Legal issues that arise under the federal government's Medicare and Medicaid programs tend to be "significantly more difficult to describe than to decide[.]" Cooper Hosp./Univ. Med. Ctr. v. Burwell ,
Whether these contentions have merit turns on a relatively narrow dispute over the meaning of an HHS regulation that delineates how the agency will determine the proportion of low-income individuals that a hospital serves. See
Before this Court at present are the parties' cross-motions for summary judgment. (See Pls.' Mem. in Supp. of Mot. for Summ. J. ("Pls.' Mem."), ECF No. 12; Def.'s Mem. in Supp. of its Cross-Mot. for Summ. J. & Opp'n to Pls.' Mot. for Summ. J. ("Def.'s Mem."), ECF No. 14-1.)
On September 28, 2018, this Court issued an Order that GRANTED Plaintiffs' motion for summary judgment, and DENIED Defendant's cross-motion for summary judgment. (See Order, ECF No. 25.) As a result, the Court also VACATED the challenged agency decision, and REMANDED this matter to HHS for further proceedings. (See
In short, after reviewing the parties' briefs, examining the record, and considering the oral arguments presented in this case, this Court concluded that HHS's interpretation of the unambiguous text of section 412.106(b)(4)(i) of Title 42 оf the Code of Federal Regulations to disallow the inclusion of the patient days of service that were associated with patients who were covered by Commonwealth Care is an arbitrary and capricious determination, and thus violates the APA. It is clear from the plain language of the regulation's text that patients who are eligible to receive comprehensive medical care through an insurance program authorized under a section 1115 waiver (as evidenced by their eligibility for inpatient hospital services) are to be included in the Medicare reimbursement formula, and whether or not the waiver agreement through which the Secretary authorized the program says anything about their eligibility for inpatient hospital services is irrelevant to the calculation of a hospital's disproportionate share hospital adjustment. Furthermore, given that every individual enrolled in Massachusetts's Commonwealth Care program during the relevant time period obtained a subsidized insurance plan that actually providеd coverage for inpatient hospital services, the Secretary's authorization of the Commonwealth Care program under the pertinent section 1115 waiver made every individual insured via Commonwealth Care "eligible for inpatient hospital services" within the meaning of section 412.106(b)(4)(i). Therefore, per the plain text of the applicable regulation, HHS should have counted the patient days pertaining to Commonwealth Care beneficiaries when calculating the Hospitals' disproportionate share hospital adjustments under the Medicare program.
I. BACKGROUND
Congress authorized and established the federal Medicare and Medicaid programs in two different subchapters of the Social Security Act, Pub L. No. 89-97 (1965), and the statutory provisions that pertain to each of these programs cross-reference one another in various ways. See Cooper Hosp. ,
A. Medicare's Disproportionate Share Hospital (DSH) Adjustment
The instant dispute homes in on one of these hospital-specific adjustments to Medicare's base payment rates: "the disproportionate share hospital (DSH) adjustment." Billings Clinic ,
To calculate a hospital's "disproportionate patient percentage[,]" HHS "add[s] together two fractions": the "Medicare fraction" and the " Medicaid fraction[.]" Allina ,
the 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 [the Medicaid program], but who were not entitled to benefits under Plan A of [Medicare], and the denominator of which is the total number of the hospital's patient days for such period.
