Visiting Nurse Ass'n of Brooklyn v. Thompson

Decision Date07 December 2004
Docket NumberNo. 99CV7564 NGG/CLP.,99CV7564 NGG/CLP.
PartiesVISITING NURSE ASSOCIATION OF BROOKLYN, et al., Plaintiffs, v. Tommy G. THOMPSON, et al., Defendants.
CourtU.S. District Court — Eastern District of New York

Connie A. Raffa, David N. Wynn, John Thomas Vaughan, III, Arent Fox, PLLC, New York, NY, Robert E. Wanerman, Arent Fox Kintner Plotkin & Kahn, PLLC, Washington, DC, for Plaintiffs.

Kathleen Anne Mahoney, United States Attorneys Office, Brooklyn, NY, for Defendants.


GARAUFIS, District Judge.

Before this court are the motions of the plaintiffs, Visiting Nurse Association of Brooklyn ("VNAB") and Visiting Nurse Association Health Care Services, Inc. ("VNAHCS") for summary judgment and declaratory relief. If granted, these motions would overturn the decision of the Secretary of Health and Human Services ("Secretary"), who has denied the plaintiffs' request for additional reimbursement under the Medicare program for home health services provided during 1995 and 1996, and direct the Secretary to employ the reimbursement methodology in the manner urged by VNAB and VNAHCS (collectively, "the Providers") for all subsequent years.

Simultaneously before the court are the motions of the defendants, Tommy G. Thompson in his official capacity as Secretary of the Department of Health and Human Services, Mark McClellan, M.D., likewise in his official capacity as Administrator of the Centers for Medicare and Medicaid Services ("CMS"), and United Government Services ("UGS"). The defendants have moved for summary judgment on the plaintiffs' claims, as well on the defendants' cross-claims for damages under the False Claims Act, 31 U.S.C. §§ 3729(a) — 3733 and several common-law causes of action.

Distilled to its essentials, this litigation is a dispute over the validity of Provider Reimbursement Manual ("PRM") § 3205. This provision, which was issued as an interpretation of the cost-reporting regulations contained in 42 C.F.R. § 413.53, instructs home health aide services providers to include only "Medicare-type" services in reporting the costs of services rendered to non-Medicare patients for the purpose of securing reimbursement for home health services rendered to Medicare beneficiaries. PRM § 3205 was issued in May 1995 in response to the discovery that some institutions providing home health aide services to Medicare beneficiaries were including in their cost reports visits to non-Medicare patients far longer, and thus more expensive, than the visits covered by the Medicare program. This finding was of concern to Medicare administrators because the initial step in the formula by which Medicare reimbursement levels for individual health home aide visits performed by a given institution is to find the average cost of all home aide visits provided by that institution. Thus, any increase in the reported cost of providing services to non-Medicare beneficiaries has the effect of increasing the compensation paid to provider institutions on behalf of Medicare beneficiaries as well. Believing that some institutions were systematically over-reporting the costs associated with providing home health aide services to non-Medicare beneficiaries, and were thereby shifting costs onto the Medicare program, the Secretary decided to issue PRM § 3205 to prevent such cost-shifting. On this much, at least, the parties agree.

The parties disagree sharply, however, about the relationship between the then-existing regulations governing Medicare reimbursement submissions and § 3205, and therefore the validity of § 3205. The Providers claim that this regulatory interpretation linked Medicare cost-reporting and coverage principles for the first time, and in so doing effected a substantial change in the reimbursement methodology governing the provision of home health aide services. This change was so substantial, and so incompatible with the existing, duly promulgated regulations, they argue, that it constituted an exercise of the Secretary's lawmaking powers. Such exercises, the Providers assert, are invalid unless carried out in accordance with the notice-and-comment provisions of the Administrative Procedures Act ("APA"). Since it is undisputed that PRM § 3205 was enacted without notice and comment, the Providers conclude, the Secretary's decision to deny in part the Providers' reimbursement claims for 1995 and 1996 on the basis of that interpretation was likewise invalid, and must be set aside by this court.

The defendants, in contrast, contend that the PRM provision is an interpretive rule, and therefore exempt from the notice and comment requirements of the APA. Because the interpretation was validly issued, they argue, the Providers were obligated to comply with its terms in filing their cost reports for 1995 and 1996, and the Secretary acted lawfully in denying a portion of the Providers' claims pursuant to the terms of that interpretation. Furthermore, the defendants argue, because the Providers submitted cost reports for reimbursement while knowingly failing to comply with the terms of the 1995 PRM, their submissions were false within the meaning of the federal False Claims Act, thus making the Providers subject to fines and treble damages under that statute.

