Univ. Of Washington Medical Center v. Sebelius

• Decision Date: 30 September 2009
• Docket Number: No. C07-0394RAJ.,C07-0394RAJ.
• Citation: 674 F.Supp.2d 1206
• Court: U.S. District Court — Western District of Washington
• Parties: UNIVERSITY OF WASHINGTON MEDICAL CENTER, et al., Plaintiffs, v. Kathleen SEBELIUS,<SMALL><SUP>1</SUP></SMALL> Defendant.

674 F.Supp.2d 1206

UNIVERSITY OF WASHINGTON MEDICAL CENTER, et al., Plaintiffs, v. Kathleen SEBELIUS,¹ Defendant.

No. C07-0394RAJ.

United States District Court, W.D. Washington, at Seattle.

September 30, 2009.

Robert Wanerman, Epstein Becker & Green PC, Washington, DC, Teresa A. Sherman, Sherman Law Office PLLC, Spokane, WA, Roger L. Hillman, Garvey Schubert Barer, Seattle, WA, for Plaintiffs.

Peter Angus Winn, U.S. Attorney's Office, Seattle, WA, for Defendant.

ORDER

RICHARD A. JONES, District Judge.

I. INTRODUCTION

This matter comes before the court on cross-motions for summary judgment (Dkt. ## 12, 15). The court has considered the parties' briefing and supporting evidence, and has heard from counsel at oral argument. For the reasons explained below, the court DENIES Plaintiffs' motion (Dkt. # 12) and GRANTS the Defendant's motion (Dkt. # 15).

II. BACKGROUND

The Plaintiffs, eighteen Washington hospitals, filed this lawsuit to challenge a decision of the Defendant Secretary of the United States Department of Health and Human Services. In short, the Secretary decided that only certain groups of low-income patients could be counted when calculating a particular Medicare payment, and Plaintiffs contend that two other groups of low-income patients should have been counted as well.

Medicare Part A is a federal health insurance program that reimburses providers for certain medical services provided to eligible beneficiaries, primarily the aged and disabled. See, e.g., 42 U.S.C. § 1395(c). Medicaid (also known as Title XIX), is a medical-aid program that provides federal funds to assist states in providing medical assistance to low-income individuals who meet certain financial and non-financial eligibility criteria. See 42 U.S.C. §§ 1396-1396v; 42 C.F.R. § 430.0; see also Lankford v. Sherman, 451 F.3d 496, 504 (8th Cir.2006). A state that wishes to participate in the Medicaid program must propose a state plan to the Secretary. See 42 U.S.C. § 1396a(a). A state plan is:

a comprehensive written statement submitted by the agency describing the nature and scope of its Medicaid program and giving assurance that it will be administered in conformity with the specific requirements of Title XIX, the regulations in this Chapter IV, and other applicable official issuances of the Department. The State plan contains all information necessary for [the Centers for Medicare and Medicaid Services] to determine whether the plan can be approved to serve as a basis for Federal Financial Participation (FFP) in the State program.

42 C.F.R. § 430.10. The Medicaid Act requires that state plans cover certain categories of individuals, and allows the states to elect to cover other groups as well. 42 U.S.C. § 1396a(a)(10). State plans must cover the "categorically needy": individuals who qualify based on their eligibility for assistance under either the Aid to Families with Dependent Children program or the Supplemental Security Income program. See Spry v. Thompson, 487 F.3d 1272, 1274 (9th Cir.2007). Participating states may choose to provide coverage to the "medically needy": those whose incomes are above the poverty line, but who lack the resources to pay for necessary medical care. See id.

At a state's discretion, state plans may also cover other groups of individuals. 42 U.S.C. § 1396a(a)(10)(A)(ii). So long as their plans meet the broad Medicaid requirements in 42 U.S.C. § 1396a, states have discretion to determine which services will be covered, who will be eligible, and the payment levels for each service. 42 C.F.R. § 430.0. A state plan must be approved by the Secretary in order to be eligible for federal payments. 42 U.S.C. §§ 1315, 1396, 1396c.

Recognizing that providers who serve a disproportionately high share of low-income patients will not be able to serve enough insured patients to offset the costs of providing that care, Congress directed the Secretary to create a payment adjustment, known as the Disproportionate Share Hospital (DSH) adjustment. See 42 U.S.C. § 1395ww(d)(5). A hospital's "disproportionate share" percentage determines whether the hospital is entitled to a DSH adjustment and how large the adjustment should be. See 42 U.S.C. § 1395ww(d)(5)(F)(v). The disproportionate share percentage is the "sum of two fractions expressed as percentages and serves as a `proxy' for all low-income patients." Jewish Hospital, Inc. v. Secretary of Health and Human Servs., 19 F.3d 270, 272 (6th Cir.1994).

