Univ. Med. Ctr., Inc. v. Sebelius

• Decision Date: 17 April 2012
• Docket Number: Civil Action No. 11–260 (JDB).
• Citation: 856 F.Supp.2d 66
• Parties: UNIVERSITY MEDICAL CENTER, INC., Plaintiff, v. Kathleen SEBELIUS, Secretary, U.S. Department of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Columbia

856 F.Supp.2d 66

UNIVERSITY MEDICAL CENTER, INC., Plaintiff,

v.Kathleen SEBELIUS, Secretary, U.S. Department of Health and Human Services, Defendant.

Civil Action No. 11–260 (JDB).

United States District Court, District of Columbia.

April 17, 2012.

Stephanie Ann Webster, Akin Gump Strauss Hauer & Feld LLP, Washington, DC, for Plaintiff.

Javier M. Guzman, U.S. Attorney's Office, Washington, DC, Lindsay L. Turner, Office of the General Counsel, Department of Health and Human Services, Washington, DC, for Defendant.

MEMORANDUM OPINION

JOHN D. BATES, District Judge.

The Secretary of the Department of Health and Human Services is responsible for administering Medicare. Plaintiff is a teaching hospital in Louisville, Kentucky that seeks judicial review of the Secretary's denial of certain payments associated with services plaintiff provided to Medicare recipients in 1999. The requested payments are for the cost of training plaintiff's dental residents off-site at the University of Louisville's dental school.

According to HHS regulations, hospitals seeking payment for the cost of training residents off-site must have a written agreement with the off-site provider that the hospital will incur substantially all of the costs of that training. Plaintiff executed such an agreement with the University of Louisville on December 20, 1999. The agreement indicated that plaintiff would incur substantially all dental resident training costs retroactively to January 1, 1999. The Secretary determined, however, that the HHS regulations required written agreements between hospitals and off-site providers that are entered into prior to the occurrence of off-site training. The Secretary therefore denied plaintiff medical education payments for training costs from the beginning of the year until the execution of the agreement on December 20, 1999. Plaintiff now argues that the regulation cannot be interpreted to require written agreements entered into prior to the occurrence of off-site training and that the Secretary failed to provide adequate notice of that requirement. Plaintiff further argues that both the written agreement requirement itself and the requirement that written agreements be in place before off-site training occurs are inconsistent with the Medicare statute.

Now before the Court are the parties' cross-motions for summary judgment. For the reasons described below, the Court concludes that plaintiff received adequatenotice of the requirement to enter into written agreements prior to the occurrence of off-site training time. The Court also concludes that interpreting the regulation to contain such a requirement was reasonable and that the requirement, as well as the underlying written agreement requirement, were consistent with the statute. Accordingly, the Secretary appropriately denied plaintiff's claims, and the Court will grant the Secretary's motion for summary judgment and deny plaintiff's motion.

I. Statutory and Regulatory BackgroundA. Medicare and Medical Education Payments

The Secretary of the Department of Health and Human Services, through the Centers for Medicare and Medicaid Services (“CMS” or “Administrator”), administers the Medicare statute, Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq. The Medicare program is divided into several parts, of which Part A is relevant here. Part A covers “inpatient hospital services” furnished to Medicare beneficiaries by participating providers, such as hospitals. 42 U.S.C. § 1395d(a)(1). CMS itself is directly responsible for the costs of Part A services. Id. To coordinate billing by and payment to hospitals, Medicare contracts with fiscal intermediaries (usually private insurance companies) pursuant to 42 U.S.C. § 1395h.¹

Health care providers submit claims to fiscal intermediaries for services provided to Medicare Part A patients and these claims are paid over the course of the year. At year-end, hospitals file cost reports with the fiscal intermediaries, which reconcile interim payments made over the course of the year with actual reimbursements due. See 42 C.F.R. § 405.1803. The fiscal intermediary makes a final determination on payments due to providers, which is appealable to the Provider Reimbursement Review Board (“PRRB” or “Board”). 42 U.S.C. § 1395 oo(a). The PRRB's decision is subject to further review by the CMS Administrator, and a provider may seek review of the Administrator's decision in federal district court. See 42 U.S.C. § 1395 oo(f).

