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University of Chicago Medical Center v. Sebelius

August 3, 2009

THE UNIVERSITY OF CHICAGO MEDICAL CENTER, D/B/A UNIVERSITY OF CHICAGO HOSPITALS & CLINICS, PLAINTIFF,
v.
KATHLEEN SEBELIUS, SECRETARY OF THE UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, DEFENDANT.



The opinion of the court was delivered by: Wayne R. Andersen United States District Court

Wayne R. Andersen District Judge

MEMORANDUM OPINION AND ORDER

The plaintiff, The University of Chicago Medical Center, d/b/a University of Chicago Hospitals & Clinics ("Hospital"), filed the instant suit against Kathleen Sebelius ("Secretary"), in her capacity as the Secretary of The United States Department of Health and Human Services, alleging that the Secretary improperly calculated the Hospital's Medicare payments for the fiscal year of 1996 by excluding residents involved in educational research from the indirect medical education full-time equivalent residents count. This case is before the Court on the Hospital's and the Secretary's motions for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. For the following reasons, the Hospital's motion for summary judgment is granted and the Secretary's cross-motion for summary judgment is denied.

BACKGROUND

A. The Relevant Statutes

Prior to 1983, a hospital received Medicare payments based on the hospital's reasonable costs of inpatient hospital services. 42 U.S.C. § 1395f(b1), 1395d(a)(1). These payments reimbursed a hospital for actual expenses incurred. However, Congress abandoned the reasonable cost system after determining that government costs were too high. See 42 U.S.C. § 1395x(v)(a)(A); see also 42 C.F.R. § 413.30.

The reasonable cost system was replaced by the Prospective Payment System ("PPS") in 1983. Under the PPS, hospitals receive payments based on a patient's diagnosis at discharge, regardless of the hospital's actual or reasonable costs associated with treating that patient. 42 U.S.C. § 1395ww(d); 42 C.F.R. § 412.60. Congress switched to the PPS in order to promote efficient healthcare services. See Riverside Methodist v. Thompson, 2003 WL 22658129, at *2 (S.D. Ohio July 31, 2003). The PPS encourages efficiency by allowing a hospital to keep the full PPS payment, even if the hospital can efficiently treat a patient at a cost that is lower than the PPS payment. See id.

However, because teaching hospitals generally incur more costs than non-teaching hospitals, Congress grants teaching hospitals additional payments under the PPS. See H.R. Rep. No. 98-25(I) at 140-41 (1983), as reprinted in 1983 U.S.C.C.A.N. 219, 359-60; S. Rep. No. 98-23, at 52-53 (1983), as reprinted in 1983 U.S.C.C.A.N. 143, 192. These additional payments are comprised of both "direct" and "indirect" payments. 42 U.S.C. § 1395ww(h), 1395ww(d)(5)(B). The direct payments are not disputed in this case, but they include easily quantifiable costs, such as a resident's salary and fringe benefits. See 42 U.S.C. § 1395; Rhode Island Hospital v. Leavitt, 501 F. Supp. 2d 283, 286 (D. R.I. 2007) rev'd by Rhode Island Hospital v. Leavitt, 548 F.3d 29 (1st Cir. 2008); University Medical Center Corp. v. Leavitt, 2007 WL 891195 at *4; Riverside Methodist, 2003 WL 22658129 at *2 n.4; 42 C.F.R. § 413.86 (1996). See also H.R. Rep. No. 98-25(I) at 140-41 (1983), as reprinted in 1983 U.S.C.C.A.N. 219, 359-60; S. Rep. No. 98-23, at 52-53 (1983), as reprinted in 1983 U.S.C.C.A.N. 143, 192.

The parties dispute the proper amount of indirect medical education ("IME") payments that are owed to the Hospital for the fiscal year 1996. IME payments are authorized by statute: "[t]he Secretary shall provide for an additional payment amount for subsection (d) hospitals with indirect costs of medical education, in an amount computed in the same manner as the adjustment for such costs under regulations [in effect as of January 1, 1983]." 42 U.S.C. § 1395ww(d)(5)(B). The IME payment is derived at by multiplying the PPS payment by the "IME factor," also referred to as the "teaching adjustment factor." See 42 U.S.C. § 1395WW(D)(5)(B); see also Rhode Island Hospital v. Leavitt, 548 F.3d 29 (1st Cir. 2008).

The IME factor is intended to reflect the level of teaching intensity at a teaching hospital, and it is arrived at by means of a mathematical formula that was created by statute in 1983: [{1(R/B)}n-1] x C; R, the disputed variable in this case, represents the number of full-time equivalent ("FTE") residents; B represents the number of hospital beds; n is .405, the measurement factor for teaching activity; and C represents the statutory adjustment factor. 42 U.S.C. § 1395ww(d)(5)(B). Therefore, in order to gauge the level of teaching intensity at a hospital, Congress created a formula that focuses on the ratio of full-time equivalent (FTE) residents to the hospital's total number of beds. As the number of FTE residents increases, the hospital's indirect medical education (IME) factor increases, and consequently, the hospital receives a higher IME payment from Medicare.

Both parties agree that the PPS is not applicable to all hospitals, or even all units of a hospital. Specifically, the PPS only applies to "subsection (d) hospitals," which consist of acute-care hospitals. The requirement of acute-care hospital excludes, inter alia, psychiatric hospitals and rehabilitation hospitals, as well as all psychiatric or rehabilitation units within hospitals. Rhode Island, 501 F. Supp. 2d at 285; 42 U.S.C. § 1395ww(d)(1)(B). Residents assigned to these hospitals or units are excluded from the IME FTE resident count because those hospitals and units are still paid under the reasonable cost system, which "already include[s] the indirect cost of medical education." 48 Fed. Reg. 39,752, 39,778 (Sept. 1 1983). Therefore, while both parties agree that research conducted in these non-PPS hospitals or these non-PPS units of hospitals are excluded from IME FTE resident count, as seen below, the parties dispute whether a resident who performs educational research that is mandated by a residency program must be included in the IME FTE resident count.

B. The Relevant Regulations

The regulation in effect during 1996, the fiscal year at issue in this case, states that residents will be included in a teaching hospital's indirect payment if: 1) the resident is "enrolled in an approved teaching program," and 2) the resident is "assigned to.[a] portion of the hospital subject to the [PPS]." 42 C.F.R. § 412.105(g) (1995). The parties do not dispute whether the residents in this case were enrolled in an approved teaching program. The only dispute concerns whether the residents were assigned to a "portion" of the hospital that is subject to the PPS.

Although the 1996 regulation governs this case, the parties argue that two subsequent amendments to the statute and regulation might be relevant. First, in 1997, Congress amended the statute under which the 1996 regulation was promulgated. The statutory amendment applies only in non-hospital settings, and it requires the Secretary to exclude a resident's research from indirect medical education payments, unless the research is directly related to a patient's care. Thus, the 1997 amendment includes a direct patient care requirement in non-hospital settings.

An amendment to the regulation occurred in 2001 and it arguably clarifies the meaning of the 1996 regulation. The 2001 amendment explicitly excluded a resident's educational research time from indirect payments to teaching hospitals. Thus, if the 2001 amendment were applied to this case, the regulation would direct this Court to exclude the resident's research time from the IME FTE count. As seen below, however, whether the ...


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