42 U.S.C. § 1395ww(d)(5)(F)(vi)(II). Put simply, "the numerator" of the Medicaid fraction "is the number of patient days attributable to patients who (for such days) were eligible for Medicaid, but not entitled to benefits under Medicare Part A[,]" and "[t]he denominator is the total number of patient days[.]" Allina ,
As the above definition makes clear, determining whether an individual is eligible for health insurance under the Medicaid program is critical to calculating "the Medicaid fraction" for the purpose of establishing the Medicare program's DSH adjustment. Unlike the Medicare program, which is a purely federal endeavor that insures the elderly and disabled, "Medicaid is a cooperative federal-state program that provides medical assistance to certain limited categories of low-income persons and other individuals who face serious financial burdens in paying for needed medical care." Cooper Hosp. ,
Significantly for present purposes, some states also "try new or different approaches to the efficient and cost-effective delivery of health care services" for low-income residents, or seek "to adapt their [healthcare] programs to the special needs of particular areas or groups of recipients." Cookeville Reg'l Med. Ctr. v. Leavitt ,
One category of demonstration projects-known as "expansion waiver" projects-is of particular relevance to the legal issues presented in this case. Expansion waiver projects "provide medical assistance to expanded eligibility populations that could not otherwise be made eligible for Medicaid." Cooper Hosp. ,
Before the year 2000, it was not clear whether the patient days attributable to low-income individuals who had received healthcare coverage through an expansion waiver demonstration project, as opposed to a traditional state Medicaid program, were to be counted within the numerator of the Medicaid fraction for the purpose of determining a hospital's disproportionate share adjustment under section 412.106(b)(4) of Title 42 of the Code of Federal Regulations. Considerable confusion arose because, while expansion waiver patients were technically not "eligible for medical assistance under" a state Medicaid plan, 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II), such patients had nonetheless received medical care through an insurance program expressly authorized under the laws that govern the Medicaid program. HHS has addressed this matter through notice-and-comment rulemaking, although the agency's position regarding the issue has evolved over time.
HHS initially refused to count any patient days associated with individuals receiving medical care through an expansion waiver project in the Medicaid fraction's numerator unless those individuals would otherwise be covered under a state's Medicaid plan. See Banner Health ,
D. Massachusetts's Medicaid And Commonwealth Care Programs
Massachusetts runs a federally-approved state Medicaid program, known as MassHealth, which provides medical assistance "to eligible low- and moderate-income individuals, couples, and families." (Administrative Record Part 2 ("AR Pt 2"), ECF No. 21-2, at 357.) That plan operates just like many other states' Medicaid programs: Massachusetts makes payments to health insurers and Medicaid-managed plan operators, who arrange for hospitals to provide the required medical services to low-income individuals (see
In 2006, Massachusetts decided to overhaul the landscape of its state healthcare system, and in so doing, established a novel health insurance program, called Commonwealth Care, to supplement its other state insurance plans. (See Compl. ¶ 34.) Commonwealth Care is "a private insurance-based premium assistance program for currently uninsured individuals at or below [three-hundred percent of the Federal Poverty Line] who are not eligible for MassHealth (Medicaid or SCHIP) or Medicare." (Id. at 361.) Thus, Massachusetts opted to provide health insurance for many individuals who were not otherwise eligible for insurance via either the Medicare or Medicaid programs (see
Importantly, neither Massachusetts's waiver application nor the Secretary's written approval of that waiver stated that any particular benefit or type of coverage would necessarily be included in the insurance packages that Commonwealth Care funded. (See AR Pt 1 at 355-74; AR Pt 2 at 15-20.) But the Commonwealth Care program in fact guaranteed that subscribers had an insurance plan that included inpatient services: for those individuals who had an income of up to "100 percent of the federal poverty level," the Commonwealth Care program required a comprehensive care plan (AR Pt 1 at 329), and for those eligible subscribers whose income exceeded
E. Procedural History
After the close of the fiscal year running from October 1, 2008, through September 30, 2009, twelve Massachusetts hospitals submitted cost reports to a fiscal intermediary in order to obtain reimbursement payments through the Medicare program. (See
The Hospitals appealed the Contractor's decision to the Provider Reimbursement Review Board ("PRRB") pursuant to section 1395oo(f)(1) of Title 42 of the United States Code. (See
Two members of the PRRB filed a concurring opinion, wherein they also concluded that the Medicaid fraction's numerator must take into account the patient days attributable to patients who received
In the course of their analysis, the concurring members of the PRRB also expressly rejected the idea "that inpatient benefits must be delineated in the [section] 1115 waiver documents approved by [the agency] and/or that such benefits must be guaranteed under the [section] 1115 waiver." (Id. at 31 (emphasis added).) Instead, the concurrence opined that, for the associated patient days to be counted in the Medicaid fraction under the applicable regulation, inpatient hospital services benefits need only "be 'received' under the [section] 1115 waiver." (Id. )
The Administrator of the Center for Medicare & Medicaid Services considered-and reversed-the PRRB's decision. (Id. at 17.) See also
In sum, the Administrator finds that[ ] a § 1115 demonstration project for which patients are eligible must include inpatient hospital benefits in order for the hospital inpatient days to be counted as Medicaid days in the calculation of a hospital's DSH patient percentage. The record shows that patients only become eligible for inpatient services under the [Commonwealth Care program] if they buy the insurance offered thereunder. The fact that the subsidized premiums can be used to purchase inpatient benefits is irrelevant. As such, the Administrator finds and concludes that [Commonwealth Care] patients are not eligible for Medicaid or made eligible for inpatient services under the § 1115 waiver, and so the days of care furnished to these patients cannot be included in the Medicaid fraction pursuant to42 C.F.R. § 412.106 (b)(4)(i).
