Borgess Medical Center v. SebeliusBorgess Medical Center v. Sebelius
Peter C. Pfaffenroth, U.S. Attorney‘s Office, Washington, DC, for Defendant.
MEMORANDUM OPINION
RICHARD J. LEON, District Judge.
Plaintiffs Borgess Medical Center (“Borgess“) and Bronson Methodist Hospital
BACKGROUND
A. Statutory and Regulatory Background
The Medicare Act provides health insurance benefits to eligible elderly and disabled persons.
Under Part A of the Medicare program, hospitals that operate approved medical residency programs are entitled to reimbursement for certain costs related to graduate medical education. Medicare makes both a direct graduate medical education payment (“GME“) and an indirect graduate medical education payment (“IME“). GME costs include residents’ salaries and fringe benefits, as well as compensation paid to teaching physicians and supervisors.
Congress amended the Medicare statute in 1986 and 1997 to include the time residents spend training in nonhospital settings in GME and IME payment calculations. See
For the cost reporting years at issue in this case, the Secretary‘s regulations defined the statutory All or Substantially All Requirement to include:
the residents’ salaries and fringe benefits (including travel and lodging where applicable) and the portion of the cost of teaching physicians’ salaries and fringe benefits attributable to direct graduate medical education.
indicat[ing] that the hospital will incur the cost of the resident‘s salary and fringe benefits while the resident is training in the nonhospital site and the hospital is providing reasonable compensation to the nonhospital site for supervisory teaching activities. The agreement must indicate the compensation the hospital is providing to the nonhospital site for supervisory teaching activities.
B. Factual and Procedural Background
Plaintiffs are non-profit acute care hospitals located in Kalamazoo, Michigan. The Hospitals have agreements with the Michigan State University Kalamazoo Center for Medical Studies (“KCMS“) to rotate medical residents through KCMS’ nonhospital clinic facility (“Affiliation Agreements“). See AR at 931-42. The Hospitals’ joint resident training program dates back to 1973, when they entered into an agreement establishing the predecessоr of KCMS, the Southwestern Michigan
The Hospitals claim that their former fiscal intermediary, United Government Services (“UGS“), allowed Medicare reimbursement for costs the Hospitals incurred for resident rotations аt KCMS clinics. See Compl. ¶ 23. In 2008, however, the Hospitals’ current fiscal intermediary, National Government Services (“NGS“), began to issue NPRs and revised NPRs disallowing reimbursement for these costs.1 Id. at ¶ 24. NGS claimed that the Hospitals could not satisfy the statutory All or Substantially All Requirement because they split the costs of the KCMS training program. Id. NGS also found that the Hospitals failed to meet the Written Agreement Requirement. See AR at 47.
The Hospitals successfully challenged NGS’ disallowances before the PRRB. See Compl. at ¶ 31; AR at 38-52. The PRRB concluded that the Hospitals satisfied the All or Substantially All Requirement because the two Hospitals jointly paid all of the costs of the resident training program at KCMS. AR at 48-50. The PRRB also held that the Hospitals satisfied the Written Agreement Requirement. AR at 46-
STANDARD OF REVIEW
The Medicare Act provides for judicial review of the Administrator‘s final decision under the Administrative Procedure Act (“APA“).
The Supreme Court has established a two-step framework for reviewing an agency‘s interpretation of a statute that the аgency administers. See Chevron, U.S.A., Inc. v. NRDC, 467 U.S. 837, 842-43 (1984). Under the first step, the Court must look at the statute to determine whether Congress has “directly spoken to the precise question at issue.” Id. at 842. If it has, “that is the end of the matter.” Id. If, however, “the statute is silent or ambiguous with respect to the specific issue,” the court proceeds to Chevron step two and must determine whether the agency‘s interpretation is “based on a permissible construction of the statute.” Id. at 843. Under this second step, the Secretary‘s statutory interpretation will be given controlling weight so long as it falls “within the bounds of reasonable interpretation.” Your Home Visiting Nurse Servs., Inc. v. Shalala, 525 U.S. 449, 453 (1999). The Secretary‘s reading “need not be the only reasonable one” in order to be upheld. Conn. Dep‘t of Income Maint. v. Heckler, 471 U.S. 524, 532 (1985).
When the agency action at issue is “the construction of an administrative regulation rather than a statute ... deference is even more clearly in order.” Udall v. Tallman, 380 U.S. 1, 16 (1965). “[T]he agency‘s interpretation must be given сontrolling weight unless it is plainly erroneous or inconsistent with the regulation.” Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994) (quotations and citations omitted). In other words, a court “must defer to the Secretary‘s interpretation unless an alternative reading is compelled by the regulation‘s plain language or by other indications of the Secretary‘s intent at the time of the regulation‘s promulgation.” Id. (quotations and citations omitted). The more complex a regulatory program is, the greater the deference owed. See id.; see also Methodist Hosp. of Sacramento v. Shalala, 38 F.3d 1225, 1229 (D.C. Cir. 1994) (“[I]n framing the scope of review, the court takes special note of the tremendous complexity of the Medicare statute. That complexity adds to the deference which is due to the Secretary‘s decision.“).