On October 21, 2003, the original motion and cross-motions of the parties were referred to Magistrate Judge Cheryl L. Pollak for a Report and Recommendation ("Report"). On August 27, 2004, Judge Pollak issued a comprehensive, fifty-two page Report, in which she concluded: (1) that the motions for summary judgment and declaratory relief filed by the Providers should be denied; and (2) that the defendants' motion for an order affirming the Secretary's final decision and cross-motion for summary judgment on the False Claims Act and common law claims should be granted. The Providers submitted a lengthy and timely statement of objections to the Report, to which the defendants timely replied. The court now considers the Providers' objections, reviewing de novo the facts and conclusions of law adopted by Judge Pollak in accordance with 28 U.S.C. § 636(b)(1) and Fed.R.Civ.P. 72(b). For the reasons discussed below, the conclusions of Report are adopted in full, and this action is referred back to Judge Pollak for further consideration of the defendants' claims for damages.

I. Factual Background
A. The Parties

The VNAB is a home health agency located in Brooklyn. (Pls.' 56.1 Stmnt ¶¶ 1, 2).1 The Secretary of HHS, who is charged with administering the Medicare program, has certified VNAB to provide home health services to eligible Medicare beneficiaries. (Id. ¶ 2). VNAHCS is also a home health agency located in Staten Island and certified by the Secretary to provide such services to Medicare beneficiaries. (Id. ¶¶ 3-5). Home health agencies provide, among other things, home health care services, which are defined as part-time or intermittent nursing care and other therapeutic services provided in a residential setting by a certified home health aide who must successfully complete a training program approved by the Secretary. 42 U.S.C. § 1395x(m). Both the VNAB and VNAHCS are organized as not-for-profit corporations under New York law and have been operating for 110 and 82 years, respectively. (Id. ¶¶ 1, 3). At the time the motion was filed,2 the HCFA was the agency within the Department of Health and Human Services that administered the Medicare program and UGS is a regional home health fiscal intermediary under contract with the Secretary to evaluate and authorize payment of claims for home health services, pursuant to 42 U.S.C. § 1395h.

B. The Medicare Program — Home Health Aides

In 1965, as part of the Social Security Act, Congress established the Medicare program of health insurance for the elderly and disabled. 42 U.S.C. §§ 1395-1395ggg. Pursuant to statute, medical services are divided into three categories: Part A of the statute covers inpatient hospital services, skilled nursing services, home health care services, and hospice care, 42 U.S.C. §§ 1395c — 1395i-5; Part B covers outpatient hospital and other health services, 42 U.S.C. §§ 1395j -1395w-4; and Part C deals with the delivery of Medicare services through managed care plans.

At issue in this litigation is the methodology for reimbursement of home health aide services under Part A. Home health aides provide personal care services, such as bathing, grooming, dressing, feeding, catheter and colostomy care, wound care and the administration of certain types of medication, when necessary to maintain a person's health or to facilitate treatment. See 42 C.F.R. §§ 409.44-409.45, 484.36(c)(2). Other services incidental to those described, such as preparing light meals or changing bed linens, are also provided by home health aides. 42 C.F.R. § 409.45(b)(4). The services must be ordered by the patient's physician in circumstances where the patient cannot perform the services himself and either has no caregiver at all or has a potential caregiver but is unwilling to use that person's services. 42 C.F.R. §§ 409.42, 409.45(b)(3).

Under Part A of the Medicare provisions, VNAB and VNAHCS have entered into provider agreements with the Secretary that authorize them to provide skilled nursing services, medical social services, home health aide services, speech language pathology services, and physical and occupational therapy to Medicare recipients. 42 U.S.C. § 1395cc. These provider agreements specify the services to be provided, and the regulations that govern participation and reimbursement from the program. 42 C.F.R. §§ 489.1-489.28; see Binghamton Gen. Hosp. v. Shalala, 856 F.Supp. 786, 789 (S.D.N.Y.1994).

C. The Reimbursement Procedure

In order to receive reimbursement for home health aide services, the home health agency is required to submit claims for reimbursement to the fiscal intermediary, which evaluates the claims and pays them in accordance with certain...

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