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Rush University Medical Center v. Leavitt

September 4, 2007

RUSH UNIVERSITY MEDICAL CENTER, PLAINTIFF,
v.
MICHAEL O. LEAVITT, SECRETARY, DEPARTMENT OF HEALTH AND HUMAN SERVICES, DEFENDANT.



The opinion of the court was delivered by: Judge Joan B. Gottschall

MEMORANDUM OPINION AND ORDER

Plaintiff Rush University Medical Center, f/k/a Rush-Presbyterian-St. Luke's Medical Center ("Rush"), filed a three-count complaint against Michael O. Leavitt, the Secretary of Health and Human Services (the "Secretary"), seeking review of the Secretary's final decision reversing in part and affirming in part a decision of the Provider Reimbursement Review Board ("PRRB") regarding reimbursement under various Medicare programs. Rush and the Secretary have filed cross-motions for summary judgment. For the reasons set forth below, Rush's motion is denied in part and granted in part and the Secretary's motion is denied in part and granted in part.

I. BACKGROUND

This is a civil action arising under Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395 et seq. (2006)(the "Medicare Act") and the Administrative Procedures Act, 5 U.S.C. §§ 551-59 and 701-06 (2006) (the "APA").

Rush is a large, not-for-profit, certified Medicare-participating provider ("provider") in Chicago, Illinois. Rush is also a teaching hospital where many residents train in a number of specialties and sub-specialties. Pursuant to the Medicare statute and regulations, the federal government reimburses providers for the reasonable cost of medical services provided to eligible beneficiaries, including the costs of graduate medical education ("GME") and interest expenses on current and capital indebtedness.

The Centers for Medicare and Medicaid Services ("CMS") is the agency designated by the Secretary to administer the Medicare program. CMS engages contractors to act as fiscal intermediaries who, among other things, determine the amount of payments to be made to a provider by the federal government each year. Each provider is required to file a cost report with an intermediary at the close of every fiscal year. The intermediary audits the cost report and issues a Notice of Program Reimbursement which identifies and briefly explains any adjustments to the provider's cost report.

The PRRB is an independent panel authorized to hear appeals by providers dissatisfied with an intermediary's final determination. The Secretary, through authority delegated to the Administrator of the Health Care Financing Administration ("HCFA") may reverse, affirm, or modify the decision of the PRRB either on his own motion or upon request by the parties. The final decision of the Secretary is subject to judicial review pursuant to 42 U.S.C. § 1395oo(f)(1).

At issue is the Medicare cost report filed by Rush for fiscal year ending June 30, 1991 ("FY 1991").*fn1 The Intermediary*fn2 issued its audit findings and adjustments in a Notice of Program Reimbursement dated September 28, 1993. Rush appealed these adjustments to the PRRB by notice dated March 24, 1994. On June 12, 2002, a live evidentiary hearing was conducted before five members of the PRRB, and documentary evidence and witness testimony were presented. The PRRB considered the following issues:

(1) Whether the Intermediary's adjustment to and calculation of Rush's disproportionate share hospital payment was proper, specifically relating to the inclusion of general assistance days and the applicability of the Medicare Program Memorandum A-99-62 ("Issue 1");

(2) Whether the Intermediary's calculation of the number of interns and residents and the amount of allowable costs for FY 1991 for purposes of Rush's graduate medical education programs was proper ("Issue 2"); and

(3) Whether the Intermediary should have reclassified expenses relating to the Inn at University Village as investment losses and offset such losses against investment income rather than disallowing them entirely ("Issue 3").

Certified Administrative Record ("AR") 67

After deliberating for over three years and requesting additional information, the PRRB issued its decision on November 18, 2005. The PRRB ruled in favor of Rush on the first and third issues. Regarding the second issue, the PRRB found that only one of Rush's thirteen fellowship programs constituted an "approved" program for purposes of GME reimbursement.

