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Cooper University Hospital v. Sebelius

September 28, 2009


The opinion of the court was delivered by: Simandle, District Judge


This matter is presented to the Court on Plaintiff Cooper University Hospital's request for judicial review of the decision of the Administrator of the Centers for Medicare and Medicaid Services ("CMS")*fn1 of the Department of Health and Human Services, that indirectly limits the amount of additional Medicare funding Plaintiff may receive as a hospital serving a significantly disproportionate number of low-income patients. The sole issue for the Court is whether Plaintiff may include the number of "patient days" it serves under the New Jersey Charity Care Program ("NJCCP") when calculating its Medicare disproportionate share hospital ("DSH") adjustment. Both parties seek summary judgment on this question [Docket Items 15 and 17]. For the reasons set forth below, the Court will grant summary judgment in favor of Defendant Kathleen Sebelius,*fn2 Secretary of the Department of Health and Human Services ("the Secretary") and deny Plaintiff's motion for summary judgment, because the CMS interpretation of the Medicare DSH provision excluding NJCCP patients is a permissible construction of an ambiguous statute.


A. Medicare and the Medicare Disproportionate Share Hospital Scheme

Medicare is a federal program enacted as Title XVIII of the Social Security Act to cover the health care costs of the elderly and disabled. 42 U.S.C. §§ 1395-1395ii. Included as Part A of the Medicare program are hospital insurance benefits. Id. §§ 1395c-1395i-5. Since 1983, hospitals generally receive Medicare payments for their operating costs through the Prospective Payment System. Id. § 1395ww(d). Under this system, hospital costs are measured based on a "'predetermined amount that an efficiently run hospital should incur for inpatient services'," rather than the actual cost of those services. 42 U.S.C. § 1395ww(d)(1)-(4); Portland Adventist Med. Ctr. v. Thompson, 399 F.3d 1091, 1093 (9th Cir. 2005) (quoting Legacy Emanuel Hosp. & Health Ctr. v. Shalala, 97 F.3d 1261, 1262 (9th Cir. 1996)). These payments are reconciled after the end of the fiscal year based on a cost report the hospital submits to its Medicare fiscal intermediary (an insurance carrier). 42 C.F.R. §§ 405.1803, 413.20, 413.24, 413.50.

In 1985, Congress, having found that it costs hospitals more to treat low-income patients, provided for an adjustment for hospitals serving a disproportionately large low-income population -- called a disproportionate share hospital ("DSH").

42 U.S.C. § 1395ww(d)(5)(F)(i)(I); Adena Reg'l Med. Ctr. v. Leavitt, 527 F.3d 176, 177-78 (D.C. Cir. 2008) (hereinafter, "Adena II"); Portland Adventist, 399 F.3d at 1093-94. Whether a hospital qualifies as a DSH, and what amount of adjustment that DSH hospital is entitled to, is determined by calculating the hospital's Medicare "disproportionate patient percentage." 42 U.S.C. §§ 1395ww(d)(5)(F)(v). That percentage is calculated based on the sum of two fractions -- the "Medicare fraction" and the "Medicaid fraction" -- for each cost reporting period. Id. § 1395ww(d)(5)(F)(vi). Together, the Medicare and the Medicaid fractions act as a proxy for the number of low-income patients served by the hospital. Adena II, 399 F.3d at 1095. The second fraction -- the "Medicaid fraction" --- is the fraction at issue in this case. It reads in most relevant part (with the most significant language underlined for easy reference):

[T]he fraction (expressed as a percentage), the numerator of which is 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 subchapter XIX of this chapter, but who were not entitled to benefits under part A of this subchapter, and the denominator of which is the total number of the hospital's patient days for such period.

Id. § 1395ww(d)(5)(F)(vi)(II). The governing regulations state:

(4) Second computation. The fiscal intermediary determines, for the same cost reporting period used for the first computation, the number of the hospital's patient days of service for which patients were eligible for Medicaid but not entitled to Medicare Part A, and divides that number by the total number of patient days in the same period. For purposes of this second computation, the following requirements apply:

(i) For purposes of this computation, a patient is deemed eligible for Medicaid on a given day only if the patient is eligible for inpatient hospital services under an approved State Medicaid plan or under a waiver authorized under section 1115(a)(2) of the Act on that day, regardless of whether particular items or services were covered or paid under the State plan or the authorized waiver.

42 C.F.R. § 412.106(b)(4).

B. Medicaid and Medicaid Disproportionate Share Hospital Scheme

Though not at the center of the present action, the Medicaid statutory scheme plays a significant role in interpreting the Medicare DSH statute presented to the Court. Title XIX of the Social Security Act governs the Medical Assistance or "Medicaid" program, 42 U.S.C. §§ 1396 - 1396w-2, which "is designed to provide medical assistance to persons whose income and resources are insufficient to meet the costs of necessary care and services." Atkins v. Rivera, 477 U.S. 154, 156 (1986). For those states that elect to participate in the program, the federal government will share the costs of health care for those eligible low-income persons. Id. New Jersey payments made under its approved State plan are subject to 50 percent federal matching payments. Administrative Record ("AR")*fn3 85, 619-20.

In order to participate, a state must create a "State plan" consistent with the Medicaid statutory requirements laid out in 42 U.S.C. §§ 1396a(1) to (65). CMS regulations define the "State plan" as "a comprehensive written statement submitted by the [state Medicaid] agency describing the nature and scope of its Medicaid program and giving assurance that it will be administered in conformity with the specific requirements of title XIX." 42 C.F.R. § 430.10. Though states have some flexibility in shaping their plan, eligible beneficiaries are limited to certain groups of "categorically needy" persons, 42 U.S.C. § 1396a(a)(10)(A)(i) & (ii), and "medically needy" persons, Id. § 1396a(a)(10)(C), § 1396d(a)(i)-(xiii). As a consequence, "medical assistance" is defined in Title XIX as payment for certain designated services to either "categorically needy" or "medically needy" persons that fall within thirteen broader categories. Id. § 1396d(a); see id. § 1396a(a)(10)(A)(i) & (ii), (C).

As with the Medicare statute, states participating in the Medicaid program must take "the situation of hospitals which serve a disproportionate number of low-income patients with special needs" into account in their calculation of rates of payment for hospital services. Id. § 1396a(a)(13)(A)(iv). A hospital is deemed a Medicaid DSH based either on its "medicaid inpatient utilization rate" or its "low-income utilization rate." Id. § 1396r-4(b)(1). Like the Medicare DSH "disproportionate patient percentage," the Medicaid DSH "low-income utilization rate" is the sum of two fractions (expressed as a percentage):

(A) the fraction (expressed as a percentage)--

(i) the numerator of which is the sum (for a period) of (I) the total revenues paid the hospital for patient services under a State plan under this subchapter (regardless of whether the services were furnished on a fee-for-service basis or through a managed care entity) and (II) the amount of the cash subsidies for patient services received directly from State and local governments, and

(ii) the denominator of which is the total amount of revenues of the hospital for patient services (including the amount of such ...

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