(Id. at 21.) Thus, the Administrator appears to have reasoned that because Commonwealth Care (i.e. , the relevant "demonstration project") does not require subscribers to enroll in plans that provide inpatient hospital benefits, and thus does not cover such benefits directly, the patient days that individuals covered under the Commonwealth Care program generate do not factor into the Medicaid fraction's numerator. (Id. ; see also
The Hospitals filed the instant action on May 16, 2017, as section 1395oo(f)(1) of Title 42 of the United States Code allows. (See Compl., ¶ 55.) Their complaint claims that the agency's decision to exclude the patient days attributable to Commonwealth Care patients was arbitrary and capricious, in violation of the standards of the Administrative Procedure Act,
The parties' cross-motions are fully briefed (see Pls.' Reply in Supp. of Mot. for Summ. J. & Opp'n to Def.'s Cross-Mot. for Summ. J. ("Pls.' Reply"), ECF No. 17; Def.'s Reply; Pls.' Sur-reply to Def.'s Reply in Supp. of its Cross-Mot. for Summ. J. ("Pls.' Surreply"), ECF No. 20-1), and this Court heard oral arguments from both parties at a motion hearing on September 17, 2018 (see Hr'g Tr.).
II. LEGAL STANDARDS
A. Summary Judgment In APA Cases
The Federal Rules of Civil Procedure require a court to grant summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). However, in the context of a Medicare case, like in an APA case, that summary judgment standard "does not apply because of the limited role of a court in reviewing the administrative record." Standing Rock Sioux Tribe v. U.S. Army Corps of Eng'rs ,
Consequently, with respect to claims brought under the APA, "[t]he entire case on review is a question of law, and only a question of law[,]" Marshall Cty. Health Care Auth. v. Shalala ,
B. Arbitrary And Capricious Review
Under the APA, any person "adversely affected or aggrieved" by agency action has the right to seek "judicial review" of that agency decision,
One of the most well-known limitations on agency action is the longstanding prohibition on agency determinations that contradict the agency's own regulations. See Policy & Research, LLC v. U.S. Dep't of Health & Human Servs. ,
Of course, when determining whether or not an agency has acted in a manner that is contrary to its regulations, the court must first determine what the regulations require. And to the extent that the agency has offеred up an interpretation, courts generally "accord 'substantial deference' " to the agency's interpretation under the doctrine of Auer v. Robbins ,
"Courts typically consider three factors when deciding whether to apply Auer deference." Mellow Partners ,
III. ANALYSIS
The parties in the instant case chiefly dispute whether HHS correctly interpreted the phrase "the patient is eligible for inpatient hospital services ... under a waiver authorized under section 1115(a)(2)[.]"
In short, the plain language of the applicable regulation unambiguously requires that all patient days attributable to individuals receiving health insurance through Medicaid or through a roughly equivalent authorized demonstration project (as evidenced by the provision of "inpatient hospital services") must be counted in the Medicaid fraction's numerator. There is no dispute that the coverage provided to subscribers of Massachusetts's Commonwealth Care program is roughly equivalent to Medicaid insofar as every individual covered under the Commonwealth Care program did in fact receive premium assistance with respect to a health insurance plan that provided benefits for inpatient hospital services; moreover, when the Commonwealth Care waiver was issued, the Secretary incorporated the entirety of that state-run healthcare coverage program into the authorized demonstration project. This means that, for the purpose of the calculation at issue, the fact that the waiver document itself makes no reference to "inpatient hospital services" is irrelevant, and HHS acted in a manner that was contrary to its own regulations when it refused to count the patient days associated with the Commonwealth Care program in the numerator of the Hospitals' Medicaid fractions. Accordingly, and on this basis alone, HHS's determination must be set aside.
