Vitality Rehab, Inc. v. Sebelius
| Decision Date | 03 August 2009 |
| Docket Number | No. CV 08-4575-VBF(SHx).,CV 08-4575-VBF(SHx). |
| Parties | VITALITY REHAB, INC. v. Kathleen SEBELIUS. |
| Court | U.S. District Court — Central District of California |
Nick Migliaccio, for Plaintiffs.
Indira J. Cameron-Banks, Asst. U.S. Attorney, Jonathan C. Brumer, U.S. Dept. of Health and Human Services, Washington, DC, for Defendants.
PROCEEDINGS: HEARING ON APPEAL OF SECRETARY'S MAY 15, 2008 FINAL ADMINISTRATIVE DECISION (doc. # 19)
VALERIE BAKER FAIRBANK, District Judge.
Rita Sanchez, Courtroom Deputy.
Rosalyn Adams, Court Reporter.
Case called, and counsel make their appearance.
The Court presents its tentative ruling (doc. # 23), and hears oral arguments from counsel. The Court takes the matter under submission.
Later, upon further review of the Parties' papers and the Parties' oral arguments, the Court finds that the tentative ruling is the order of the Court.
PROCEEDINGS (IN CHAMBERS): TENTATIVE RULING ON APPEAL OF SECRETARY'S MAY 15, 2008 FINAL ADMINISTRATIVE DECISION (doc. # 19)
On July 14, 2008, Plaintiff Vitality Rehab., Inc. ("Vitality") filed a complaint challenging the May 15, 2008 final administrative decision of Defendant Secretary of Health and Human Services ("Secretary"). In that decision, the Secretary denied Vitality's claims for reimbursement of bad debts for the fiscal year of 1999. These bad debts were unpaid deductibles and coinsurance amounts related to outpatient therapy services that Vitality provided to Medicare eligible patients who were dually eligible for Medicare and Medicaid in the fiscal year of 1999.
On April 14, 2009, Vitality filed its Opening Brief (doc. # 19). On May 15, 2008, the Secretary filed her Opening Brief (doc. #20). On June 11, 2009, Vitality filed a Consolidated Opposition to the Secretary's Opening Brief and Reply Brief (doc. #21).1 On July 15, 2009, the Secretary filed her Reply (doc. # 22).
The Court upholds the Secretary's May 15, 2008 final administrative decision. The Secretary's final administrative decision is reasonable, supported by substantial evidence, and consistent with the Medicare statute and regulations. Further, in giving the Secretary's interpretation of regulations due deference, as set forth below, there is a reasonable basis for the Secretary's decision denying Vitality's claims for reimbursement of bad debts.
The case's original caption is Vitality Rehab, Inc., a California Corporation v. Michael O. Leavitt, Secretary, United States Department of Health and Human Services. Pursuant to Federal Rule of Civil Procedure 25(d), Kathleen Sebelius, the current Secretary of Health and Human Services, is substituted for Michael O. Leavitt, the former Secretary.
The Medicare Act, established by Title XVIII of the Social Security Act, creates a federal health insurance program that provides benefits to eligible elderly and disabled individuals. See 42 U.S.C. § 1395 et seq. Parts A and B of the Medicare insurance program provide coverage for various items and services. Part A of the Medicare insurance program (42 U.S.C. §§ 1395c-1395i-5) provides insurance coverage for inpatient hospital care, home health, and hospice treatment and related services. See 42 U.S.C. § 1395d. Part B of the Medicare insurance program (42 U.S.C. §§ 1395j-1395w-4) provides supplemental coverage for other types of care, including medical services not covered by Part A, such as some outpatient therapeutic services. See 42 U.S.C. § 1395k. Vitality provides outpatient therapy services under Part B of the Medicare insurance program.
The Center for Medicare and Medicaid Services ("CMS") administers the Medicare program on behalf of the Secretary. See 42 U.S.C. §§ 1395h, 1395u. The CMS contracts with private insurance companies known as "fiscal intermediaries" or "carriers" to process Part A and Part B claims. Vitality's fiscal intermediary for the relevant fiscal year of 1999 was Mutual of Omaha Insurance Company ("Omaha").
In order for providers of Medicare services to receive reimbursement of their claims, providers (i.e., Vitality), are required to submit to their designated fiscal intermediary or carrier (i.e., Omaha) an annual cost report that contains their claims. See 42 C.F.R. §§ 405.1801(b), 413.20-413.24. These fiscal intermediaries then determine payment amounts that are due to these providers. See 42 C.F.R. § 413.20(b).
After reviewing these cost reports, the intermediary makes a final determination—also known as a notice of program reimbursement ("NPR")—that states the total amount the provider should be reimbursed for services it gave to Medicare beneficiaries for that fiscal year. 42 C.F.R. § 405.1803.