On January 20, 2006, the Secretary (through the Administrator) reversed in part and affirmed in part the decision of the PRRB. Rush now appeals the Secretary's final decision to this court.*fn3

II. STANDARD OF REVIEW

Under the APA, a court must affirm the Secretary's decision unless it is found to be arbitrary, capricious, an abuse of discretion, unsupported by substantial evidence, or otherwise not in accordance with the law. 42 U.S.C. § 1395oo(f); Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994). An agency's interpretation of its own regulations must be given controlling weight unless it is plainly erroneous or inconsistent with the regulation. See id.; Hinsdale Hosp. Corp. v. Shalala, 50 F.3d 1395, 1399 (7th Cir. 1995). The court "must defer to the Secretary's interpretation unless an alternative reading is compelled by the regulation's plain language or by other indications of the Secretary's intent at the time of the regulation's promulgation." Thomas Jefferson Univ., 512 U.S. at 512. The court acknowledges that "[t]his broad deference is all the more warranted when . . . the regulation concerns 'a complex and highly technical regulatory program,' [such as Medicare] in which the identification and classification of relevant "criteria necessarily require significant expertise and entail the exercise of judgment grounded in policy concerns." Id. (quoting Pauley v. BethEnergy Mines, Inc., 501 U.S. 680, 697 (1991); Adventist Living Centers, Inc. v. Bowen, 881 F.2d 1417, 1421 (7th Cir. 1989) ("The Secretary's interpretation of regulations issued pursuant to the complex and reticulated Medicare Act is entitled to considerable deference.") However, the court also notes that "this does not shield the Secretary's decision from a thorough, probing, in-depth review." Loyola University of Chicago v. Bowen, 905 F.2d 1061, 1067 (7th Cir. 1990) (internal quotation marks omitted).

Moreover, the court does not reweigh the evidence or substitute its own judgment for that of the Secretary. Cass v. Shalala, 8 F.3d 552, 555 (7th Cir. 1993). The court's inquiry is limited to whether there is substantial evidence to support the decision-it need not rule on the correctness of that decision. Substantial evidence is "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion."

Richardson v. Perales, 402 U.S. 389, 401 (1971); Anderson v. Bowen, 868 F.2d 921, 923 (7th Cir. 1989).

Rush challenges the Secretary's decision regarding Issues 1, 2, and 3 as being arbitrary, capricious, an abuse of discretion, unsupported by substantial evidence, and not in accordance with the law. Rush often relies on the decision by the PRRB to support its argument against the Secretary, noting that "[the Secretary's] action was the result of an administrator's 60-day decision to arbitrarily reverse the findings of a 5-person board which took more than 3 years to consider the evidence." Pl.'s Mem. 3.*fn4 However, the court cannot give greater weight to the findings of the PRRB in its review of the Secretary's decision because it took longer and may have worked harder. "Upon judicial review of an agency decision, the Secretary is considered the fact-finder and deference is given to the Secretary's factual findings." Saint Mary of Nazareth Hosp. Center v. Shalala, 96 F. Supp. 2d 773, 776 (N.D. Ill. 2000) (quoting Adventist Living Centers, Inc., 881 F.2d at 1420. "The fact that the PRRB and the Secretary may have reached different conclusions in this case does not diminish the deference due to the Secretary's final decision." Adventist Living Centers, Inc., 881 F.2d at 1421.

III. ANALYSIS

A. Disproportionate Share Hospital Calculation (Issue 1)

Rush contends that the Secretary erred in refusing to apply the plain language of Program Memorandum A-99-62 ("PM A-99-62") to Rush's FY 1991 appeal of its disproportionate share payment.

1. Summary of the Hold Harmless Rule

Pursuant to 42 U.S.C. § 1395ww(d)(5)(F)(i)(I) (2006), hospitals that serve a "significantly disproportionate number of lower income patients" may receive additional Medicare payments. This is called the "disproportionate share hospital" ("DSH") adjustment. A hospital qualifies for the DSH adjustment for a given cost reporting period if its "disproportionate patient percentage" for that period equals or exceeds thresholds specified by statute. 42 U.S.C. § 1395ww(d)(5)(F)(v). The Secretary determines the DSH adjustment for a particular hospital based on the number of days that Medicaid patients spent in the hospital ("Medicaid days").