A. Under Section 412.106(b)(4), The Patient Days Attributable To Individuals Who Are Eligible For Inpatient Services Pursuant To A Wаived Demonstration Project Must Be Included In The Medicaid Fraction's Numerator
The plain language of section 412.106(b) of Title 42 of the Code of Federal Regulations establishes certain requirements for calculating a hospital's DSH adjustment; moreover, and importantly, it also provides the context in which the established computation is to be made. It is crucial to recall that context, for it appears that HHS has lifted words from the middle of the applicable text, and has presented them standing alone, thereby suggesting that the provision at issue requires something quite different than its unambiguous meaning when the terms of the regulation are considered as a whole. There can be no question that, like the words of a statute, the words of a regulation must be viewed in context. See Utility Air Regulatory Grp. v. Envtl. Prot. Agency ,
To start, the regulation plainly indicates that it is "[t]he fiscal intermediary" who "determines ... the number of the hospital's patient days of service for which patients were eligible for Medicaid but not entitled to Medicare Part A[.]"
In this regard, when a fiscal intermediary undertakes to determine who is "eligible for Medicaid" on a given day for the purpose of the Medicaid fraction, the word "eligible" is generally construed to mean "capable of receiving[.]" See Covenant Health Sys. v. Sebelius ,
HHS's insistence that the appropriate interpretation of this language turns, instead, on whether the legal terms and conditions that authorize the demonstration project themselves explicitly "require that inpatient services be provided to participants in that program" (Def.'s Mem. at 5) is wholly unpersuasive. First of all, and perhaps most importantly, HHS does not, and cannot, explain why the express terms of the demonstration project waiver agreement matter in the context of a regulation that is simply and solely concerned with the fiscal intermediary's proper calculation of a hospital's DSH adjustment given the population that it serves. HHS has plunged headlong into dictionary definitions of purportedly ambiguous terms, divorced from context, and in so doing has unquestionably lost its moorings: again, the point of the section at issue is to explain how HHS will determine who is to be deemed eligible for Medicaid for the purpose of the Medicaid fraction (see Part IV.A., supra ); see also Baystate Med. Ctr. ,
Given that section 412.106(b)(4) says nothing about the particular contents of a section 1115 waiver, and does not so much as cross-reference the portions of the Code of Federal Regulations that do in fact address а section 1115 waiver's requirements, it makes little sense to require fiscal intermediaries to look to the terms of the waiver agreement to identify those patients who are to be deemed eligible for Medicaid for the purpose of section 412.106(b)(4)'s Medicaid fraction computation, as HHS suggests here. Even so, requiring the Secretary to have stated affirmatively that the covered patients would be "eligible for inpatient hospital services" runs counter to the structure of the Medicaid program and the waiver system that
Finally, it is clear that HHS's statements during rulemaking do not support the interpretation that it seeks to advance now. The propositions that expansion waiver populations are "specific, finite populations identifiable in the award letters" and that "special terms and conditions apply to the demonstrations" (Def.'s Reply at 8 (quoting
In short, HHS's interpretation is out of sync with both the overall statutory Medicaid scheme and the structure of the Code of Federal Regulations, and thus this Court owes it no deference. See Drake ,
B. Because Patients Who Were Covered By Commonwealth Care During The Relevant Timeframe Were Eligible To Receive Inpatient Services, The Patient Service Days Attributable To Such Patients Must Be Counted
Based on the waiver that the Secretary executed with respect to Massachusetts's Commonwealth Care program, there can be little doubt that the patient days attributable to patients who were covered by the Commonwealth Care program must be included in the Hospitals' Medicaid fraction. Notably, the section 1115(a)(2) waivers relevant to this case contained no carveouts that are relevant to this issue-i.e. , the waivers incorporated the entirety of the Commonwealth Care plan. Indeed, when describing the contours of what was being approved as a demonstration project and what populations would be covered under that project, the Secretary simply and solely stated the following:
Commonwealth Care . Expenditures for premium assistance for the purchase of commercial health insurance products for uninsured individuals with income at or below 300 percent of the FPL who are not otherwise eligible under the Massachusetts State plan or any other eligibility category.
(AR Pt 2 at 17; see also id. at 22.)
Thus, the demonstration project at issue in this case encompassed the entirety of the Commonwealth Care program, and the only other general question from the standpoint of the fiscal intermediary who is charged with counting the patient days associated with an approved demonstration project under section 412.106(b)(4) of Title 42 of the Code of Federal Regulations is whether patients covered by Commonwealth Care were capable of receiving inpatient health services through the insurance plans this program financed. The record is unambiguous on this point, and there is no dispute among the parties: every Commonwealth Care patient was, in fact, eligible for inpatient hospital services. (See AR Pt 1 at 28 (explaining that "[t]he record also shows that the [Commonwealth Care] days in this appeal relate to individuals who were enrolled in thе same managed care plans and received the same core health benefits as other MassHealth recipients, including inpatient hospital services"); see Hr'g Tr. at 23:6-9 (government counsel acknowledging that "Commonwealth Care apparently guaranteed[,] [ ] though it was not required by the demonstration project, it did in practice, under state law, guarantee inpatient hospital coverage").)
Accordingly, per the unambiguous language of section 412.106(b)(4), and in light of the undisputed facts pertaining to the healthcare plan at issue, any patient service days attributable to patients whom the Hospitals treated and who were covered by Commonwealth Care on those service days should have been included within the numerator of the Medicaid fraction for the purpose of calculating the Hospitals' DSH adjustments. Consequently, HHS's refusal to include such patient days in the numerator of the Medicaid fraction when calculating the Hospitals' DSH adjustments for the period between October 1, 2008, and September 30, 2009, was аrbitrary and capricious agency action that must be vacated under the APA.
For the reasons explained above, and as set forth in the September 28, 2018, Order, this Court has GRANTED Plaintiffs' motion for summary judgment, and DENIED Defendant's cross-motion for summary judgment. The Court has also VACATED the agency's decision, and REMANDED this case to the agency for further proceedings consistent with this Memorandum Opinion.
Notes
Page-number citations to the documents that the parties have filed refer to the page numbers that the Court's electronic filing system automatically assigns.
Each "patient day" represents a day during which the hospital treated a given patient. Thus, if a hospital treated a patient for 8 days, that patient would garner the hospital 8 patient days. Similarly, if a hospital treated one patient for ten days and another patient for twenty days, those two patients would confer upon the hospital a total of thirty patient days, even if those patients' stays at the hospital overlapped.
The agency conducted rulemaking activities to fill the gap in the statute that Congress's silence as to how the agenсy ought to treat expansion waiver populations with regard to DSH adjustment payments had created. Congress had not spoken to the issue presumably because, "at the time the Congress enacted the Medicare DSH adjustment provision[,] ... there were no approved section 1115 demonstration projects involving expansion populations[.]"
These submissions were consistent with standard practice: to receive reimbursements from the federal government under the Medicare and Medicaid programs, "eligible hospitals file cost reports with their fiscal intermediaries (usually private contractors and auditors) at the end of each fiscal year[,]" and the intermediaries issue a Notice of Program Reimbursement, wherein they determine the amount the Secretary owes participating hospitals. Banner Health ,
For further context, recall that subdivision (4) is part of a section-412.106(b)-that pertains tо the calculation of the disproportionate patient percentage. It states that HHS will "add[ ] the results of two computations[,]" i.e. , the Medicare and Medicaid fractions,
Because this Court concludes that HHS has acted in a manner that is inconsistent with the clear and unequivocal mandate contained within its regulations, this Court has no need to opine on the other arguments that the Hospitals have raised, including their contentions that HHS changed course without explanation; that the government has advanced a post-hoc rationalization in these proceedings to legitimize the underlying agency decision; or that HHS's interpretation would deprive the Hospitals of the fair notice to which they are entitled as a matter of constitutional due process.