The opinion of the court was delivered by: Honorable Paul L. Maloney
Granting Plaintiff Hospital's Motion for Summary Judgment;
Denying Defendant HHS's Motion for Summary Judgment;
Holding that Plaintiff is Entitled to Damages, Interest, and Declaratory and Injunctive Relief;
Directing the Parties to File a Proposed Order Awarding Monetary Damages and Interest
This case concerns the federal government's reimbursement of a hospital for its provision of medical services to low-income patients under Medicaid and Medicare.
The court has federal-question jurisdiction under 28 U.S.C. § 1331 and 42 U.S.C. § 1395oo(f)(1), because the complaint asserts claims under the Social Security Act, 42 U.S.C. § 1395ww(d)(5)(F) ("SSA"), and the Administrative Procedure Act, 5 U.S.C. § 706(2) ("APA"). Venue is proper under 28 U.S.C. § 1391(e)(3) and 42 U.S.C. § 1395oo(f)(1) because plaintiff Metropolitan Hospital ("Metro") is located in this district. See Complaint filed February 13, 2009 ("Comp") ¶¶ 6-7. Metro, a Michigan non-profit corporation operating in Grand Rapids, Michigan since 1942, participates in the federal Medicare program. Defendant, the United States Department of Health and Human Services ("HHS") Centers for Medicare and Medicaid Services ("CMS"), is an executive-branch agency which administers the Medicare and Medicaid programs. In this capacity, CMS issues and implements regulations governing so-called "disproportionate share hospital" ("DSH") adjustments to hospitals' Medicare reimbursement. See Comp ¶¶ 1-2 and 9-10.
Metro contends that CMS amended a DSH regulation, 42 C.F.R. § 412.106(b), in a way that is inconsistent with an SSA provision (42 U.S.C. § 1395ww(d)(5)(f)(vi)) and case law interpreting it. See Comp ¶¶ 2 and 4. In so doing, Metro claims, CMS acted in an arbitrary and capricious manner in violation of the APA, 5 U.S.C. §§ 706(2)(A) and 706 (2)(C). See Comp ¶ 5. Metro seeks an injunction barring the enforcement of the amended DSH regulation, a declaration of the proper method of calculating its DSH adjustments, and at least $2,179,740 in damages plus interest pursuant to 42 U.S.C. § 1395oo(f)(2). See Comp ¶¶ 5 and 8 and Prayer for Relief. The parties cross-moved for summary judgment, and the court heard oral argument on Monday, March 29, 2010.
In 1965, Congress enacted Title XVIII of the SSA, creating a federal health-insurance system for the elderly and the disabled known as Medicare. See 42 U.S.C. § 1395c et seq. Also in 1965, Congress enacted Title XIX of the SSA, known as Medicaid, to provide grants to States in order to provide medical assistance to families with dependent children and to elderly, blind, and disabled individuals whose income and resources are insufficient to pay for needed medical care. See 42 U.S.C. § 1396 et seq. Individuals who are eligible for taxpayer-funded benefits under both Medicare and Medicaid are known as "dual eligibles." See Comp ¶ 12.
Medicare's Hospital Insurance component, known as Part A, reimburses health-care providers for certain expenses associated with inpatient hospital care. Generally, Medicare Part A is automatically provided to individuals over the age of sixty-five. Medicare Part A is also automatically provided to individuals of any age who have been disabled for more than twenty-four months, as long as they or their spouse worked for at least ten years in employment subject to the Medicare tax. See Comp ¶ 13 (citing 42 U.S.C. § 1395c).
Medicare Part A coverage is based on a benefit period or a "spell of illness", which is defined as the period during which a person is a hospital inpatient for an injury or illness, plus recovery time in a nursing facility or in home care. See Comp ¶ 14 (citing 42 U.S.C. § 1395x(a)). The benefit period begins the first day in hospital and continues until the patient has been out of the hospital for sixty consecutive days. See Comp ¶ 14 (citing 42 U.S.C. § 1395x(a)).
