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Nazareth Hospital and v. Kathleen Sebelius

October 16, 2012

NAZARETH HOSPITAL AND ST. AGNES MEDICAL CENTER
v.
KATHLEEN SEBELIUS, SECRETARY DEPARTMENT OF HEALTH AND HUMAN SERVICES



The opinion of the court was delivered by: Ludwig, J.

MEMORANDUM

This is an action to review the decision of the Secretary of the Department of Health and Human Services dated May 17, 2012 and issued by CMS (Centers for Medicare and Medicaid Services), affirming March 23, 2010 decision of the PRRB (Provider Reimbursement Review Board). Jurisdiction: review, 42 U.S.C. § 1395oo(f)(1); federal question, 28 U.S.C. § 1331. The decision denied plaintiffs' statutory Medicare claims for serving a disproportionate share of low-income patients during 2002, known as "DSH adjustments," 42 U.S.C. § 1395ww(d)(5)(F)(vi) -- Nazareth, about $249,762; St. Agnes, about $606,337.

The substantive issue is whether inpatient hospital services provided under Pennsylvania's general medical assistance program are to be counted in Medicare's DSH calculation.

Plaintiffs move for an order compelling the Secretary to produce the complete administrative record -- including "the relevant, underlying rulemaking record." Pls. br., doc. no. 60 at 1; pls. mot., doc. no. 41.*fn1 Their argument is that they are challenging the "rationality" of the agency's regulation that excludes those inpatient days from the Medicare DSH computation.*fn2 Id.

Defendant's opposition is that to require such production "would radically expand this action and transform an ordinary challenge to an agency decision into an improper backdoor assault on the very regulation itself. . . . [Jurisdiction] "is a limited record-based review of the final administrative decision of the Secretary." Def. br., doc. no. 46 at 2, doc. no. 56 at 3-4, 6.

In addition to procedural and other opposition, defendant also reasserts: "this dispute is squarely governed by Cooper Univ. Hosp. v. Sebelius, 636 F.3d 44 (3d Cir. 2010)," def. letter Sept. 14, 2012, doc. no. 62, which affirmed the denial of a DSH adjustment for a New Jersey hospital.*fn3 See also def. letter Oct. 15, 2012, doc. no. 65.

After oral argument, defendant's denials of payment in this case were remanded, and in memorandum dated August 7, 2012 supplementing a July 25, 2012 order,*fn4 defendant was directed to explain "whether the agency's treatment of Section 1115 waivers as compared to Pennsylvania's state plan at the time in question was reasonable or, as plaintiffs contend, was arbitrary and capricious, and if it comported with principles of equal protection, or was constitutionally unfair." Aug. 7, 2012 supp. mem., doc. no. 47.

The issues presented by the motion for production of the rulemaking records will now be ruled on.

In this case, the Medicare statutes create a narrow but clear procedural path for review that begins with 42 U.S.C. § 1395oo. See Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1, 10, 13 (2000) (Medicare provider's right of judicial review is strictly governed by statute).

This provision allows hospitals participating in Medicare to obtain a hearing before a Provider Reimbursement Review Board as to payments received for inpatient hospital services. 42 U.S.C. § 1395oo(a), (b). The Board has "the power to affirm, modify or reverse a final determination of the fiscal intermediary with respect to a cost report." 42 U.S.C. § 1395oo(d).*fn5 The Board, however, has no authority to rule on certain issues, including the legality of the Secretary's regulations under the Administrative Procedures act (APA), 5 U.S.C. §§ 701-706 and the constitutional challenges presented here. See 42 U.S.C. § 1395oo(f)(1); 42 C.F.R. § 405.1867 ("Board must comply with all provisions of Title XVIII of the Act and regulations issued thereunder").*fn6 A decision by the Board is final unless the Secretary, on her own motion, reverses, affirms, or modifies the Board's decision. 42 U.S.C. § 1395oo(f)(1). Providers have a right to obtain judicial review by a civil action of any final decision of the Board, or any affirmation, reversal or modification by the Secretary. Id.