ANALYSIS
This case involves the issue of whether plaintiff Hospitals are entitled to reimbursement under the Medicare Act for costs the Hospitals incurred in training medical residents at KCMS during fiscal years 2000 through 2004. I agree with the Secretary‘s decision denying plaintiffs reimbursement for two reasons. First, the Nonhospital Site Statutes аre reasonably read to require the Secretary to disallow reimbursement where two or more hospitals split the costs of nonhospital training. Second, the Hospitals’ Affiliation Agreements with KCMS do not satisfy the Written Agreement Requirement. Accordingly, the Secretary‘s decision denying reimbursement was reasonable and not arbitrary, caрricious, or in violation of the law, and the Court will grant the Secretary‘s Motion for Summary Judgment.
Congress did not speak directly to whether the All or Substantially All Requirement is satisfied where there is cost-splitting between two or more hospitals. Plaintiffs, of course, interpret the Nonhospital Site Statutes to permit reimbursement where cost-splitting occurs. By сontrast, the Secretary has concluded that the Single Hospital Interpretation is necessary to comply with the statutory requirements. Indeed, in 2007, the Secretary clarified the Single Hospital Interpretation in the Federal Register via notice and comment procedures:
... under current policy, if two (or more) hospitals train residents in the same accredited program, and the residents rotate to the same nonhospital site(s), the hospitals cannot share the costs of that program at that nonhospital site ... as we do not believe this is consistent with the statutory requirement ... that the hospital incur “all, or substantially all, of the costs for the training program in that setting.”
72 Fed. Reg. 26870, 26969 (May 11, 2007) (emphasis in original). This clarification, however, did not constitute a substantive change in payment policy. Prior to any of the cost reporting years at issue in this case, the Secretary announced that
Under sections 1886(d)(5)(B)(iv) and 1886(h)(4)(E) of the Act, a hospital may include the time a resident spends in nonprovider settings in its indirect medi-
cal education (IME) and direct GME full-time equivalent count if it incurs “all or substantially all” of the costs of training residents in the nonhospital site.
63 Fed. Reg. 40954, 40986 (July 31, 1998) (emphasis added). And, in 2003, the Secretary stated in the Federal Register that a hospital could not qualify for reimbursement of its offsite medical education costs if it funds only a portion of the offsite training program. See 68 Fed. Reg. 45346, 45439 (Aug. 1, 2003).
I defer to the Secretary‘s Single Hospital Interpretation because it is reasonable and consistent with the plain language of the All or Substantially All Requirement. Congress used the singular terms “hospital” and “program,” rather than plural terms “hospitals” and “programs.” Not surprisingly, Congress later used alternative language in the Patiеnt Protection and Affordable Care Act (“PPACA“), which revised the Nonhospital Site Statutes to allow hospitals to share nonhospital training costs effective July 1, 2010:
If more than one hospital incurs these costs, either directly or through a third party, such hospitals shall count a proportional share of the time, as determined by written agreement between the hospitals, that a resident spends training in that setting.
See
I also defer to the Secretary‘s reasonable interpretation of the Written Agreement Requirement, which was promulgated to enable the Secretary to quickly and easily verify compliancе with the All or Substantially All Requirement. See Covenant Med. Ctr., Inc. v. Sebelius, 424 Fed. Appx. 434, 438 (6th Cir. 2011) (“The Secretary reasonably determined that the written agreement requirement would improve administrability, and thereby ... avoid [] the wasteful litigation and continuing uncertainty that would inevitably accompany a purely case-by-case approach for determining whether a hospital incurs all, or substantially all, of the costs for [a particular] training program.“) (quotations and citations omitted). Specifically, the Secretary requires the written agreement between the hospital and nonhospital to:
indicate that the hospital will incur the cost of the resident‘s salary and fringe benefits while the resident is training in the nonhospital site and the hospital is providing reasonable compensation to the nonhospital site for supervisory teaching activities. The agreement must indicate the compensation the hospital is providing to the nonhospital site for supervisory teaching activities.
Plaintiffs’ documentation here does not comply with this requirement, which aрplied to all hospitals seeking Medicare reimbursement during the cost reporting years at issue in this case. The 1973 Agreement does not satisfy the Written Agreement Requirement because it was not executed, as required, between a hospital and nonhospital. See AR at 796-800. The Affiliation Agreements do not satisfy the Written Agreement Requirement because their use of the phrase “suf-
CONCLUSION
Thus, for all of the foregoing reasons, the Court GRANTS defendant‘s Motion for Summary Judgment and DENIES plaintiffs’ Motion for Summary Judgment. An Order consistent with this decision accompanies this Memorandum Opinion.
ORDER
For the reasons set forth in the Memorandum Opinion entered this 4th day of September 2013, it is hereby
ORDERED that defendant‘s Motion for Summary Judgment [Dkt. # 21] is GRANTED; and it is further
ORDERED that plaintiffs’ Motion for Summary Judgment [Dkt. # 19] is DENIED; and it is further
ORDERED that the above-captioned case is DISMISSED with prejudice.
SO ORDERED.
RICHARD J. LEON
United States District Judge