The opinion of the court was delivered by: Sue E. Myerscough, United States District Judge.
Wednesday, 08 June, 2011 01:34:14 PM
Clerk, U.S. District Court, ILCD
Plaintiff Hospitals seek judicial review of the Secretary of Health and Human Services' (Secretary) final decision reversing a decision of the Provider Reimbursement Review Board (Board). The Hospitals and the Secretary each moves for summary judgment. For the reasons set forth below, the Court grants the Secretary's Motion and denies the Hospitals' motion.
The Plaintiffs, who consist of 26 Illinois hospitals (Hospitals),
challenge the final administrative decision of the Secretary. In a
ruling that stands as the final decision of the Secretary, the
Administrator of the
Centers for Medicare & Medicaid Services (Administrator) upheld
Medicare disallowances of the expenses claimed by the Hospitals.
Although the Administrator's decision stands as the final decision of
the Secretary, this Court will continue to refer to the decision as
the Administrator's decision for purposes of clarity. The
Administrator found that the amount of the Tax Assessment*fn1
paid by the Hospitals pursuant to state statute was an
allowable cost under the Medicare program but was subject to offset by
the payments the Hospitals received from the fund created by the tax .
A. Overview of the Medicare Program "The Medicare program is a federally-subsidized health insurance program primarily for elderly and disabled individuals." Michael Reese Hosp. and Medical Center v. Thompson, 427 F.3d 436, 438 (7th Cir. 2005). The Centers for Medicare & Medicaid Services (CMS) is charged with administering the Medicare program. Select Specialty Hosp. of Atlanta v. Thompson, 292 F.Supp.2d 57, 61 (D.D.C. 2003).
CMS contracts with insurance companies--called fiscal intermediaries--"to process claims made on behalf of Medicare beneficiaries." See Doctors Nursing & Rehabilitation Center, LLC v. Sebelius, 2010 WL 4878832 (C.D. Ill. 2010). A hospital submits an annual hospital cost report at the end of the hospital's fiscal year stating the amount of Medicare reimbursement the hospital believes is due. See United States v. Rogan, 2002 WL 31433390, at *2 (N.D. Ill. 2002); see also 42 C.F.R. § 413.20 (regulation pertaining to cost reports). Those cost reports are reviewed by the fiscal intermediary, who then determines the amount of reimbursement due the provider and issues the provider a Notice of Program Reimbursement. See 42 C.F.R. § 405.1803. A provider may challenge the fiscal intermediary's determination by requesting a hearing before the Board. See 42 U.S.C. § 1395oo(a); 42 C.F.R. § 405.1835.
B. The Hospitals' Medicare Cost Reports During the period at issue here, fiscal years 2005 and 2006, the Hospitals sought reimbursement for services provided to patients covered by the Medicare program on a "reasonable cost" basis. See 42 U.S.C. § 1395f(b)(1) (providers may be reimbursed for the lower of the reasonable cost of services or the customary charges with respect to such services). The Hospitals included in their cost reports the Tax Assessment they paid pursuant to Illinois statute, discussed in more detail below.
The fiscal intermediary--AdminaStar Federal and its successor, National Government Services (collectively, the Intermediary)-- disallowed the Tax Assessment payments as costs and made audit adjustments which affected the amount of Medicare reimbursement that each Hospital was due. According to the Hospitals, the disallowance lowered Medicare payments to the Hospitals in the aggregate amount of $4,195,424. The Secretary claims the amount at issue is $3,963,655. The Administrator did not make any specific finding about the amount at issue, and the exact amount is not relevant to this Court's review of the Administrator's decision.
C. Medicaid and the State Health Care Provider Tax Before discussing the Tax Assessment claimed as an expense by the Hospitals on their cost reports, a brief explanation of the Medicaid program is necessary to put the issue in context. "Medicaid is a cooperative federal-state program that provides federal funding for state medical services to the poor." Frew ex rel. Frew v. Hawkins, 540 U.S. 431, 433 (2004). A state's Medicaid program is set forth in a State Plan, which must be approved by CMS before the State Plan may be implemented. 42 U.S.C. §1396a. A state must also submit for approval any proposed amendments to the State Plan. See 42 C.F.R. §430.12(c); American Society of Consultant Pharmacists v. Garner, 180 F.Supp.2d 953, 958 (N.D. Ill. 2001). If the state establishes a Medicaid plan that meets federal requirements, the federal government reimburses a state's medical assistance costs by paying a Federal Medical Assistance Percentage. See 42 U.S.C. § 1396b(a)(1); Harris v. McRae, 448 U.S. 297, 308 (1980); Arkansas Dept. of Health and Human Services v. Ahlborn, 547 U.S. 268, 275 (2006) (noting that the federal government pays between 50% and 83% of the costs the State incurs for patient care). CMS is also charged with administering the Medicaid program. Moore ex rel. Moore v. Reese, 637 F.3d 1220, 1235 (11th Cir. 2011).
In 2004, the Illinois Department of Public Aid (IDPA) filed two Amendments to Illinois' State Plans: one establishing new inpatient adjustments; and one establishing new outpatient adjustments. The Amendments were necessary because Illinois enacted legislation that authorized a Hospital Provider Assessment Program (305 ILCS 5/5A-1, et seq.).
