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Monmouth Medical Center v. Harris

decided: April 1, 1981.

MONMOUTH MEDICAL CENTER, A NON-PROFIT CORPORATION OF THE STATE OF NEW JERSEY, INDIVIDUALLY AS PROVIDER OF SERVICES UNDER THE MEDICARE (TITLE XVIII) PROVISIONS OF THE SOCIAL SECURITY ACT, 42 U.S.C. § 1395 ET SEQ . AND ON BEHALF OF BENEFICIARIES, IRENE MCLAUGHLIN, FLORENCE COLMORGEN, ISABELLE EYRE, FRANCIS KELLY, DONALD SWENSON, MICHAEL MCNAMARA, SUE HENNESSY, ANDREW KETTLES, EDWARD G. MARTIN, ELLEN MASON, GLADYS MONAHAN, JAMES MATTHEWS, STEPHEN BUDD, DORA EINBINDER, GRACE CURTIS, FLORENCE GAFFEY, LILLIAN VAN NEST AND JERRY SHAMPINEAR
v.
PATRICIA ROBERTS HARRIS, IN HER CAPACITY AS SECRETARY OF HEALTH, EDUCATION AND WELFARE ; PT. PLEASANT HOSPITAL, A NON-PROFIT CORPORATION OF THE STATE OF NEW JERSEY, INDIVIDUALLY AS PROVIDER; OF SERVICES UNDER THE MEDICARE (TITLE XVIII) PROVISIONS OF THE SOCIAL SECURITY ACT, 42 U.S.C.§ 1395 ET SEQ. AND ON BEHALF OF BENEFICIARIES, JEANETTE DARMSTADT, BLONDINE DATTILO AND BERTHA LITZEBAUER V. PATRICIA ROBERTS HARRIS, IN HER CAPACITY AS SECRETARY OF HEALTH, EDUCATION AND WELFARE ; MONMOUTH MEDICAL CENTER, A NON-PROFIT CORPORATION OF THE STATE OF NEW JERSEY, INDIVIDUALLY AS PROVIDER OF SERVICES UNDER THE MEDICARE (TITLE XVIII) PROVISIONS OF THE SOCIAL SECURITY ACT, AND ON BEHALF OF BENEFICIARIES, ELEANOR BLUE, FLORENCE COLLINS AND FRED SLOCUM V. PATRICIA ROBERTS HARRIS, IN HER CAPACITY AS SECRETARY OF HEALTH, EDUCATION AND WELFARE ; POINT PLEASANT HOSPITAL, A NON-PROFIT CORPORATION OF THE STATE OF NEW JERSEY, INDIVIDUALLY AS PROVIDER OF SERVICES UNDER THE MEDICARE (TITLE XVIII) PROVISIONS OF THE SOCIAL SECURITY ACT, 42 U.S.C. § 1395 ET SEQ. AND ON BEHALF OF BENEFICIARY BRONISLAVA SKIBA V. PATRICIA ROBERTS HARRIS, IN HER CAPACITY AS SECRETARY OF HEALTH, EDUCATION AND WELFARE ; MONMOUTH MEDICAL CENTER, A NON-PROFIT CORPORATION OF THE STATE OF NEW JERSEY, INDIVIDUALLY AS PROVIDER OF SERVICES UNDER THE MEDICARE (TITLE XVIII) PROVISIONS OF THE SOCIAL SECURITY ACT, 42 U.S.C. § 1395 ET SEQ. AND ON BEHALF OF BENEFICIARY, MATTIE BOND V. PATRICIA ROBERTS HARRIS, IN HER CAPACITY AS SECRETARY OF HEALTH, EDUCATION AND WELFARE; MONMOUTH MEDICAL CENTER, POINT PLEASANT HOSPITAL, IRENE MCLAUGHLIN, FLORENCE COLMORGEN, ISABELLE EYRE, FRANCIS KELLY, DONALD SWENSON, MICHAEL MCNAMARA, SUE HENNESSY, ANDREW KETTLES, EDWARD G. MARTIN, ELLEN MASON, GLADYS MONAHAN, JAMES MATTHEWS, STEPHEN BUDD, DORA EINBINDER, GRACE CURTIS, FLORENCE GAFFEY, LILLIAN VAN NEST AND JERRY SHAMPINEAR, MATTIE BOND, [BOND] ELEANOR BLUE, [BOND] FLORENCE COLLINS, FRED SLOCUM, JEANNETTE DARMSTADT, BLONDINE DATTILO, BERTHA LITZEBAUER, BRONISLAVA SKIBA, APPELLANTS



ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY C.A. Nos. 78-03139, 78-03149, 79-00580, 79-00581 and 79-01510

Before Adams, Rosenn and Hunter, Circuit Judges.

Author: Adams

Opinion OF THE COURT

Recently, the health care situation in New Jersey has been marked by a dearth of nursing home beds available for indigent patients.*fn1 As a consequence, hospitals have often been compelled to retain patients who no longer need the acute level of care that hospitals ordinarily administer, until space in an appropriate lesser-care facility can be found.*fn2 Monmouth Medical Center, a non-profit hospital in Long Branch, New Jersey, which participates in the federal Medicare program, sought Medicare reimbursement for several patients' hospital stays, including the time occasioned by the nursing home bed shortage. Monmouth unsuccessfully pressed its claim throughout the administrative process, and the district court upheld the denial of Medicare coverage.

In this appeal, the overriding issue is whether the Secretary of the Department of Health and Human Services (HHS) may, consistent with statutory standards, deny Medicare reimbursement to a hospital for the portion of a patient's visit that extends beyond the date that either acute-level hospital care or skilled nursing care is medically necessary, when the sole reason for the extension is the inability to obtain a nursing home bed for the patient. We agree with the district judge's conclusion that Medicare does not cover the extended stays involved in this case, and accordingly the judgment of the district court will be affirmed.

I.

The Medicare program is a federally funded health insurance arrangement designed to reimburse health care providers for the basic costs of rendering certain limited services to patients over the age of sixty-five. 42 U.S.C. § 1395 et seq. (1976). Unlike the companion Medicaid scheme, Medicare is primarily an acute care program, and does not provide comprehensive coverage. See Gosfield, Medical Necessity in Medicare and Medicaid: The Implications of Professional Standards Review Organizations, 51 Temple L.Q. 229, 232, 250 (1978). Medicare provides merely "basic protection" against the costs of services in only three categories: (1) inpatient hospital services, 42 U.S.C. § 1395d(a); (2) post-hospital extended care services, 42 U.S.C. § 1395x(h); and (3) home health care services, 42 U.S.C. § 1395x(m). The extended care category comprises "services furnished to an inpatient of a skilled nursing facility." 42 U.S.C. § 1395x(h). Thus, Medicare does not cover intermediate-level nursing home care, or care that does not rise to the level of skilled services.

Medicaid, on the other hand, is far more exhaustive in its coverage, because it is addressed to those who cannot afford health care, while Medicare covers individuals without regard to their pecuniary condition. 42 U.S.C. § 1396 (1976). Whereas Medicare covers only three service categories, Medicaid authorizes states to fund seventeen types of health care services, specifically including care in intermediate-level nursing facilities. 42 U.S.C. § 1396d(a) (15) (1976). See generally Note, State Restrictions on Medicaid Coverage of Medically Necessary Services, 78 Colum.L.Rev. 1491 (1978).

The Medicare program reimburses only care that is "reasonable and necessary" for the treatment or diagnosis of illness or injury. 42 U.S.C. § 1395y(a)(1). To insure that only medically necessary care is funded, the statutory framework establishes a system of utilization review committees, staffed by health care professionals. The task of these committees is to evaluate the medical necessity of particular services underlying a claim for reimbursement. See generally Gosfield, supra. In addition to the exclusion from coverage of unnecessary care, Medicare also specifically precludes reimbursement for "custodial care." 42 U.S.C. § 1395y(a)(9) (1976). Although the statute does not define this term, HHS regulations indicate that custodial care in the context of the Medicare program is any care that does not meet the definition of extended or skilled care. 42 C.F.R. § 405.310(g) (1979).

