Case 1:21-cv-01922-RJL Document 1 Filed 07/16/21 Page 1 of 35
`
`
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLUMBIA
`
`
` Case No. 21-cv-1922
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`----------------------------------------------------------------
`PARRISH MEDICAL CENTER
`951 North Washington Ave.
`Titusville, FL 32796
`
`NORTHCREST MEDICAL CENTER
`100 Northcrest Dr.
`Springfield, TN 37172
`
`SPRINGHILL MEMORIAL HOSPITAL
`3719 Dauphin St.
`Mobile, AL 36608-1798
`
`UF HEALTH JACKSONVILLE
`655 8th St. W
`Jacksonville, FL 32209
`
`UNIVERSITY OF MISSOURI HEALTH CARE
`1 Hospital Dr.
`Columbia, MO 65201
`
`BRYAN MEDICAL CENTER
`1600 S 48th St.
`Lincoln, NE 68506
`
`STORMONT VAIL HOSPITAL
`1500 SW 10th Ave.
`Topeka, KS 66604
`
`
`
`
`
`
`XAVIER BECERRA
`Secretary of the United States Department of Health
`and Human Services,
`200 Independence Ave., S.W.
`Washington D.C. 20201
`
`
`
`
`
`Plaintiffs,
`
`
`
`v.
`
`
`
`Defendant.
`
`COMPLAINT FOR JUDICIAL REVIEW; WRIT OF MANDAMUS
`
`
`
`

`

`Case 1:21-cv-01922-RJL Document 1 Filed 07/16/21 Page 2 of 35
`
`
`
`The above-named Plaintiffs (Plaintiffs or Hospitals), by and through their undersigned
`
`counsel, state the following in the form of this Complaint against XAVIER BECERRA,
`
`Secretary of the United States Department of Health and Human Services (the Secretary) in his
`
`official capacity pursuant to 42 U.S.C. § 1395oo(f):
`
`I.
`
`INTRODUCTION
`
`1.
`
`Plaintiffs participate in Medicare and Medicaid. In the Affordable Care Act
`
`(ACA) (42 U.S.C. § 18001 et seq.), Congress “expanded” Medicaid eligibility by requiring all
`
`participating states to amend their state medical assistance plans, effective January 1, 2014, to
`
`cover persons under 65 years of age with incomes not exceeding 133% of the Federal Poverty
`
`Level (FPL) (138% with a statutory set-aside) who were not already eligible for Medicaid or
`
`Medicare.
`
`2.
`
`For Plaintiffs, Medicaid expansion promised added coverage (and payments)
`
`under Title XIX of the Social Security Act (the Act) for services previously furnished to
`
`uninsured patients. It also promised increases to their supplemental hospital payments under
`
`Medicare (Title XVIII of the Act) for treating a disproportionate share of low-income patients
`
`(DSH adjustments), which increase in proportion to the percentage of a hospital’s low-income
`
`patients, which is relevantly determined based on the number of its patients who are “eligible
`
`for Medicaid” (which is a statutory proxy for low-income status).
`
`3.
`
`Certain states advanced a broad array of constitutional challenges to the ACA in
`
`National Federation of Independent Businesses v. Sebelius, 567 U.S. 519 (2012) (NFIB). The
`
`Supreme Court broadly upheld the ACA, including both its expansion of Medicaid coverage
`
`and the “individual mandate” for people to enroll in a qualified health plan (QHP), but a
`
`plurality of the Court ruled that it would exceed the Secretary’s authority under the Spending
`
`
`
`
`2
`
`

`

`Case 1:21-cv-01922-RJL Document 1 Filed 07/16/21 Page 3 of 35
`
`Clause of the Constitution to force states to expand their existing medical assistance plans as
`
`prescribed by the ACA through the withholding of federal funds under 42 U.S.C. § 1396c.
`
`4.
`
`As a result of the elimination of financial penalties for noncompliance with the
`
`Act’s Medicaid expansion mandate in NFIB, a minority of states – including Alabama, Florida,
`
`Nebraska, Tennessee, Kansas and Missouri, where Plaintiffs are located – refrained from
`
`submitting state plan amendments expanding their medical assistance programs to cover
`
`additional persons who became eligible for Medicaid coverage under the ACA, limiting
`
`Medicaid coverage in “non-expansion States” on a de facto basis to pre-ACA levels.
`
`5.
`
`The injury from which Plaintiffs seek relief in this action, however, is not the
`
`absence of Medicaid reimbursements from their home states – which the Supreme Court
`
`permitted in NFIB – but the Secretary’s independent and collateral refusal to recognize patients
`
`made “eligible for Medicaid” as a matter of law (based on their low incomes) under the ACA as
`
`“low-income patients” for purposes of determining their entitlement to Medicare DSH
`
`supplements. In taking this approach, the Secretary declined to recognize statutorily Medicaid-
`
`expansion populations as being “eligible for Medicaid” in states that chose not to amend their
`
`state plans to extend Medicaid coverage based on a technicality, namely that the Medicare DSH
`
`provisions refer to Medicaid eligible patients as those made “eligible for medical assistance
`
`under a State plan approved under Title XIX.”
`
`6.
`
`The mundane reference to eligibility “under a State plan” is part of a broader
`
`statutory scheme under which states are required to amend their medical assistance plans on a
`
`pro forma to cover all eligibility categories that are mandated by Title XIX. To the extent the
`
`Supreme Court excused states in NFIB from submitting the state plan amendments (SPAs)
`
`presumptively required under the ACA, it was unreasonable for the Secretary to continue to
`
`3
`
`
`
`
`
`
`