The Medicare Act says, in part: provisions of . . . subsections (a), (d), (e), (h), (i), (j), (k), and (l) of section 405 of this title, shall also apply with respect to this subchapter [XVIII, Medicare] to the same extent as they are applicable with respect to subchapter II of this chapter [Social Security Act], except that, in applying such provisions with respect to this subchapter, any reference therein to the Commissioner of Social Security or the Social Security Administration shall be considered a reference to the Secretary or the Department of Health and Human Services, respectively. 42 U.S.C. § 1395ii. Pertinently, this statute makes a related provision of the Social Security Act, 42 U.S.C. § 405(h), applicable to the Medicare Act "to the same extent as" it applies to the Social Security Act. Illinois Council, 529 U.S. at 8, 13. Section 405(h) says, in part: the findings and decision of the [Secretary] after a hearing shall be binding upon all individuals who were parties to such hearing. No findings of fact or decision of the [Secretary] shall be reviewed by any person, tribunal, or governmental agency except as herein provided. No action against . . . the [Secretary], or any officer or employee thereof shall be brought under section 1331 . . . of Title 28 to recover on any claim arising under this subchapter. 42 U.S.C. § 405(h). Section 405(h) "channels most, if not all, Medicare claims through this special review system." Illinois Council, 529 U.S. at 8; Dist. Hosp. Partners, L.P. v. Sebelius, 794 F. Supp. 2d 162, 166 (D.D.C. 2011) (§ 1395ii "generally forecloses other avenues of review by incorporating § 405(h) of the Social Security Act").

"Section 405(h) purports to make exclusive the judicial review method set forth in § 405(g)." Illinois Council, 529 U.S. at 10 (quoting 42 U.S.C. § 405(h) ("[no findings of fact or decision of the [Secretary] shall be reviewed by any person, tribunal, or governmental agency except as herein provided")). However, the scope of the phrase "except as herein provided" is left unclarified. While 42 U.S.C. § 1395ii expressly incorporates and makes subsection (h) of § 405 applicable to the Medicare Act, it does not list subsections (b) and (g) of § 405 as applicable to the Medicare Act. Instead, § 1395ii expressly refers to subsection (a) of § 405, which gives the Secretary full power and authority to make rules and regulations and to establish procedures, not inconsistent with the provisions of this subchapter, which are necessary and appropriate to carry out such provisions, and shall adopt reasonable and proper rules and regulations to regulate and provide for the nature and extent of the proofs and evidence and the method of taking and furnishing the same in order to establish the right to benefits hereunder.

42 U.S.C. § 405(a). The Secretary has promulgated such rules, 42 C.F.R. §§ 405.1801-1889. See id. 405.1835-1877 (rules pertinent to PRRB determinations and appeals). In particular, § 405.1877*fn7 expressly implements judicial review under § 1395oo(f)(1). Accordingly, the specific method for judicial review set forth by § 405.1877 governs, and subsections (b) and (g) of 42 U.S.C. § 405 are not operative here.

Defendant Secretary contends that under 42 U.S.C. § 1395oo(f)(1), judicial review is restricted to the final administrative decision of the Secretary, which precludes consideration of the rulemaking records for the amended Medicare DSH regulation. See, e.g., def. br., doc. no. 46 at 1, 3; def. br., doc. no. 56 at 4; see also def. letter Oct. 15, 2012, doc. no. 65. Defendant cites 42 U.S.C. § 405(g) and Grant v. Shalala, 989 F.2d 1332, 1338 (3d Cir. 1993). See e.g., def. br., doc. 46 at 3; def. mot. & br. in support of summary judgment, doc. no. 21 at 14-15, 40-42. However, Grant does not support defendant's position because it concerned a different question under a much different statute -- namely, whether 42 U.S.C. § 405(b) and (g) precluded a district court from conducting a trial and making independent findings of fact in an action brought by an individual under § 405 for Social Security disability benefits. Here, neither § 405(b) nor (g) is implicated because those provisions are not made applicable to the Medicare Act by 42 U.S.C. § 1395ii. Moreover, Grant was an action brought by an individual for social security disability ...


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