Vermont Assembly of Home Health v. Shalala

• Decision Date: 26 August 1998
• Docket Number: No. 2:98-CV-128.,2:98-CV-128.
• Citation: 18 F.Supp.2d 355
• Parties: THE VERMONT ASSEMBLY OF HOME HEALTH AGENCIES, INC., on behalf of its 13 Medicare-certified, non-profit Home Health Agencies; and the Visiting Nurse Alliance of Vermont and New Hampshire, Inc., Plaintiffs, v. Donna SHALALA, Secretary, United States Department of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Vermont

Page 355

18 F.Supp.2d 355

THE VERMONT ASSEMBLY OF HOME HEALTH AGENCIES, INC., on behalf of its 13 Medicare-certified, non-profit Home Health Agencies; and the Visiting Nurse Alliance of Vermont and New Hampshire, Inc., Plaintiffs, v. Donna SHALALA, Secretary, United States Department of Health and Human Services, Defendant.

No. 2:98-CV-128.

United States District Court, D. Vermont.

August 26, 1998.

COPYRIGHT MATERIAL OMITTED

Philip Howell White, Law Offices of Wilson & White, P.C., Montpelier, VT, for Plaintiffs.

Nancy J. Creswell, Asst. U.S. Atty., Burlington, VT, for Defendant.

Donelle Smith Staley, Vermont Atty. General's Office, Human Services Div., Waterbury, VT, Christopher LaBonte White, Vermont Atty. General's Office, Department of Social & Rehab. Services, Waterbury, VT, William Richard Dysart, Vermont Senior Citizen Law Project, Burlington, VT, for Movants.

OPINION AND ORDER

SESSIONS, District Judge.

Plaintiff home health agencies challenge the constitutionality of an interim reimbursement scheme for Medicare home health services in the Balanced Budget Act of 1997 ("BBA"), Pub.L. No. 105-33, § 4602, to be codified at 42 U.S.C. § 1395x(v)(1)(L). They seek a preliminary injunction against the implementation of this scheme. Plaintiffs also move to amend the complaint to join four individual plaintiffs, Medicare beneficiaries who receive home health services. Defendant opposes both motions and moves to dismiss for lack of jurisdiction and for failure to state a claim. For the reasons cited below, Plaintiffs' Motion for Preliminary Injunction (Paper 2) is denied, Defendant's Motion to Dismiss (Paper 18) is granted, and Plaintiffs' Motion to Amend (Paper 24) is denied.

I. Factual Background

Under the Medicare program, home health agencies ("HHAs") are paid for providing services to eligible beneficiaries. Since the late 1980's, increased utilization of home health services and a marked leap in the number of visits per patient by HHAs have imposed a conspicuous burden on Medicare's budget. Congress responded with the BBA on August 5, 1997, which altered the method of reimbursing HHAs.

Prior to the BBA's passage, HHAs were paid on a cost reimbursement basis. The Health Care Financing Agency ("HCFA"), the division of the Department of Health and Human Services ("HHS") charged with administering Medicare, paid HHAs retrospectively for the reasonable costs they incurred so long as those costs fell beneath a per visit cost limit. Since 1980 Congress has placed no limit on the number of visits an HHA could make to one patient.

While the cost reimbursement plan was in place, the State of Vermont developed a network of community-based nonprofit HHAs, each of which it franchised to provide services in a specific region. The network now consists of thirteen agencies, and the State has not allowed any competing HHAs to enter the marketplace. It is the mission of these HHAs to offer comprehensive home health services to all Vermonters regardless of ability to pay. Local boards govern the HHAs, which receive some funding from the communities in their area, and Plaintiff Vermont Assembly of Home Health Agencies, Inc. ("VAHHA"), coordinates interagency assistance. This unique structure has enabled Vermont's HHAs to deliver home health services efficiently, to a greater percentage of eligible beneficiaries at a lower cost per visit than many other states.

Nationally, however, the costs of Medicare home health coverage skyrocketed over the course of the 1980's and 1990's. See Office of Inspector General, Dep't of Health and Human Services, Operating Practices of High-cost and Low-cost Home Health Agencies 1 (1997) (Medicare home health service spending rose from $ 3.3 billion in 1990 to $ 15 billion in 1995). Overall Medicare spending was rising dramatically, and home health care commanded an ever-increasing share of the Medicare pie. See Medicare Home Health Care: Hearing Before the Subcomm. on Health and Env't of the House Comm. on Commerce, 105th Cong. 4 (1997) (statement of Rep. Burr) (citing the need for reform of the home health system in order to extend the life of Medicare trust funds). Without a limit on the number of visits made to each patient, the average number of home health visits paid to Medicare beneficiaries leapt from 26 visits per beneficiary per year in 1989 to 76 visits per year in 1996. H.R.Rep. No. 105-149 (1997), reprinted in 1997 WL 353017, at *2785-86.

