United States District Court, E.D. Michigan, Southern Division
BEAUMONT HOSPITAL-WAYNE F/K/A OAKWOOD ANNAPOLIS HOSPITAL, Plaintiff,
ALEX AZAR II, IN HIS OFFICIAL CAPACITY AS SECRETARY OF HEALTH AND HUMAN SERVICES, Defendant.
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.
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
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.
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
applicable statutes, regulations, and rules governing the
dispute are set forth below.
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)
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.
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
reasons set forth below, Defendant's Motion for Summary
Judgment is GRANTED and Plaintiff's
Motion for Summary Judgment is DENIED.
Statutory And Regulatory Background
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.
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. §
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. §
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.
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,
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
“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
(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).”
1886(h)(4)(F) and (G).
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.
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.
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.
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).
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 ...