Abraham Lincoln Memorial Hospital v. Sebelius
2012 U.S. App. LEXIS 21390
| 7th Cir. | 2012Background
- Medicare reimbursement is based on reasonable costs actually incurred; providers report costs, intermediaries audit, and CMS final adjudication is reviewable under APA standards.
- Illinois enacted Hospital Provider Funding Legislation in 2004–2005 imposing a Tax Assessment on hospital providers and depositing funds into a Hospital Provider Fund to support Access Payments to hospitals.
- Access Payments were conditioned on receiving federal matching funds and CMS approval; if not, the Tax Assessment would not take effect and funds would be refunded.
- CMS SPAs and waivers conditioned payment on regulatory approvals; CMS ultimately approved SPAs and granted a waiver, though the Legislation remained intact.
- The Administrator treated the Access Payments as refunds reducing the Tax Assessment costs and offset those against the Tax Assessment for Medicare reimbursement; Hospitals challenged this interpretation in district court under the APA.
- The district court granted summary judgment to the Secretary; the Seventh Circuit affirmed, upholding the Administrator’s offset method and the interpretation of refunds under Medicare regulations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Access Payments are refunds offsetting Tax Assessments | Hospitals contend no proper refund link; offsets incorrect | Sebelius argues Access Payments attached to Tax Assessments and justify offset | Not arbitrary; offset upheld; refunds properly applied |
| Whether costs were actually incurred under Medicare | Tax Assessments were incurred and billed; thus deductible | Costs must reflect net economic impact; offsets allowed | Costs actually incurred interpreted to include offsets; upheld |
| Whether CMS prior positions control Medicare interpretation | CMS previously treated provider taxes as non-offset; long-standing policy | Medicare and Medicaid separate; CMS policy not controlling in Medicare context | No controlling inconsistency; CMS decisions in Medicaid not binding on Medicare |
| Whether the decision constitutes an arbitrary change in policy under APA | Policy shift to offset refunds was a new rule | Decision is adjudication; not a new substantive rule; APA not triggered | Not a retroactive change; adjudication proper |
Key Cases Cited
- Sta-Home Health Agency, Inc. v. Shalala, 34 F.3d 305 (5th Cir. 1994) (net-cost/offset reasoning for refunds)
- St. Mary's Hosp. Med. Ctr. v. Heckler, 753 F.2d 1362 (7th Cir. 1985) (limits on cost definition; direct/indirect costs)
- Little Co. of Mary Hosp. v. Sebelius, 587 F.3d 849 (7th Cir. 2009) (reasonable-cost reimbursement; held deference to agency interpretation)
- Adventist Living Ctrs. v. Bowen, 881 F.2d 1417 (7th Cir. 1989) (agency regulation interpretations with deference)
- Thomas Jefferson Univ. v. Shalala, 512 U.S. 504 (1994) (Chevron deference to agency statutory interpretation)
- Guernsey Mem'l Hosp. v. Shalala, 514 U.S. 87 (1993) (interpretive rules with deference; regulations reigning)
- Michael Reese Hosp. and Med. Ctr. v. Thompson, 427 F.3d 436 (7th Cir. 2005) (Medicare cost-reimbursement framework)