Insuring fiscal responsibility, curtailing health care costs, and eliminating the over-utilization of health care services are fundamental aims of the Medicare program. See Gosfield, supra, at 234 & n.38; Columbia Note, supra, at 1494-95, 1499, 1502-06; S.Rep.No. 404, 89th Cong., 1st Sess. (1965), reprinted in (1965) U.S.Code Cong. & Ad.News 1943, 1971-72, 1987. These policies underlie the system of utilization review committees, as well as the exclusion of non-necessary services, and the prohibition against reimbursing custodial care. (1965) U.S.Code Cong. & Ad.News, supra, at 1971-72. Indeed, Congress was aware that hospital stays prolonged beyond the date that a patient was ready to be placed in a nursing facility were a major factor contributing to the overutilization of hospital services. Id. at 1971-2, 1987; Gosfield, supra, at 234 n.38. Thus, the Medicare program reflects a congressional judgment that the federal government should not readily reimburse a health care provider when its services have not been utilized properly. This concept of controlling costs by discouraging overutilization informs our resolution of the present controversy.

II.

In this appeal Monmouth presses claims for services rendered to several Medicare-eligible patients who were hospitalized at various times during 1975-1977 for acute medical care. All of these patients remained in Monmouth Medical Center after they no longer required acute-level care because the hospital could not immediately secure a bed in a lesser-care facility. The lack of available nursing home beds was primarily attributable to the nursing home bed shortage in New Jersey, although delay in assigning Medicaid numbers to patients was also a factor.*fn3 It is undisputed that Monmouth was diligent in its efforts to find suitable nursing home placements for the patients. The hospital's utilization review committee scrutinized the care rendered to each patient involved in the present dispute, and in each instance the committee found that continued high level hospital care was no longer necessary after a certain date. The committee then chronicled the after-care needs of the patients and the constraints imposed by the nursing home bed crisis, and concluded that in each case the entire hospital stay was "justified." Significantly, it was social and economic considerations, such as the lack of family support networks and other alternative placements, that led to the findings of "justification"; the committee did not deem extended acute-level hospital care "medically necessary."

Monmouth submitted claims for reimbursement for the entire duration of each patient's hospital stay. Prudential Insurance Co., a fiscal intermediary to which the Secretary of HHS has delegated the initial responsibility for administering Medicare, declined to cover the portions of the stays that took place after the patient no longer needed acute level care. Prudential denied reimbursement on the ground that the care rendered during this time was not "reasonable and necessary for the diagnosis and treatment of illness" as required by 42 U.S.C. § 1395y(a)(1), and that such care consisted of services comprised within the "custodial care" exclusion, 42 U.S.C. § 1395y(a)(9). The fiscal intermediary also determined that the individual patients could not have known that the care would not be covered by Medicare, and it therefore waived their liability for the hospital costs. 42 U.S.C. § 1395pp(a). It refused to waive Monmouth's responsibility for paying for the care, however, reasoning that the hospital knew or should have known that the services fell within the exclusion for custodial care. The consequence of these determinations is that the individual patients will not have to pay any portion of their unreimbursed hospital bills, but Monmouth will have to absorb the costs of the services, at least for those patients ineligible to receive Medicaid compensation.*fn4

Administrative review of each of these decisions was sought, but HHS upheld the denial of reimbursement throughout the administrative appeals process. Monmouth then filed for judicial review in federal district court, under 42 U.S.C. §§ 405(g), 1395ff(b), and § 1395pp(d), seeking relief in the form of reimbursement for the disallowed claims. The hospital also alleged that the administrative hearing procedure was not ...


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