If the patient is in hospital for more than sixty days, Medicare Part A will pay only part of the cost for days 61 to 90. See Comp ¶ 14 (citing 42 U.S.C. § 1395e(a)(1)). After the patient has been in hospital for more than 90 days, Medicare Part A will not pay anything towards his care in hospital during that spell of illness. See Comp ¶ 14 (citing 42 U.S.C. § 1395d(b)).
In addition to full payment for days 1-60 in hospital and partial payment for days 61-90 in hospital, each Medicare beneficiary is entitled to a lifetime reserve of 60 additional days to be used at their option. See Comp ¶ 14 (citing 42 U.S.C. § 1395d(a)).
Medicare Part A payments are administered by "fiscal intermediaries", often private insurance companies, which contract with the federal government. The fiscal intermediary reviews and audits the information which a hospital provides in its annual cost report, and determines how much Part A reimbursement the federal government should pay to the hospital for services rendered to Medicare patients. See Comp ¶ 15 (citing 42 U.S.C. § 1395kk-1).
Several provisions in the Medicare statute adjust a hospital's reimbursement based on factors specific to the hospital. The DSH adjustment requires the federal taxpayers to provide additional reimbursement to hospitals which serve a "significantly disproportionate number of low-income patients." See Comp ¶ 16 (citing 42 U.S.C. § 1395ww(d)(5)(F)(i)(I)). A hospital's disproportionate-patient percentage ("DSH percentage") is the sum of two fractions -- the Medicare fraction (a/k/a "Medicare proxy") and the Medicaid fraction (a/k/a "Medicaid proxy") -- for the hospital's fiscal year. See Comp ¶ 17 (citing 42 U.S.C. § 1395ww(d)(5)(F)(vi)). In other words,
DSH Percentage = Medicare Medicaid Fraction Fraction
The higher a hospital's DSH percentage, the higher the amount of its DSH reimbursement adjustment. See Comp ¶ 17 (citing 42 U.S.C. § 1395ww(d)(5)(F)(i)(I)).
When calculating a hospital's Medicare fraction, the numerator is the number of hospital patient days for patients who were "entitled to" both Medicare Part A and Supplemental Security Income ("SSI"), excluding patients who received state supplementation only. The Medicare fraction denominator is the number of patient days for patients who were "entitled to" Medicare Part A. See Comp ¶ 18 (citing 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I)). In other words, # of Patient Days for People Medicare "entitled to" Medicare Part A and SSI (except State-only) # of Patient Days for People "entitled to" Medicare Part A Fraction = ___________________________________
When calculating a hospital's Medicaid fraction, the numerator is the number of hospital patient days for patients who were "eligible for" Medicaid but not "entitled to"Medicare Part A.
The denominator is the number of all patient days for the period. See Comp ¶ 96 (citing 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II)). In other words, # of Patient Days for People "Eligible for" Medicaid Medicaid but not "entitled to" Medicare Part A # of All Patient Days Fraction = ___________________________________
The Changing Interpretation of a Term Used in Numerator of the Medicaid Fraction: Patients "Eligible For" Medicaid It is useful to review the history of the agency's interpretation of the phrase "patients eligible for" Medicaid, which appears in the numerator of the Medicaid fraction. Metro alleges that in the early 1990s, CMS interpreted the phrase "eligible for medical assistance [under Medicaid]" to include only days of care which Medicaid actually paid for, not all days of care provided to people who were eligible for Medicaid (including days for which Medicaid did not actually pay). See Comp ¶ 20. By reducing the numerator of the Medicaid fraction, this interpretation reduced a hospital's DSH adjustment.
