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Beaumont Hospital-Wayne v. Azar

United States District Court, E.D. Michigan, Southern Division

October 24, 2019

BEAUMONT HOSPITAL-WAYNE F/K/A OAKWOOD ANNAPOLIS HOSPITAL, Plaintiff,
v.
ALEX AZAR II, IN HIS OFFICIAL CAPACITY AS SECRETARY OF HEALTH AND HUMAN SERVICES, Defendant.

          Mona K Majzoub Magistrate Judge

          ORDER DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT [ECF NO. 24] AND GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT [ECF NO. 26]

          VICTORIA A. ROBERTS UNITED STATES DISTRICT JUDGE.

         I. INTRODUCTION

         This dispute is about money. It concerns the Medicare program's determination, for reimbursement purposes, of Beaumont's graduate medical education (“GME”) and indirect medical education (“IME”) Medicare funding.

         The Medicare program imposes a unique and specific cap on the number of full time equivalent (“FTE”) residents for which Medicare will pay a teaching hospital for training purposes. The higher the number of FTEs family medical residents a hospital can claim, the larger the amount of potential reimbursement payment a hospital might receive under the Medicare Statute.

         The Secretary of the Department of Health and Human Services (“the Secretary”) - through the Centers for Medicare and Medicaid Services (“CMS”) - is responsible for administering the Medicare statute, Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq.

         The applicable statutes, regulations, and rules governing the dispute are set forth below.

         Name Statute/Regulation Application Medicare Title XVIII of the Establishing Medicare Payment for Act Social Security Act Teaching Hospitals 42 U.S.C. § 1395ww Providing for payment of direct and indirect costs associated with GME 2007 42 C.F.R. § Governing regulation for Regulation 413.79(e)(1) (2007) determining the unique, hospital-specific FTE cap 2012 42 C.F.R. § Governing regulation for Regulation 413.79(e)(1) (2012) determining the unique, hospital-specific FTE cap Preamble 64 FR 41519 - 41520 Addresses rotations to other (1999) hospitals for both whole years and partial years (explaining regulations set forth by the Secretary)

         Beaumont Hospital-Wayne (“Beaumont”) seeks judicial review of the Administrator's decision denying additional reimbursement - by lowering its FTE cap - under the Medicare Act for costs it incurred in training medical residents during fiscal years 2004 through 2007.

         Before the Court are Plaintiff's and Defendant's Cross-Motions for Summary Judgment, Plaintiff's and Defendant's Opposition to each, the Administrative Record, and the parties Joint Statement of Undisputed Material Facts.

         For the reasons set forth below, Defendant's Motion for Summary Judgment is GRANTED and Plaintiff's Motion for Summary Judgment is DENIED.

         II. BACKGROUND

         A. Statutory And Regulatory Background

         Medicare provides health insurance to elderly and disabled persons. See 42 U.S.C. §§ 1395-1395cc. CMS administers the program for the Secretary. See 42 U.S.C. § 1395kk; 42 C.F.R. § 400.200 et seq. Hospitals that render services to Medicare patients are reimbursed for a portion of their expenses according to Title XVII of the Social Security Act (the “Medicare Act”), 42 U.S.C. § 1395 et seq.

         The Medicare statute consists of two main parts: Part A and Part B. Medicare Part A authorizes payment for services including, hospital care, related post-hospital care, home health services, and hospice care to Medicare beneficiaries. See 42 U.S.C. § 1395c et seq. Part B pays for services not covered by Part A, including physician services and hospital outpatient services. 42 U.S.C. §§ 1395j-1395w. Medicare also reimburses teaching hospitals for the cost of graduate medical education, including physician time attributable to instruction and supervision of interns and residents. 42 U.S.C. § 1395ww(h).

         Under Part A, hospitals with approved medical residency programs are entitled to reimbursement for certain costs, which includes a GME payment and an IME payment. See 42 U.S.C. §§ 1395ww(d)(5)(B), (h). GME encompasses costs, such as residents' salaries, compensation paid to teaching physicians and supervisors, and limited fringe benefits. See 42 U.S.C. § 1395ww(h); 42 C.F.R. § 413.86(b)(3) (1998). IME costs include higher-than-average operating costs incurred as an indirect result of having a teaching program. See 42 U.S.C. §§ 1395f(b), 1395ww(d)(5)(B); 42 C.F.R. § 412.105 (1998).