The Medicare program also pays teaching hospitals for certain costs related to graduate medical education. Medicare makes both an “indirect graduate medical education payment” (“IME”) and a “direct graduate medical education payment” (“GME”). IME payments are intended to reimburse teaching hospitals providing services to Medicare beneficiaries for their higher-than-average operating costs. See 42 U.S.C. §§ 1395f(b), 1395ww(d). Medicare makes a payment for each Medicare beneficiary discharged by a hospital. See 42 U.S.C. §§ 1395ww(d), 1395w–21(i)(1). The per-discharge payment increases depending on the hospital's ratio of medical residents to beds—i.e., the higher the number of residents or the higher the number of discharges, the greater the IME payment. See42 U.S.C. § 1395ww(d)(5)(B). The GME payment, on the other hand, is a payment intended to compensate teaching hospitals for the direct costs of graduate medical education incurred because of services provided to Medicare beneficiaries. 42 U.S.C. § 1395ww(h). The amount of the GME payment depends on the number of full-time residents and the Medicare “patient load.” Hence, like the IME payment, the GME payment increases when the number of Medicare enrollees or the number of residents rises. See id. Both GME and IME payments, then, depend on the number of residents and the number of Medicare enrollees receiving services from a hospital.

B. Training in Non–Hospital Settings

Under revisions made to the Medicare statute in 1986, for the purpose of counting the number of residents a hospital includes in its GME payment calculation, hospitals may include residents training in non-hospital settings, such as a physician's office, clinic, or nursing home. See Omnibus Budget Reconciliation Act of 1986, Pub.L. No. 99–509, § 9314, 100 Stat. 1874 (codified at 42 U.S.C. § 1395ww(h)(4)(E)). Under the statute, the time residents spend in non-hospital settings is included if (1) their time is related to patient care and (2) the hospital incurs all or substantially all of the costs of their training in the non-hospital setting. Id. This statutory provision applied to resident training programs effective July 1, 1987. Id. In September 1989, the Secretary promulgated a regulation implementing this provision. See54 Fed.Reg. 40,286, 40,288 (Sept. 29, 1989). In addition to the statutory requirements, the regulation imposed an additional requirement that, in order for hospitals to count resident training time at non-hospital sites, the hospital must have a written agreement with the non-hospital site establishing that the costs of the residents' training is to be paid by the hospital. See id. at 40,317 (codified at 42 C.F.R. § 413.86(f)(4)(iii)).

In 1997, Congress amended the Medicare statute to also include the time residents spend training in non-hospital settings in IME payment calculations, effective October 1, 1997. See Balanced Budget Act of 1997, Pub.L. No. 105–33, § 4621(b)(2), 111 Stat. 251 (codified at 42 U.S.C. § 1395ww(d)(5)(B)(iv)). HHS then promulgated a regulation implementing this revision, incorporating the same requirement for a written agreement between hospitals and non-hospital sites that had previously applied with respect to counting time in non-hospital settings for GME payments. See 62 Fed.Reg. 45,966, 46,003, 46,029 (Aug. 29, 1997) (codified at 42 C.F.R. § 412.105(f)(1)(ii)(C)).

In July 1998, the Secretary revised the regulation governing the counting of time residents spend training in non-hospital sites. See 63 Fed.Reg. 40,954, 40,986–98 (July 31, 1998). The regulation, as revised, now defined the statutory requirement that a hospital incur all or substantially all of the costs of off-site resident training. Id. at 41,005. In particular, the new definition required hospitals to incur “the portion of the cost of teaching physicians' salaries and fringe benefits attributable to direct graduate medical education,” in addition to the residents' salaries and fringe benefits. Id. (emphasis added). The revised regulation accordingly expanded the requirements for the written agreement between hospitals and non-hospitals sites to ensure that the written agreement specified that the hospital would pay compensation for “supervisory teaching activities,” in addition to resident salaries and benefits. See id. at 40,986–97, 41,004–05 (codified at 42 C.F.R. § 413.86(f)(4) and amending cross-reference in 42 C.F.R. § 412.105(f)(1)(ii)(C)); see also Administrative Record (“A.R.”) at 229. The revised regulation was made effective for portions of cost reporting periods occurring on or after January 1, 1999. Id.² The primary question in this case is whether hospitals and non-hospital sites were required under the regulation to have written agreements already in place when off-site training occurred—that is, whether there was a requirement to have a “contemporaneous written agreement” entered into “prospectively” (before training occurred).

In addition to the regulation itself, the parties have focused on two contemporaneous statements from HHS about the written agreement requirement. First, the parties focus on an exchange between HHS and a commenter in the preamble accompanying the promulgation of the 1998 revision to the regulation. The preamble stated:

One commenter noted that some arrangements between hospitals and nonhospital settings for the training of residents predate the GME base year. This commenter stated that hospitals did not...