The first fraction, known as the Medicare proxy, is not at issue in this case. The second fraction, known as the Medicaid fraction or proxy, expresses the number of non-Medicare low-income patients served by a hospital as a percentage of the hospital's entire patient population. Congress has defined the formula for calculating the Medicaid fraction as:

[A] 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, but who were not entitled to benefits under part A of this subchapter, 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) (emphasis added). (The subchapter XIX referenced in this definition is subchapter XIX of the Social Security Act, entitled "Grants to States for Medical Assistance Programs," also known as the Medicaid Act or Title XIX.)

DSH payments are administered by the Secretary, but the Secretary has delegated many administrative responsibilities related to the Medicare and Medicaid programs to the Centers for Medicare and Medicaid Services ("CMS"), which in turn delegates many of the audit and payment functions to organizations known as Fiscal Intermediaries. See 42 U.S.C. §§ 1395h, 1395u. At the end of each fiscal year, a service provider must submit a cost report to its Fiscal Intermediary, showing the costs it incurred during the year and the appropriate share of those costs to be apportioned to Medicare. 42 C.F.R. § 413.24(f). The Intermediary reviews the cost report, makes adjustments as it deems necessary and issues a final notice of program reimbursement to the provider. 42 C.F.R. § 405.1803. A provider may appeal the notice to a Provider Reimbursement Review Board ("PRRB").

During the years under appeal, Washington's state plan covered the categorically needy and the medically needy, as required by Medicaid. Washington also created programs covering the Limited Casualty-Medically Indigent ("MI") (low-income patients without health insurance who have an emergent medical condition) and the General Assistance Unemployable ("GAU") (low-income individuals unemployable for 90 days), and these populations are at the center of the dispute in this case. Administrative Record ("AR") at 31-32.

For the cost-reporting periods between 1994 and 2000, the Fiscal Intermediary for Plaintiffs refused to include MI and GAU patient days in the calculation of the Numerator of the Medicaid fraction. The aggregate Medicare DSH adjustment would have been approximately $31 million higher if MI and GAU patients had been included in the calculation. Plaintiffs appealed to the PRRB as a group, and the PRRB reversed the Fiscal Intermediary. The Fiscal Intermediary appealed, and the acting CMS administrator reversed the PRRB's decision based on his finding that MI and GAU patients were not eligible for medical assistance under Medicaid. The Plaintiffs then filed this lawsuit.

According to the Plaintiffs, Washington's state plan included the categorically needy, the medically needy, MI, and GAU patients—such that all four populations should be counted toward the Medicare DSH payment calculation. The Secretary contends that only the categorically needy and medically needy were actually eligible for Medicaid under the state plan, and that the MI and GAU programs were separate programs not eligible for direct federal reimbursement, and thus the Secretary properly counted only the two populations covered by Washington's Medicaid plan. Thus, this appeal requires the court to answer one question: Did the MI and GAU populations receive medical assistance for purposes of the Numerator formula?² Answering this question is a two-part process: The court must first interpret the statute to determine what the Numerator statute means by "medical assistance." Then the court must review the Secretary's factual finding that the MI and GAU populations do not receive "medical assistance."

III. DISCUSSION

A. Standards of Review.³

There is a two-step standard for judicial review of an agency's interpretation of the statutes it administers. Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). First, the court must determine "whether Congress has directly spoken to the precise question at issue." Chevron, 467 U.S. at 842, 104 S.Ct. 2778. If it has, then the Court "must give effect to the unambiguously expressed intent of Congress" and no deference to an agency interpretation is required. Chevron, 467 U.S. at 842-43, 104 S.Ct. 2778. If the statute is silent or ambiguous as to the precise question at issue, the reviewing court determines "whether the agency's answer is based on a permissible construction of the statute." Chevron, 467 U.S. at 843, 104 S.Ct. 2778.

Judicial review of a factual finding by the Secretary is authorized by the Medicare statute, 42 U.S.C. § 1395oo(f)(1), in accordance with the Administrative Procedures Act ("APA"), 5 U.S.C. § 706. Under the APA, a court reviews an agency's final decision for substantial evidence based on the administrative record. See 5 U.S.C. § 706(2)(E). Substantial evidence is "more than a mere scintilla, but less than the weight or preponderance of the evidence." Richardson v. Perales, 402 U.S. 389, 401, 91 S.Ct. 1420, 28 L.Ed.2d 842 ...