In 1994, the Sixth Circuit Court of Appeals rejected CMS's interpretation of the phrase "eligible for [Medicaid]" as including only days actually paid by Medicaid. The Court of Appeals held that the phrase "eligible for medical assistance [under Medicaid]" must include all days of care provided to people who were merely eligible for Medicaid, even if they did not actually receive Medicaid benefits for those days. See Jewish Hospital, Inc. v. HHS, 19 F.3d 270 (6th Cir. 1994), reh'g & reh'g en banc denied (6th Cir. May 16, 1994). Jewish Hospital's majority opinion was written by Judge Keith and joined by District Judge Anna Diggs Taylor. Jewish Hospital began by setting forth the DSH formula, the definition of the Medicare and Medicaid fractions, and the Secretary's restrictive interpretation of a certain statutory term:
Congress requires the Secretary of [HHS] to adjust Medicare Prospective Payment System (PPS) payments for hospitals that provide inpatient services to a disproportionate share of low[-]income patients. See 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II). The Secretary's restrictive reading of the disproportionate[-] share adjustment serves as the basis for this appeal. Because the Secretary's interpretation is contrary to the clear mandate of the statute, we reverse... and remand the case to the Secretary for the proper calculation of the disproportionate share adjustment.
I. THE REGULATORY FRAMEWORK
As part of COBRA , Congress provided that the PPS system pay hospitals a prospectively determined amount per discharge based on the costs that an efficiently operating hospital should incur to provide quality services to Medicare beneficiaries based on the patient's diagnosis at the time of discharge. See 42 U.S.C. § 1395ww. The statute also provides for the adjustment of these payments for hospitals that provide inpatient services to a disproportionate share of low[-]income patients. Congress sought to adjust the Medicare PPS system to recognize the higher costs incurred by hospitals that serve a large number of low[-]income patients.
A hospital must have a certain "disproportionate share percentage" to qualify for the Medicare adjustment at issue in the instant case. This percentage is defined as the sum of two fractions expressed as percentages and serves as a "proxy" for all low[-]income patients. The first fraction, termed the "Medicare Low Income Proxy," is based on the number of Medicare patients served by the hospital. The statute defines this proxy as follows:
The numerator of which is the number of such hospital's patient days for such period which were made up of patients who (for such days) were entitled to benefits under [Medicare] and who were entitled to supplemental security income benefits (excluding any State supplementation) under SSI, and the denominator of which is the number of such hospital's patient days for such period which were made up of patients who (for such days) were entitled to benefits under [Medicare].... (emphasis added). See 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I). The second fraction, termed the "Medicaid Low[-]Income Proxy", is based upon Medicaid-eligible patients. The statute defines this proxy as follows: the numerator of which is the number of said hospital's patient days for such period which consist of patients who (for such days) were eligible for medical assistance under a State plan approved under subchapter XIX [Medicaid], but who were not entitled to benefits under [Medicare], and the denominator of which is the total number of the hospital's patient days for such period. (emphasis added). See 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II).
The Secretary promulgated the following regulation to implement the language of the Medicaid Low Income Proxy:
Total Medicaid inpatient days will include all covered days attributable to Medicaid patients.... Medicaid covered days will include only those days for which benefits are payable under Title XIX. Any day of a Medicaid patient's hospital stay that is not payable by the Medicaid program will not be counted as a Medicaid patient day since the patient is not considered eligible for Medicaid coverage on those days. (emphasis added). Medicare Program, 51 FED. REG. 16,777 (1986). The Secretary purports to interpret Congress' statutory phrase, "eligible for medical assistance under a State plan approved under Title XIX [Medicaid]" with its promulgated regulation. The Secretary argues that only those days actually paid by Medicaid can be utilized in the calculation of the [Medicaid Low-Income] Proxy, [a/k/a Medicaid Fraction]. The Secretary's interpretation of the proxy is the subject of this appeal. Jewish Hospital, 19 F.3d at 272. In granting summary judgment to the Secretary, the district court had written as follows:
We [sic] believe that the statute supports the Secretary's interpretation. However, even if that were not the case, we believe the most that can be said concerning the statute is that it is ambiguous. The parties agree that if the statute is ambiguous, the Secretary can legally choose the interpretation. We also are of the opinion that the statute, as drafted, by including the words, "for such days," means that the hospital may recover only for those days on which Medicaid patients were actually reimbursed.
Had Congress intended the result sought by the plaintiff[,] it would have left out "for such days" and made it clear that all patients on Medicaid were to be counted as part of the numerator regardless of whether they were days on which Medicaid was actually paid.