`

`Case 1:21-cv-01922-RJL Document 1 Filed 07/16/21 Page 4 of 35
`
`
`
`
`
`
`condition the recognition of persons directly made eligible for Medicaid under federal law
`
`effective January 1, 2014 upon the submission of such SPAs.
`
`7.
`
`Despite NFIB, the ACA still literally obligates all states de jure to amend their
`
`medical assistance plans to cover populations made newly eligible for Medicaid under the ACA.
`
`Congress framed the adoption of universal conforming SPAs that would add ACA coverage to
`
`all approved state plans as a pro forma and presumed occurrence. NFIB upheld the Medicaid
`
`coverage expansion as a whole, and never suggested that individuals who became eligible for
`
`Medicaid under the ACA should not be regarded as days of low-income patients (defined to
`
`include those eligible for Medicaid) for purposes of determining hospitals’ entitlement to
`
`Medicare DSH adjustments. See NFIB at 586. It is arbitrary and capricious to continue to
`
`place continued reliance on whether expansion coverage has been memorialized under an
`
`approved SPA in view of the practical but unanticipated implications of NFIB’s excusing the
`
`filing of mandated SPAs.
`
`8.
`
`The Secretary’s post-NFIB approach is arbitrary and capricious and contrary to
`
`law based on the simple and obvious fact that it results in patients who are “eligible for
`
`Medicaid” under mandate of Congress being treated by a federal agency as though they are not
`
`patients eligible for Medicaid for Medicare DSH purposes. Allowing the inactions of states
`
`acting under the shield of NFIB to indirectly negate days of persons statutorily eligible for
`
`Medicaid in determining their low-income patient volumes under Medicare is counter-intuitive
`
`and produces a result that is diametrically opposite to what Congress expected and intended in
`
`enacting the ACA, and yields bizarre results in contravention of congressional intent and
`
`controlling principles of statutory construction.
`
`9.
`
`The Secretary’s approach not only understates the true volume of low-income
`
`patients to which Plaintiffs furnish care based on a technicality, but denies Plaintiffs equal
`
`4
`
`

`

`Case 1:21-cv-01922-RJL Document 1 Filed 07/16/21 Page 5 of 35
`
`protection under the law by compensating them less under Medicare than similarly situated
`
`hospitals treating equivalent volumes of low-income patients in approximately 34 states that did
`
`not take advantage of the unexpected loophole created by the plurality decision in NFIB. It is
`
`implausible that Congress never would have wanted the Secretary to further extend NFIB’s
`
`unanticipated impairment of mandated SPAs into the realm of Medicare DSH subsidies. If
`
`anything, Congress would consider it even more imperative to recognize expansion-eligible
`
`days in the Medicare DSH calculations for those hospitals being deprived of underlying medical
`
`assistance payments for the same patients. The Secretary’s contrary approach treats two wrongs
`
`as making a right!
`
`10. Acting through BESLER Consulting of Florida (BESLER), Plaintiffs petitioned
`
`the Secretary to amend or clarify the regulations to confirm that inpatient days of statutorily
`
`Medicaid eligible expansion patients of hospitals located in non-expansion states may be
`
`counted in their Medicare low-income calculation, regardless of whether coverage was adopted
`
`through an approved SPA. After a long delay, the Secretary effectively denied BESLER’s
`
`petition to amend the rules by inaction by issuing a letter dated December 10, 2020 stating that
`
`then-Secretary Azar was neither granting nor denying the Petition.
`
`11. As a consequence of this Secretary’s continued literal adherence to the plan
`
`amendment requirement that was rendered inoperable under NFIB, Plaintiffs’ Medicare
`
`Administrative Contractors (MACs) and the Provider Reimbursement Review Board (PRRB)
`
`were themselves precluded by regulation from recognizing days of ACA expansion populations.
`
`Plaintiffs accordingly seek relief from this Court under the Administrative Procedure Act (APA)
`
`and the equal protection clause (as applicable to the Secretary under the Fifth Amendment) in
`
`the form of a remand order requiring the Secretary to recalculate Plaintiffs’ Medicare DSH
`
`5
`
`
`
`
`
`
`

