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PARAMOUNT HEALTH SYS. v. WRIGHT

December 1, 1995

PARAMOUNT HEALTH SYSTEMS, INC., Plaintiff,
v.
ROBERT W. WRIGHT, Director, Illinois Department of Public Aid, and DONNA SHALALA, Secretary, United States Department of Health and Human Services, Defendant.



The opinion of the court was delivered by: GETTLEMAN

 Plaintiff, Paramount Health Systems, Inc., brought this suit against defendants Robert W. Wright ("Wright"), Director of Illinois' Department of Public Aid ("IDPA"), and Donna Shalala, Secretary of the United States Department of Health and Human Services (the "Secretary"), challenging the legality of particular aspects of Illinois' medical assistance program established pursuant to Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq. (the "Medicaid Act"). Plaintiff alleges that the Illinois medical assistance program, approved by the Secretary and administered by defendant Wright, violates Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq. (the "Medicare Act") and the Medicaid Act. Defendants filed motions to dismiss pursuant to Fed.R.Civ.P 12(b)(1) and 12(b)(6), asserting that plaintiff lacks standing to bring this suit. For the reasons set forth below, defendants motions are denied.

 INTRODUCTION

 Before discussing the merits of defendants' motions, it is necessary to provide a brief overview of the Medicare and Medicaid Acts. The Medicare Act is a federal program enacted to provide financing for medical procedures for people over the age of 65 and certain disabled individuals. 42 U.S.C. §§ 426(a), 1395c. Medicare is comprised of two parts, Part A and Part B. Part A, 42 U.S.C. §§ 1395c - 1395i-4, provides reimbursement for inpatient hospital care and related post-hospital, home health care. Enrollment in Part A is essentially automatic.

 Medicare Part B, 42 U.S.C. §§ 1395j - 1395w-4, is a supplemental voluntary insurance program under which individuals may purchase supplemental insurance for hospital out-patient services, physician services, and other medical services not covered by Part A. 42 U.S.C. § 1395(k). Part B coverage includes cost sharing provisions. Enrollees must pay an annual deductible and monthly premium. 42 U.S.C. §§ 13951(b), 1395(r). After an enrollee exhausts his deductible, the federal government will pay 80% of the "reasonable charge" for the services as determined by the Secretary. 42 U.S.C. §§ 13951(a), 1985w-4. The service provider can then charge the beneficiary for the remaining 20% of the reasonable charge. 42 U.S.C. § 1985w-4. This 20% charge is often referred to as "copayment" or "coinsurance."

 The Medicaid Act establishes a joint federal/state cost sharing program to provide medical assistance to individuals with insufficient income. A state's participation in Medicaid is voluntary. If a state submits a Medicaid plan to the Secretary and obtains approval, the state becomes eligible to receive federal funds. 42 U.S.C. §§ 1396a - c. Under Medicaid, each state establishes the fee that the state will pay a service provider for each item or service covered by the state's Medicaid plan. It is uncontested that in instances where Medicare and Medicaid cover the same equipment or services, the state Medicaid fee amount invariably is less than the reasonable charge for services that the federal government sets for Medicare reimbursement. New York City Health and Hospitals Corporation v. Perales 954 F.2d 854, 857 (2nd Cir.), cert. denied, 506 U.S. 972, 121 L. Ed. 2d 369, 113 S. Ct. 461 (1992). In fact, the state Medicaid fee is generally even less than 80% of the reasonable charge figure that the federal government pays under the Medicare Part B insurance plan. Id. As a result, the state Medicaid copayment would be zero.

 The Medicaid and Medicare Acts intersect and provide coverage for the disabled, people over 65 (Medicare eligible) and that segment of the population who are also poor (Medicaid eligible). People who are eligible for both Medicare and Medicaid are known as "dual eligibles." Another segment of people are known as qualified Medicare beneficiaries ("QMBs"). QMBs consist of two subsets: 1) those people who are eligible for both Medicare and Medicaid benefits (i.e., dual eligible); and 2) people who are eligible for Medicare and are not eligible for Medicaid benefits, but meet a certain criteria of poverty. More specifically, QMBs are defined as individuals who are eligible for Medicare Part A benefits, have incomes not exceeding the federal poverty line, and have resources that do not exceed twice the amount set as the maximum for receiving benefits under the Supplemental Security Income program, 42 U.S.C. § 1382b, 42 U.S.C. § 1396d(p)(1).

 By definition, QMBs are eligible for Medicare Part A enrollment and Part B insurance; however, because they are indigent, they will be unable to afford to buy the Part B supplementary coverage or pay the Part A or Part B deductibles or coinsurance costs. In an attempt to solve this dilemma, the Medicare and Medicaid Acts created a "buy-in" program. States participating in the Medicaid program use Medicaid funds to pay the premiums to enroll a QMB in the Medicare Part B insurance program. Similarly, the state pays the deductibles and coinsurance payments that the QMB incurs under Part A or Part B with Medicaid funds. In essence, states use their Medicaid funds to buy their QMBs into the federal program, thereby shifting the primary payment for costs from the state's Medicaid plan to the federal Medicare program.

 DISCUSSION

 Plaintiff furnishes enteral-feeding supplies to Medicare and Medicaid eligible patients including QMBs in Illinois. Wright, as the Director of IDPA, administers the Illinois Medical Assistance Program that was established pursuant to the Medicaid Act. The Secretary administers the Medicaid and Medicare Acts. In addition, the Secretary is also responsible for reviewing state plans for medical assistance and approving those plans that comply with the requirements of the Medicaid Act.

 Plaintiff alleges that IDPA has a policy and practice of denying service providers their statutory right to full and direct reimbursement of the reasonable costs of supplies and services, as determined under the Medicare Act, rendered to QMBs in Illinois. More specifically, plaintiff alleges that pursuant to IDPA's policy and practice, approved by the Secretary, Medicare Part B providers are denied their right to full and direct payment, because the coinsurance payments they receive are at the lower rates at which IDPA reimburses Medicaid providers pursuant to the state's Medicaid program.

 Plaintiff seeks an order declaring that Wright's administration of the Illinois medical assistance program, with the consent and approval of the Secretary, violates the Medicare and Medicaid Acts. Plaintiff also asks this court to enjoin any further violation of the Medicare and Medicaid Acts. Defendants contend that plaintiff lacks standing to bring this action because defendants did not cause plaintiff a direct injury. In addition, defendants assert that plaintiff lacks standing because plaintiff cannot establish an enforceable right.

 As a Medicare Part B provider, plaintiff is entitled to receive 100% of the lesser of the provider's customary charge or the reasonable costs and charges as determined by the Secretary. 42 U.S.C. §§ 13951, 1395cc(a)(2)(A); Perales, 954 F.2d at 858. IDPA pays providers of enteral feeding supplies to QMBs not residing in nursing facilities the full Medicare Part B rate. If the QMB resides in a nursing facility, however, IDPA does not reimburse these providers directly. Instead, reimbursement for such supplies is made via the per diem rate paid to nursing facilities by the IDPA for residents' care.

 The state Medicaid plan classifies plaintiff's feeding supplies as durable medical equipment ("DME"). 89 Ill. Adm. Code Ch. I, § 140.476(a). Under the Illinois Medicaid Plan, nursing facilities are reimbursed the costs incurred in providing feeding equipment to Medicaid recipients according to the IDPA's nursing facility rate. Feeding equipment, under the state Medicaid plan, is classified as a supply cost for reimbursement purposes. Supply costs are bundled together with other costs and paid on a per diem basis subject to IDPA's nursing facility rate. The IDPA ...


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