Essentially, the statute imposed a health care related tax on providers to raise revenue for the Medicaid program which would in turn increase the matching funds received from the federal government. Pursuant to 42 U.S.C. § 1396b(w), revenue a state receives from a health care related tax will be eligible for the Federal Medical Assistance Percentage if the tax is broadly based, uniformly imposed, and is not, in effect, a hold harmless provision. See 42 U.S.C. § 1396b(w)(1)(A)(ii), (iii); 42 U.S.C. § 1396b(w)(3)(B); 42 U.S.C. § 1396b(w)(4). A health care related tax is a hold harmless provision if: (1) it provides for payment to the taxpayer that is tied to the amount of the health care related tax paid; (2) the Medicaid payments the taxpayer received are tied to the total health care related tax paid; or (3) the state promises to hold the taxpayer harmless for a portion of the tax through a direct payment or an exemption from the tax. Protestant Memorial Medical Center, Inc. v. Maram, 471 F.3d 724, 727 (7th Cir. 2006), citing 42 U.S.C. §1396b(w)(4).
CMS approved the State Plan Amendments after: (1) granting IDPA a waiver of the broad-based requirement and (2) requiring IDPA remove language from the State Plan Amendment that conditioned the State's increased Medicaid payments to hospitals on CMS's waiver of the broad-based requirement. The Hospitals and the Intermediary stipulated at the hearing before the Board that CMS approved the State Plan Amendments for federal matching and determined the health care provider tax was not a hold harmless agreement.
As a result of the approval of the State Plan Amendments, the Hospitals received additional Medicaid payments from the Fund created by the tax assessment. Those additional Medicaid payments were included when the federal government calculated the Federal Medical Assistance Percentage. This Court will hereinafter refer to the additional Medicaid payments the Hospitals received from the Fund as the "Fund Payments."
The record contains evidence that most hospitals received more in Fund Payments than they paid in taxes and some hospitals received less. Some hospitals received Fund Payments even though the hospital was exempt from paying the tax.
D. The Illinois Statute Imposing the Health Care Related Tax The Illinois statute imposed an annual health care related tax (the statute calls it an "assessment") on inpatient services on each hospital provider--except for certain categories of exempt hospitals-- "in an amount equal to the hospital's occupied bed days multiplied by $84.19 for State fiscal years 2004 and 2005." 305 ILCS 5/5A-2(a) (West 2004). A hospital provider who failed to pay the tax when due was subject to a penalty. 305 ILCS 5/5A-4(c) (West 2004).
The funds received from the tax were put in a Hospital Provider Fund (Fund). 305 ILCS 5/5A-6 (West 2004). In addition to funds received from the tax the Fund contained: (1) all federal matching funds received by IDPA as a result of expenditures made by IDPA that were attributable to money deposited in the Fund; (2) interest and penalties levied in conjunction with the statue; (3) money transferred from another fund in the State treasury; and (4) money received for the Fund from any other source, such as interest earned. 305 ILCS 5/5A-8(c) (West 2004).
IDPA was required to make Hospital Access Improvement Payments with money from the Fund. 305 ILCS 5/5A-12 (West 2004) ("To improve access to hospitals services, . . . [IDPA] shall make payments to hospitals as set forth in this Section"). These Hospital Access Improvement Payments were additional Medicaid payments. See, e.g., Protestant Memorial, 471 F.3d at 727 (noting that the payments under Section 5A-12 were "payments to the hospitals above the basic rate of inpatient hospital services, including a 'Medicaid inpatient utilization rate adjustment'"). In addition to the Hospital Access Improvement Payments, the statute permitted IDPA to disburse money from the Fund for eight different reasons, including making payments under the Children's Health Insurance Program Act and paying administrative expenses by the IDPA in performing activities authorized by the statute. 305 ILCS 5/5A-8(b) (West 2004).
The Hospitals' tax liability was contingent on several factors, including actual receipt of the Fund Payments, CMS's approval of the Fund Payments, and waiver of the broad-based requirement. See 305 ILCS 5/5A-4(a) (the payment of the tax shall not be due until after "the hospital has received the payments required under Section 5A-12"); 305 ILCS 5/5A-10 (West 2004).
E. Procedural History of this Case The Intermediary disallowed the Tax Assessment as a cost and made audit adjustments which affected the amount of Medicare reimbursement each Hospital was due or owed for the cost reporting period. The Hospitals appealed the Intermediary's decision to the Board. The Board consolidated the appeals into one group appeal.
Following a hearing, the Board ruled that the Tax Assessment was an allowable cost and that the Fund Payments did not constitute a refund. In February 2010, the Intermediary requested review by the CMS Administrator, asserting the Hospitals' Tax Assessment costs should reflect the amount refunded in the form of Fund Payments.
The Administrator then reversed the Board, finding that the Tax Assessment was an allowable cost that must be offset by the Fund Payments received.
II. JURISDICTION AND VENUE
Judicial review of the Administrator's decision is provided by 42 U.S.C. § 1395oo(f)(1). Venue is proper because the greatest number of providers are located in this district. 42 U.S.C. 1395oo (f)(1) ("in an action brought jointly by several providers, [venue is proper in] the judicial district in which the greatest number of providers are located"); see also 28 U.S.C. 1391(e) (addressing venue when ...