`

`Case 1:21-cv-01922-RJL Document 1 Filed 07/16/21 Page 6 of 35
`
`
`
`
`
`
`supplements for the cost years at issue to take these pivotal Medicaid-eligible patient days into
`
`account.
`
`II.
`
`JURISDICTION AND VENUE
`
`12. This action arises under Title XVIII of the Social Security Act, 42 U.S.C.
`
`§ 1395oo(f)(1), the APA, 5 U.S.C. §§ 551 et seq., and the equal protection clause of the United
`
`States Constitution as applied to the federal government through the Fifth Amendment.
`
`13. This Court has jurisdiction under 42 U.S.C. § 1395oo(f)(1) to review a question of
`
`law or regulations relevant to the matters in controversy whenever the PRRB determines that it
`
`is without authority to decide the question.
`
`14. The Plaintiffs initiated multiple group appeals to challenge their respective
`
`MACs’ failure to issue timely determinations, Notices of Program Reimbursement, or Revised
`
`Notices of Program Reimbursement for fiscal year 2016.
`
`15.
`
`In the appeals, the Plaintiffs alleged that a failure to permit participating hospitals
`
`located in non-expansion states to count days of expansion populations in the Medicaid fraction
`
`numerator while permitting similarly situated hospitals in states that did expand Medicaid,
`
`despite NFIB, to count the same category of patient days discriminates against non-expansion
`
`state hospitals in violation of their equal protection rights secured under the Fifth Amendment to
`
`the United States Constitution. Further, the Plaintiffs argued that the exclusion of Medicaid
`
`expansion patient days from the numerator of the Medicare DSH Medicaid proxy/fraction
`
`fundamentally conflicts with the plain intent of the Social Security Act, as amended by the
`
`ACA, and therefore is invalid under the review standard imposed under the APA.
`
`16. Relief in the appeals is precluded by current regulations, which have not been
`
`amended to account for the effects of the NFIB decision. Therefore, the Plaintiffs turned to
`
`expedited judicial review (EJR).
`
`6
`
`

`

`Case 1:21-cv-01922-RJL Document 1 Filed 07/16/21 Page 7 of 35
`
`17. On July 15, 2020, the Plaintiffs filed a request for EJR. On May 18, 2021, the
`
`PRRB granted the Plaintiffs’ requests. This action is timely within the limitations periods in 42
`
`U.S.C. § 1395oo(f)(1).
`
`18. This Court also has federal jurisdiction pursuant to 28 U.S.C. § 1331 and
`
`mandamus jurisdiction under 28 U.S.C. § 1361 to mandate relief required by the terms of a
`
`federal statute.
`
`19. Pursuant to 42 U.S.C. § 1395oo(f)(1), venue is proper in the United States District
`
`Court for the District of Columbia.
`
`20. The Court is authorized to issue declaratory and other appropriate relief for
`
`Plaintiffs against Defendant under 28 U.S.C. §§ 2201, 2202.
`
`III.
`
`PARTIES
`
`21. Hospitals were at all relevant times serving as health care providers under
`
`agreements with the Secretary to participate in the Medicare program. Each has provided
`
`services to a disproportionate share of low-income patients (as those terms are defined under the
`
`Act) for the fiscal year at issue.
`
`22. Northcrest Medical Center, located in Springfield, Tennessee, is a not-for-profit
`
`acute care hospital assigned Medicare Provider No. 44-0065, with this action covering its fiscal
`
`year 2016.
`
`23. Parrish Medical Center, located in Titusville, Florida, is a not-for-profit
`
`community hospital assigned Medicare Provider No. 10-0028, with this action covering its
`
`fiscal year 2016.
`
`24. Springhill Memorial Hospital, located in Mobile, Alabama, is an acute care
`
`hospital assigned Medicare Provider No. 01-0144, with this action covering its fiscal year 2016.
`
`7
`
`
`
`
`
`
`