Jewish Hospital, 19 F.3d at 273 (quoting district-court ruling,which panel rejected). The panel next set forth the deferential standard by which the courts must judge an agency's interpretation of a statute within its purview:
* * * In Chevron U.S.A., Inc. v. National Resources Defense Council, Inc., 467 U.S. 837... (1984), the Supreme Court explained how a court should treat an agency interpretation of statutes within the agency's ambit.
When a court reviews an agency's construction of the statute which it administers, it is confronted with two questions. First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the Court determines [that] Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute. 467 U.S. at 842-43.... (emphasis added). The Court went on to state that in determining whether an agency's answer is based on a permissible construction of a statute, a reviewing "court need not conclude that the agency construction was the only one it permissibly could have adopted to uphold the construction, or even the reading [of the statute] the court would have reached if the question had initially arisen in a judicial proceeding." 467 U.S. at 841 n.11....
Jewish Hospital, 19 F.3d at 273-274 (citations to intervening Sixth Circuit decision omitted).*fn1 The Jewish Hospital panel cautioned, however, that the Chevron standard did not call for unlimited or mindless deference to an agency's interpretation of a statute. The panel wrote as follows:
The Chevron Court further stated, however, that "[t]he judiciary is the final authority on issues of statutory construction and must reject administrative constructions which are contrary to clear legislative intent." Chevron, 467 U.S. at 843 n.9.... This Court also finds Judge Batchelder's discussion of Chevron in Brown v. Rock Creek Mining Co., 996 F.2d 812 (6th Cir. 1993) (Batchelder, J., concurring), instructive. There, Judge Batchelder states:
Where the regulation is clear and plain, not only is there no reason to let the Director offer an interpretation of it, and no reason to consult the legislative history, but there is every reason not to do so. First and foremost, of course, Chevron instructs that unless the statute's provisions are ambiguous, we are simply to give effect to the unambiguously expressed intent of Congress. 467 U.S. at 842-43.... The reason for this requirement is obvious: through excursions into legislative history, a writer can find support for virtually any position. [Brown, 996 F.2d] at 818. Accordingly, utilizing the frame work of Chevron, we must determine whether Congress spoke directly to this "specific issue." For if the intent of Congress is clear and the Secretary's interpretation of the statute is contrary to that intent, "that is the end of the matter...." Chevron, 467 U.S. at 843....
Jewish Hospital, 19 F.3d at 274 (citations to intervening Sixth Circuit decision omitted). The Jewish Hospital panel concluded that the Secretary's interpretation of the Medicaid Fraction regulation was contrary to the clear congressional intent behind the clear language of the regulation's definition of the numerator. In a section entitled "The Legislative Mandate is Clear from the Statutory Language," the Jewish Hospital majority reasoned as follows,
Congress enacted the disproportionate share adjustment to balance the inequities which exist for hospitals that treat a disproportionate number of low[-]income patients. Congress chose to address this problem with the Medicaid proxy and utilized the following phrase in its calculation:
The number of the hospital's patient days for such period which consist of patients who (for such days) were eligible for medical assistance under a State plan approved under title XIX [Medicaid]. Looking to the plain language of the statute, the word "eligible" refers to whether a patient is capable of receiving federal medical assistance or Medicaid. There is no indication from the text of the statute that Congress intended to impute any special meaning to the term, ["]eligible.["]. Additionally, the phrase, "the number of the hospital's patient days for such period," modifies the term eligible. Facially, this phrase speaks to the aggregate number of days for which a hospital provides Medicaid[-]eligible services. Thus, it appears that all days for which an individual is capable of receiving Medicaid should be figured into the proxy calculation.
The Secretary's regulation limits the calculation to those days for which a state actually renders payment of Medicaid benefits. Specifically, the Secretary extracts the parenthetical phrase "for such days" and argues that the phrase acts as a restrictive qualifier. ["]For such days["], according to the Secretary, thus takes on the meaning of ...