(11)
Total Medicaid
Uncompensated
Care
"The total amount of uncompensated
care attributable to Medicaid inpatient
and outpatient services. The amount
should be the result of subtracting the
amount identified in § 447.299(c)(9)
from the amount identified in
§ 447.299(c)(10). The uncompensated
care costs of providing Medicaid
physician services cannot be included
in this amount."
42 C.F.R. § 447.299(c)(12)
Uninsured IP/OP
revenue
"Total annual payments received by the
hospital by or on behalf of individuals
with no source of third party coverage
for inpatient and outpatient hospital
services they receive. This amount
does not include payments made by a
State or units of local government, for
services furnished to indigent patients."

Page 5

42 C.F.R. § 447.299(c)(13)
Total Applicable
Section 1011
Payments
"Federal Section 1011 payments6 for
uncompensated inpatient and outpatient
hospital services provided to Section
1011 eligible aliens with no source of
third party coverage for the inpatient
and outpatient hospital services they
receive."
42 C.F.R. § 447.299(c)(14)
Total cost of
IP/OP care for
the uninsured
"[T]he total costs incurred for
furnishing inpatient hospital and
outpatient hospital services to
individuals with no source of third
party coverage for the hospital services
they receive."
42 C.F.R. § 447.299(c)(16)
Total annual
uncompensated
care costs
"The total annual uncompensated care
cost equals the total cost of care for
furnishing inpatient hospital and
outpatient hospital services to Medicaid
eligible individuals and to individuals
with no source of third party coverage
for the hospital services they receive
less the sum of regular Medicaid FFS
rate payments, Medicaid managed care
organization payments, supplemental /
enhanced Medicaid payments,
uninsured revenues, and Section 1011
payments for inpatient and outpatient
hospital services. This should equal the
sum of paragraphs (c)(9),(c)(12), and
(c)(13) subtracted from the sum of
paragraphs (c)(10) and (c)(14) of this
section."

The parties' dispute turns, in large part, on how to define properly the so-called "Medicaid shortfall" for hospitals that treat Medicaid-eligible patients who have additional sources of insurance coverage. The Medicaid shortfall is represented by the data element in 42 C.F.R. § 447.299(c)(11), and it reflects the "[t]otal annual costs incurred" ((c)(10)) in treating Medicaid-eligible patients less the total annual "Medicaid IP/OP payments" received ((c)(9)).

Page 6

The question is not as simple as it may seem. For certain hospitals—and, defendants contend, for the plaintiff-hospitals here—subtracting total annual "Medicaid IP/OP payments" received from "[t]otal annual costs incurred" does not give an accurate picture of how much money a hospital has ultimately lost in caring for indigent patients because Medicaid is not the sole source of insurance coverage for all Medicaid-eligible patients. "[C]hildren with certain disabilities may be eligible for Medicaid and have private insurance coverage through their parents," for instance, and "some elderly individuals are eligible for both Medicare and Medicaid." First Br. at 4-5 (citing 42 U.S.C. § 1396a(a)(10)(A)(i)(II), (ii)(I)). (The latter group is generally referred to as "dual eligibles." Id.) For individuals with some form of dual coverage, Medicaid typically serves as the "payer of last resort," which means that it contributes funds only if the private insurance or Medicare payments are less than what Medicaid would have paid. Massachusetts v. Sebelius, 638 F.3d 24, 26 (1st Cir. 2011) (quoting Ark. Dep't of Health & Human Servs. v. Ahlborn, 547 U.S. 268, 291 (2006)). Thus, if private insurance or Medicare compensates hospitals at a higher rate than Medicaid (which defendants contend is typical, see First Br. at 5), then Medicaid contributes nothing to defray the cost of caring for such patients. Assume, then, that a hospital spent $100 to treat a dual-eligible patient, and assume further that Medicaid would have contributed $20 to offset the cost of that care but that Medicaid instead contributed nothing because Medicare footed $40 of the bill. Under this scenario, the Medicaid shortfall is seemingly $100 (total costs incurred minus total Medicaid payments received (zero)), even though the actual loss to the hospital is only $60. See First Br. at 34.

...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT