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Missouri Hospital Association v. Hargan

United States District Court, W.D. Missouri, Central Division

February 9, 2018

MISSOURI HOSPITAL ASSOCIATION, Plaintiff,
v.
ERIC D. HARGAN, Acting Secretary, United States Department of Health & Human Services, et al., [1] Defendants.

          OPINION AND ORDER

          BRIAN C. WIMES JUDGE.

         Before the Court are Plaintiff's Motion for Summary Judgment (Doc. #38) and Defendants' Motion for Summary Judgment (Doc. #41). The Court, being duly advised of the premises, grants Plaintiff's motion and denies Defendant's motion.

         BACKGROUND

         Plaintiff the Missouri Hospital Association (“the MHA”) seeks declaratory relief under the Administrative Procedure Act, 5 U.S.C. § 553, against Defendants the Secretary of the United States Department of Health and Human Services, the Administrator for Medicare & Medicaid Services, and the Centers for Medicare and Medicaid Services (“CMS”), relating to Defendants' calculation of the hospital-specific limit of the Medicaid Disproportionate-Share Hospital program (“DSH”), 42 U.S.C. § 1396, et seq.

         The MHA alleges five claims against Defendants, as follows: (I) Defendants' online responses to Frequently Asked Questions 33 and 34 (“the FAQs”) violate 5 U.S.C. § 706(2)(D) for failure to follow legally required procedures; (II) the policies reflected in the FAQs violate 5 U.S.C. § 706(2)(C) because they are in excess of Defendants statutory authority; (III) the policies reflected in the FAQs violate 5 U.S.C. § 706(2)(A) because they are inconsistent with the unambiguous language of 42 U.S.C. § 1396r-4; (IV) the 2017 version 42 C.F.R. § 447.229 (“the Final Rule”) violates 5 U.S.C. § 706(2)(C) because the regulation is in excess of Defendants' statutory authority; and (V) declaratory relief pursuant to 28 U.S.C. § 2201. (Doc. #3).

         Initially, the MHA also sought to preliminarily enjoin Defendants from enforcing, applying, or implementing the FAQs and the Final Rule. Thereafter, the parties agreed the motion for preliminary injunction should be stayed, pending resolution of cross-motions for summary judgment. The parties' competing motions for summary judgment were fully briefed on September 8, 2017.

         On October 3, 2017, the parties appeared for oral argument on their respective motions. The MHA appeared through counsel, Barbara D.A. Eyman and Robert Ryan Harding. Defendants appeared through counsel, Kristina Wolfe and Matthew N. Sparks.

         UNCONTROVERTED FACTS

         In 1965, Congress established the Medicaid Act, 42 U.S.C. § 1396, et seq., to provide federal government financial support to state governments funding medical care for low-income families, the elderly, and persons with disabilities.

         State participation in Medicaid is optional. If a state elects to participate, however, it is bound to comply with the Medicaid Act and regulations promulgated by the Secretary of the Department of Health and Human Services.

         Each state participating in Medicaid administers its own program under a plan that is subject to prior approval by the Department of Health and Human Services' Centers for Medicare & Medicaid Services (“CMS”). After the state's plan is approved by CMS, the federal government reimburses part of the cost incurred by the state in providing medical treatment to Medicaid-eligible patients. This general partial federal reimbursement is referred to as federal financial participation (“FFP”).

         In 1981, Congress amended the Medicaid Act to include the DSH program, 42 U.S.C. § 1396r-4. Under the DSH program, hospitals providing medical care to a “disproportionate share” of Medicaid-eligible individuals could be reimbursed for treatment costs in addition to their FFP.

         While states have discretion to determine how to implement the DSH program provisions, Congress has set forth certain statutory limitations. For example, 42 U.S.C. §§ 1396r-4(f) establishes, on a state-by-state basis, the annual maximum amount of DSH program funding that a particular state may receive. A state's specific limit equates to a finite pool of federal DSH program funds within the state, which is allocated among all hospitals within the state that are eligible for DSH program funds. Eligibility for DSH program funds are determined by the state's Medicaid plan, subject to broad federal requirements.

         Additionally, 42 U.S.C. § 1396r-4(g)(1)(A) sets forth the annual maximum amount of DSH program funding that a particular hospital may receive. This hospital-specific limit (“HSL”) calculation, established by Congress, provides that DSH funds going to a certain hospital may not exceed

the costs incurred during the year of furnishing hospital services (as determined by the Secretary and net of payments under [the Medicaid Act Chap. 7, Subchapter XIX], other than under this section, and by uninsured patients) by the hospitals to individuals who either are eligible for medical assistance under the State [Medicaid] plan or have no health insurance (or other source of third party coverage) for services provided during the year.

42 U.S.C. § 1396r-4(g)(1)(A).

         In 2003, Congress enacted auditing and reporting requirements for DSH program participants. These added conditions are as follows:

(j) Annual reports and other requirements regarding payment adjustments With respect to fiscal year 2004 and each fiscal year thereafter, the Secretary shall require a State, as a condition of receiving a payment under section 1396b(a)(1) of this title with respect to a payment adjustment made under this section, to do the following:

         (1) Report

         The State shall submit an annual report that includes the following:

(A) An identification of each disproportionate share hospital that received a payment adjustment under this section for the preceding fiscal year and the amount of the payment adjustment made to such hospital for the preceding fiscal year.
(B) Such other information as the Secretary determines necessary to ensure the appropriateness of the payment adjustments made under this section for the preceding fiscal year.

         (2) Independent certified audit

         The State shall annually submit to the Secretary an independent certified audit that verifies each of the following:

(A) The extent to which hospitals in the State have reduced their uncompensated care costs to reflect the total amount of claimed expenditures made under this section.
(B) Payments under this section to hospitals that comply with the requirements of subsection (g) of this section.
(C) Only the uncompensated care costs of providing inpatient hospital and outpatient hospital services to individuals described in paragraph (1)(A) of such subsection are included in the calculation of the hospital-specific limits under such subsection.
(D) The State included all payments under this subchapter, including supplemental payments, in the calculation of such hospital-specific limits.
(E) The State has separately documented and retained a record of all of its costs under this subchapter, claimed expenditures under this subchapter, uninsured costs in determining payment adjustments under this section, and any payments made on behalf of the uninsured from payment adjustments under this section.

42 U.S.C. § 1396r-4(j)(1)-(2).

         In 2008, CMS issued a rule “set[ting] forth the data elements necessary to comply with the requirements of Section 1923(j) of the Social Security Act (Act) related to auditing and reporting of disproportionate share hospital payments under State Medicaid programs.” Medicaid Program; Disproportionate Share Hospital Payments, 73 Fed. Reg. 77904, 77904 (Dec. 19, 2008). This “2008 Rule” states:

§ 447.299 Reporting requirements.
[. . . .]
(c) Beginning with each State's Medicaid State plan rate year 2005, for each Medicaid State plan rate year, the State must submit to CMS, at the same time as it submits the completed audit required under § 455.204, the following information for each DSH hospital to which the State made a DSH payment in order to permit verification of the appropriateness of such payments:
[ . . . .]
(9) Total Medicaid IP/OP Payments. Provide the total sum of items identified in § 447.299(c)(6), (7) and (8)[2]
(10) Total Costs of Care for Medicaid IP/OP Services. The total annual costs incurred by each hospital for furnishing inpatient hospital and outpatient hospital services to Medicaid eligible individuals. [. . . .]
(11) Total Medicaid Uncompensated Care. The total amount of uncompensated care attributable to Medicaid inpatient and outpatient services. The amount should be the result of subtracting the amount identified in § 447.299(c)(9) from the amount identified in § 447.299(c)(10). The uncompensated care costs of providing Medicaid physician services cannot be included in this amount.
(12) Uninsured IP/OP revenue. Total annual payments received by the hospital by or on behalf of individuals with no source of third party coverage for inpatient and outpatient hospital services they receive. This amount does not include payments made by a State or units of local government, for services furnished to indigent patients.
(13) Total Applicable Section 1011 Payments. Federal Section 1011 payments for uncompensated inpatient and outpatient hospital services provided to Section 1011 eligible aliens with no source of third party coverage for the ...

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