If a provider is dissatisfied with the intermediary's final determination, then the provider may appeal the decision to the Provider Reimbursement Review Board ("PRRB"). 42 U.S.C. § 1395oo(a). The Secretary has the authority to review the PRRB determination. Id. § 1395oo(f)(1). If the Secretary does not modify, reverse, or affirm the decision within 60 days of the PRRB's decision, then the PRRB's decision is final. 42 C.F.R. §§ 405.1871(b), 405.1875(a). A provider may obtain judicial review within 60 days of any final decision of the PRRB or the Secretary. 42 U.S.C. § 1395oo(f)(1).
In the Balanced Budget Act of 1997 ("BBA"), effective January 1, 1999, Congress changed the payment methodology for Part B Medicare services. Prior to the effective date of the BBA, January 1, 1999, providers of Part B services were reimbursed for the "reasonable costs" of covered services.2 The BBA changed the payment methodology such that providers of Part B services were to be reimbursed according to a fixed physician fee schedule published once a year, and no longer on the basis of reasonable costs.3 See 42 U.S.C. §§ 1395l (a)(8)(A)(i), 1395m(k).
Vitality and the Secretary agree that prior to the change in the payment methodology for Part B services when providers were reimbursed on the basis of "reasonable costs," providers were also reimbursed for "bad debts." Bad debts are defined as "amounts considered to be uncollectible from accounts and notes receivable that were created or acquired in providing services" and include "the costs attributable to the deductible and coinsurance amounts that remain unpaid [which] are added to the Medicare share of allowable costs." 42 C.F.R. § 413.80(b), (d).4 Vitality and the Secretary, however, differ as to whether bad debts are reimbursable for Part B services after the January 1, 1999 change in payment methodology from a reasonable costs system to a system based on the physician fee schedule.
A main component of the Secretary's argument (addressed below) as to why the bad debts are not reimbursable under a fee schedule payment methodology depends on Medicare's prohibition against cross-subsidization, or the anti-cross-subsidization principle. The anti-cross-subsidization principle holds that costs for individuals covered by the Medicare program must not be borne by uncovered individuals, and costs for uncovered individuals must not be borne by Medicare. It is derived from the definition of "reasonable costs," set forth in 42 U.S.C. § 1395x(v)(1)(A). This subsection states that the Secretary shall prescribe regulations regarding reasonable costs which shall "take into account both direct and indirect costs of providers of services . . . in order that, under the methods of determining costs, the necessary costs of efficiently delivering covered services to individuals covered by the insurance programs established by this subchapter will not be borne by individuals not so covered, and the costs with respect to individuals not so covered will not be borne by such insurance programs." The anti-cross-subsidization principle is discussed further below.
In its fiscal year of 1999, Vitality was an outpatient rehabilitation facility which participated in the Medicare program, and provided outpatient therapy services, such as physical, speech, and occupational therapy services. See Compl. ¶¶ 5, 7. These services were subject to payment under the Medicare Part B fee schedule. Id. ¶ 7. Vitality's fiscal intermediary for the fiscal year of 1999 was Mutual of Omaha Insurance Company ("Omaha").
Vitality filed a cost report with Omaha for its fiscal year of 1999, which included Vitality's claim for reimbursement of bad debts for services that Vitality provided to patients that were dually eligible for Medicare and Medicaid. Compl. ¶ 24.
In a letter dated February 28, 2001, Omaha issued its initial notice of program reimbursement for Vitality's fiscal year of 1999 (AR 260-85) which denied Vitality's claim of Medicare bad debts related to deductible and coinsurance amounts arising from outpatient therapy services paid under the Medicare Part B fee schedule. See AR 264-65, 284. Omaha explained that it had "adjust[ed] to remove bad debts which are nonallowable after 1/1/1999 under [the] fee schedule" and would "only allow the bad debts with service dates prior to 1/1/1999." See AR 264.
On March 15, 2001, Vitality appealed the notice of program reimbursement to the Provider Reimbursement Review Board ("PRRB"). See AR 258-59. The PRRB, in a 3-2 decision issued on March 17, 2008, reversed Omaha's adjustment and found the bad debts to be reimbursable. See AR 29-34. On May 15, 2008, the CMS Deputy Administrator reversed the PRRB's decision and upheld Omaha's disallowance of the bad debts at issue. See AR 1-17. The Deputy Administrator is the final decision of the Secretary in this matter. 42 U.S.C. § 1395oo(f). Vitality timely appealed the Administrator's decision on July 14, 2008 with this Court.
The Court's jurisdiction in this action is exclusively based on 42 U.S.C. section 1395oo(f)(1) which provides for judicial review of final Medicare...
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