Dana Farber Cancer Institute v. Burwell
216 F. Supp. 3d 49
| D.D.C. | 2016Background
- Dana-Farber, a Massachusetts hospital, sought Medicare reimbursement of the gross amount of a state-imposed hospital tax ("Hospital Tax") for FY2004–2008 after CMS offset amounts it received from the Massachusetts Uncompensated Care Trust Fund ("Trust Fund").
- Massachusetts collected the Hospital Tax from hospitals and disbursed Trust Fund payments to reimburse hospitals for uncompensated care; collections and disbursements flowed through the same designated accounts on a net basis.
- CMS and the Provider Reimbursement Review Board concluded the Trust Fund payments were "refunds" or otherwise "associated with" the tax and therefore must offset the hospital’s claimed tax expense, relying in part on agency Manual guidance that net tax expense (gross tax reduced by associated payments) is the allowable Medicare cost.
- Dana-Farber appealed the Board decision to district court under the APA, arguing the Trust Fund payments reimbursed uncompensated-care costs and were not refunds of prior tax payments.
- The district court reviewed whether the Secretary’s offset determination was arbitrary, capricious, or unsupported by substantial evidence and vacated the Board’s decision and remanded to the agency.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Trust Fund payments are "refunds" of the Hospital Tax under 42 C.F.R. § 413.98 | Trust Fund payments reimburse uncompensated-care costs and are not "amounts paid back" of a previous expense payment (i.e., not refunds) | Trust Fund payments are associated with the tax and therefore offset the gross tax expense so only the net tax is allowable | Court: Payments are not properly characterized as "refunds" of the tax here; Secretary’s offset was arbitrary and capricious and must be vacated and remanded |
| Whether the Board correctly relied on Abraham Lincoln Mem’l Hosp. to treat state Medicaid disbursements as refunds | Abraham Lincoln is distinguishable and misapplies the refund rule because it ignores the temporal requirement that a refund reduce a previous expense payment | Secretary relied on Abraham Lincoln and agency Manual clarification to justify offsetting | Court: Abraham Lincoln unpersuasive here; the Board erred in relying on it |
| Whether the agency Manual ‘‘clarification’’ (net tax rule) applies to these facts | The Manual’s net-tax guidance does not fit cases (e.g., hospitals receiving far more Trust Fund payments than taxes paid) and cannot justify offset here | Manual clarified longstanding policy that associated state disbursements may offset tax costs | Court: Even if the Manual interpretation is reasonable generally, it was misapplied given record evidence that payments reimbursed uncompensated-care costs rather than reduced tax expense |
| Effect of Medicaid "hold harmless" and potential cost-shifting between Medicare and Medicaid | Characterizing Trust Fund payments as refunds would effectively hold hospitals harmless and may conflict with Medicaid requirements and cost-matching rules | Secretary contends plaintiff was not "held harmless" under Medicaid regs; issue doesn’t control whether payments reduced tax cost | Court: Raises serious concerns; Board failed to analyze interplay with "hold harmless" and cost-shifting; remand appropriate so agency can address these matters |
Key Cases Cited
- Methodist Hosp. of Sacramento v. Shalala, 38 F.3d 1225 (D.C. Cir. 1994) (describing Medicare reimbursement framework)
- Good Samaritan Hosp. v. Shalala, 508 U.S. 402 (Sup. Ct.) (discussing Medicare cost-reimbursement regime)
- Abraham Lincoln Mem’l Hosp. v. Sebelius, 698 F.3d 536 (7th Cir. 2012) (treated state Medicaid disbursements as reducing related tax expense)
- Kindred Hospitals East, LLC v. Sebelius, 694 F.3d 924 (8th Cir. 2012) (payments from a private pool treated as refunds reducing costs)
- Protestant Mem’l Med. Ctr., Inc. v. Maram, 471 F.3d 724 (7th Cir. 2006) (explaining Medicaid tax/match concerns)
- Catholic Health Initiatives v. Sebelius, 617 F.3d 490 (D.C. Cir. 2010) (Provider Reimbursement Manual implements Medicare regulations)
- New Evangelistic Ctr., Inc. v. Sebelius, 672 F. Supp. 2d 61 (D.D.C. 2009) (agency cannot ignore contradictory evidence)