         Medicare's standard payment rates do not include reimbursement for GME costs. See 42 C.F.R. §§ 412.2(a)(1), 419.2(f)(7), 412.1(c)(1). As a result, CMS pays hospitals a separate payment for GME costs, which is determined pursuant to 42 C.F.R. § 413.86(d) (1998). These amounts are based on the “average per resident amount” payment methodology and determined annually. See 42 U.S.C. § 1395ww(h).

         The GME payment is equal to the product of the hospital's average per resident amount-derived from a 1984 base period-multiplied by the number of FTE residents in an approved residency program during the cost reporting period, times the hospital's Medicare patient load. See 42 U.S.C. § 1395ww(h)(3). For GME payment, section 1886(h)(2) states that “[t]he Secretary shall determine, for each hospital with an approved medical residency training program, an approved FTE resident amount for each cost reporting period beginning on or after July 1, 1985.”

         Additional payments are also made for IME. The amounts vary by the number of FTEs in a hospital's residency programs and number of beds. See 42 U.S.C. § 1395ww(d)(5)(B)(ii). IME payment is issued pursuant to section 1886(d)(5)(B):

“The 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) under subsection (a)(2), except as follows: ***
(v) In determining the adjustment with respect to a hospital for discharges occurring on or after October 1, 1997, the total number of full-time equivalent interns and residents in the fields of allopathic and osteopathic medicine in either a hospital or nonhospital setting may not exceed the number (or, 130 percent of such number in the case of a hospital located in a rural area) of such full-time equivalent interns and residents in the hospital with respect to the hospital's most recent cost reporting period ending on or before December 31, 1996. The provisions of subsections (h)(4)(H)(vi), (h)(7), and (h)(8) shall apply with respect to the first sentence of this clause in the same manner as it applies with respect to subsection (h)(4)(F)(i).”

         Section 1886(h)(4)(F) and (G).

         The Balanced Budget Act of 1997 (“BBA”) imposes caps on the number of FTEs a hospital may claim - with limited exceptions - using 1996 as the base year. See Pub.L. No. 105-33; 42 U.S.C. § 1395ww(h)(4)(F). The cap limits the number of FTEs for which a hospital can claim GME/IME reimbursement to the number of FTEs claimed by the hospital for the last cost reporting period ending on or before December 31, 1996. See Pub.L. No. 105-33; 42 U.S.C. § 1395ww(h)(4)(F).

         The BBA created some exemptions to the FTE caps for hospitals seeking reimbursement for GME and IME expenses. For example, the BBA directed the Secretary to promulgate rules for the application of FTE caps to new medical residency training programs established on or after January 1, 1995. See 42 U.S.C. § 1395ww(d)(h)(H)(i). Under section 1886(h)(4)(H)(i) of the Act, as added by the BBA, the Secretary is required to establish rules with respect to the counting of residents in medical residency training programs established on or after January 1, 1995.

         The parties agree that the governing regulation used to determine the hospital specific cap is 42 C.F.R. §§ 413.79(e)(1). However, the parties dispute (i) whether the 2007 version or the 2012 version of the regulation is a clarification or new enactment and (ii) the calculation of GME and IME costs pursuant to the 2007 regulation.

         The 2007 regulation said hospitals - that began resident training for the first time in a new residency program on or after January 1, 1995 - had to adhere to this regulation:

[T]he hospital's unweighted FTE resident cap under [§ 413.79(c)] may be adjusted based on the product of the highest number of residents in any program year during the third year of the first program's existence for all new residency training programs and the number of years in which residents are expected to complete the program based on the minimum accredited length for the type of program. The adjustment to the cap may not exceed the number of accredited slots available to the hospital for the new program.

42 C.F.R. §§ 413.79(e)(1) (2007).

         The preamble to this final rule addressed rotations to other hospitals for both whole years and partial years. See 64 Fed. Reg. 41519 - 41520 (“In situations where the residents spend partial years at different hospitals during the first 3 years of the new residency program, each hospital that trains the residents receives an adjustment to its cap based on product of the highest number of residents in any program year during the third year of the first program's existence and the minimum accredited length of the program”). While CMS stated that the July 31, 1999 Federal Register addressed how ...


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