Other factors contributed to the increased utilization of home health services, including advances in technology allowing more patients to be treated at home, mounting patient preference for home health care, and similar encouragement from hospitals. Hospitals during this time had moved to a prospective Medicare reimbursement plan and sought to limit the services they provided to Medicare beneficiaries. These years also witnessed the arrival of many new HHAs, of which a substantial number were private organizations. Health, Education, and Human Services Division, General Accounting Office Home Health Utilization Expands While Program Controls Deteriorate 2 (1996) (83% of new Medicare-certified HHAs between 1989 and 1994 were proprietary).

These trends led Congress to perceive an overutilization of Medicare home health services, aided by "relatively generous payments, coverage policies, and little oversight." H.R.Rep. No. 105-149 at *2708. Congress believed that across the country HHAs likely were abusing the reimbursement system by making more visits than necessary. As resources for government supervision of the program had diminished during this time, the potential for HHA fraud had grown.

These concerns resulted in the changes set out in the BBA. This statute substitutes for the cost reimbursement program a prospective payment system ("PPS"), marking a shift in schemes similar to that which hospitals underwent earlier. The PPS will award HHAs a predetermined level of reimbursement, thereby offering incentives for HHAs to limit spending.

The PPS is to be implemented beginning with cost reporting periods on or after October 1, 1999, though some reimbursement may still be based on agency-specific costs for a transition period of up to four years. 42 U.S.C. §§ 1395fff(a), (b)(1). The HCFA requires time to devise an adequate case mix adjuster. A case mix adjuster will account for disparities between HHAs in terms of the relative complexity of the medical issues faced by the beneficiaries they serve.

The BBA calls for an Interim Payment System ("IPS") to govern pending the implementation of the PPS. Congress found that the overutilization of and excessive spending on Medicare home health services demanded immediate action, though an adequate case mix adjuster had not yet been prepared. See Medicare Home Health Care at 15-16 (statement of Bruce Vladeck, Administrator, HCFA). The IPS was seen as a necessary stopgap to control wasteful Medicare spending until the PPS took effect. See id. at 15 (while PPS is developed, HCFA "propose[s] to implement some interim changes ... that would allow us to achieve additional cost control"); Nancy-Ann Min DeParle, Dep't of Health and Human Services, BBA Home Health Care Provisions 5 (1998) (statement before Senate Aging Comm.) ("The [IPS] was established to control the runaway growth in home health while HCFA works to develop an accurate case-mix adjuster").

The IPS retains the structure of the cost reimbursement system in that HHAs are entitled to the lowest of several figures, two of which are holdovers from the previous scheme: the agency's reasonable costs and a reduced annual per visit cost limit. The third figure, an aggregate per beneficiary limitation, is new. The aggregate per beneficiary limit is derived from a blend of an HHA's reasonable costs for fiscal year 1994 and the regional average of such costs for that year.¹ Agencies without measurable costs in 1994 take a median of the limits determined for other HHAs.

The IPS is projected to save the Medicare program billions of dollars over its two-year existence. See H.R.Rep. No. 105-149 at *2851 (per beneficiary limit and lowered per visit cost limits predicted to bring $11.3 billion in savings). By tightening the per visit limit and introducing a per beneficiary limit, the IPS aims to harness abusive HHA practices. HHAs that made excessive visits and overcharged for services in the base year of 1994, though their costs may have increased since that year, will presumably be able to meet the per beneficiary limit through closer monitoring of visits and expenditures. Efficient HHAs will find that task more burden-some. If an agency was spartan in its delivery of services in 1994, its per beneficiary limit will be accordingly low. Not only will the limit be lower than that of other HHAs, but such agencies will have less superfluous spending to eliminate in order to reach that limit.

Fluctuations in case mix may exacerbate the plight of the low cost, efficient HHA. If an agency treats more high care Medicare beneficiaries now than in 1994, it may struggle to bring its per beneficiary costs within IPS strictures. Where an inefficient HHA would have a higher limit and could more easily adjust to a different case mix, an efficient agency may find its solvency threatened by the combination of a low per beneficiary figure to meet and a more demanding clientele than in 1994.

Vermont's HHAs face just these concerns. (Paper 14 ¶¶ 9-12.) Their per beneficiary limits may be inadequate. By contrast, high cost HHAs that were inefficient or abusive of the old reimbursement system will, in spite of their past practices, enjoy sizable per beneficiary limits within which they can both provide necessary services and profit. The HHAs most responsible for the waste which necessitated the IPS stand to gain far more than Vermont's HHAs under this system.

Vermont's home health providers will not be able to stay within the per beneficiary limit by...