During the nineties, there was enormous confusion*fn5 about how Medicaid days were to be calculated. The short of it is that some fiscal intermediaries allowed hospitals to count any low-income-patient day, regardless of whether the patient was covered by state general assistance programs for low-income individuals-which are called "general assistance days"-or by the federally funded Medicaid program. The problem with this was that some states' provision of benefits under their own programs was counting towards those hospitals' reimbursement rate under Medicaid.

In December of 1999, the Secretary issued PM A-99-62, which clarified what days should and should not be included in the Medicaid fraction for cost reporting periods beginning on or after January 1, 2000. General assistance days were not to be included. However, noting the confusion over the issue of general assistance days, the Secretary created what is known as the "Hold Harmless Rule" for DSH payments that had been calculated using general assistance program days for cost periods beginning prior to January 1, 2000.

The Hold Harmless Rule had two provisions intended to protect "providers that were genuinely confused or held a genuine belief" that the ineligible days were to be included in the DSH calculation. AR 15. First, hospitals that had received DSH payments based on the inclusion of general assistance days in cost reports settled before October 15, 1999, could keep the funds and continue to be reimbursed for the same types of program days for fiscal years beginning before January 1, 2000. See St. Joseph's Hosp. v. Leavitt, 425 F. Supp. 2d 94, 96-97 (D. D.C., 2006). Second, hospitals that did not receive payment calculated with general assistance days, but appealed claiming their entitlement to such payment prior to October 15, 1999, could receive DSH reimbursement reflecting the inclusion of otherwise "ineligible" general assistance program days*fn6 for fiscal years beginning prior to January 1, 2000. See AR 15 ("If, for cost reporting periods beginning before January 1, 2000, a hospital that did not receive payments reflecting the erroneous inclusion of otherwise ineligible days filed a jurisdictionally proper appeal to the PRRB on the issue of the exclusion of these types of days from the Medicare DSH formula before October 15, 1999, reopen the cost report at issue and revise the Medicare DSH payment to reflect the inclusion of these types of Medicaid days.").

The Rule also contained the following direction to fiscal intermediaries:

Where, for cost reporting periods beginning before January 1, 2000, a hospital filed a jurisdictionally proper appeal to the PRRB on the issue of the exclusion of these types of days from the Medicare DSH formula on or after October 15, 1999, reopen the settled cost report at issue and revise the Medicare DSH payment to reflect the inclusion of these types of days as Medicaid days, but only if the hospital appealed, before October 15, 1999, the denial of payment for the days in question in previous cost reporting periods. . . . Do not reopen a cost report and revise the Medicare DSH payment to reflect the inclusion of these types of days as Medicaid days if, on or after October 15, 1999, a hospital added the issue of the exclusion of these types of days to a jurisdictionally proper appeal already pending before PRRB on other Medicare DSH issues or other unrelated issues. You are to continue paying the Medicare DSH adjustment reflecting the inclusion of general assistance or other State-only health program, charity care, Medicaid DSH, and/or waiver or demonstration population days for all open cost reports for cost reporting periods beginning before January 1, 2000, to any hospital that, before October 15, 1999, filed a jurisdictionally proper appeal to the PRRB specifically for this issue on previously settled cost reports.

AR 195 (emphasis in original).*fn7

Essentially, any hospital that did not raise the "precise issue" of the exclusion of general assistance days prior to October 15, 1999-the date the Hold Harmless Rule was first announced-could not be eligible for reimbursement based on those days. See United Hosp. v. Thompson, No. Civ. 02-3479(DWF/SRN), 2003 WL 21356086, at *4 (D. Minn. June 9, 2003), aff'd United Hosp. v. Thompson, 383 F.3d 728, 733 (8th Cir. 2004). The Secretary's position is that any hospital that raised the issue only after the Hold Harmless Rule was announced was presumed to be doing so to take advantage of the loophole, rather than out of genuine confusion over the rule. See United Hosp., 383 F.3d at 733 ("The date of October 15, 1999 satisfies common sense (and the rational basis test) because any claims raised for the first time after that date would come from hospitals that knew full well that the Secretary's previous payments were undeserved.")

However, as the court in St. Joseph's Hospital noted, a provider is not required to use any "magic words" in its notice of appeal to qualify for the Hold Harmless Rule, so long as the provider can point to evidence demonstrating that it was challenging the exclusion of general assistance days from ...


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