`

`Case 1:21-cv-01922-RJL Document 1 Filed 07/16/21 Page 8 of 35
`
`25. UF Health Jacksonville, located in Jacksonville, Florida, is a not-for-profit acute
`
`care hospital assigned Medicare Provider No. 10-0001, with this action covering its fiscal year
`
`2016.
`
`26. University of Missouri Health Care, located in Columbia, Missouri, is a not-for-
`
`profit academic medical center assigned Medicare Provider No. 26-0141, with this action
`
`covering its fiscal year 2016.
`
`27. Bryan Medical Center, located in Lincoln, Nebraska, is a nonprofit acute care
`
`hospital assigned Medicare Provider No. 28-0003, with this action covering its fiscal year 2016.
`
`28. Stormont Vail Hospital, located in Topeka, Kansas, is a not-for-profit acute care
`
`hospital assigned Medicare Provider No. 17-0086, with this action covering its fiscal year 2016.
`
`29. Defendant, Xavier Becerra, is the Secretary of the Department of Health and
`
`Human Services, 200 Independence Avenue, S.W., Washington D.C. 20201, the federal agency
`
`responsible for the administration of the Medicare and Medicaid Programs and the proper
`
`defendant under 42 U.S.C. § 1395oo(f)(1).
`
`IV.
`
`THE MEDICARE PROGRAM
`
`30. Congress enacted Medicare under the Act in 1965 as a public health insurance
`
`program to provide health benefits to the aged, blind and disabled, and certain other persons,
`
`without regard to their incomes.
`
`31.
`
`Inpatient hospital services are quintessential services covered under Part A of the
`
`Medicare provisions of the Act.
`
`32. For cost reporting years beginning prior to October 1, 1983, Medicare reimbursed
`
`inpatient hospitals for their services based on a retrospective audit of each hospital’s actual
`
`reasonable costs. See 42 U.S.C. § 1395f(b).
`
`8
`
`
`
`
`
`
`

`

`Case 1:21-cv-01922-RJL Document 1 Filed 07/16/21 Page 9 of 35
`
`33. Effective with cost reporting years beginning on or after October 1, 1983,
`
`Congress switched to a new prospective payment system (PPS) for reimbursing most acute care
`
`hospitals, under which payments were based on prospectively determined, fixed and federally
`
`determined per discharge DRG rates as a means of reigning in widely differing costs. See 42
`
`U.S.C. § 1395ww(d).
`
`34. Congress was, however, concerned that hospitals treating a large proportion of
`
`more costly low-income patients, (which also tend to be highly dependent on Medicare and
`
`Medicaid funding to make ends meet) might not survive on fixed DRG payments alone.
`
`Accordingly, Congress amended Title XVIII in 1986 to require the Secretary to make
`
`supplemental payments to the fixed DRG rates of hospitals that serve “a significantly
`
`disproportionate number of low-income patients . . . .” See 42 U.S.C. § 1395ww(d)(5)(F)(i)(I).
`
`35. The specifics of how the so-called Medicare disproportionate share hospital
`
`(DSH) adjustments are determined are discussed in Part VI below.
`
`THE MEDICAID PROGRAM AND THE EXPANSION OF
`V.
`MEDICAID TO LOW-INCOME POPULATIONS UNDER THE ACA
`
`36.
`
`In 1965, and along with Medicare, Congress enacted a “program to furnish
`
`medical assistance” under “Title XIX” of the Act (commonly referred to as Medicaid) to fund
`
`state medical assistance for “individuals who do not have the income and resources to pay for
`
`medical services.” See 42 U.S.C. § 1396, et seq.
`
`37. Medicaid (or medical assistance) is a federally funded program that is
`
`administered at the state level under which state expenditures draw down federal matching
`
`funding. States generally possess flexibility in establishing their Medicaid programs, but all
`
`states that choose to participate in Medicaid are bound to comply with all federal requirements
`
`set under law and by HHS regulations and to operate their programs in compliance with Title
`
`9
`
`
`
`
`
`
`

`

`Case 1:21-cv-01922-RJL Document 1 Filed 07/16/21 Page 10 of 35
`
`XIX’s mandates. These include, among other things, mandated coverage under each state’s
`
`medical assistance plan for all groups for which eligibility is mandated rather than optional, and,
`
`coverage of all categories of medical services treated as mandatory under Title XIX of the Act.
`
`See 42 U.S.C. § 1396d(a).
`
`38. Mandatory categories of eligibility are set forth in 42 U.S.C. § 1396a(a)(10)(A)(i),
`
`and optional coverage categories are set forth in § 1396a(a)(10)(A)(ii).
`
`39. Coverage of certain mandatory medical services (e.g., hospital and physician
`
`services), similarly, must be included in all federal state medical assistance plans as a condition
`
`of federal matching funding, while others (e.g., prescription drugs) are deemed optional under
`
`the Act. See 42 U.S.C. § 1396a(a)(10)(A) (requiring states to provide at least the care and
`
`services listed in 42 U.S.C. §§ 1396d(a)(1)-(5), (17), (21), (28) and (29), while the remainder of
`
`care and services under § 1396d(a) are considered optional).
`
`40. Each state plan delineates which persons and services (including both mandatory
`
`and optional eligibility categories) are covered and is submitted for approval by the Secretary.
`
`A state can modify its plan through submission of state plan amendments which are necessary
`
`for the state to receive matching federal financial participation (FFP). See 42 U.S.C. § 1396,
`
`1396a, 1396d(a)-(b). SPAs are required to satisfy any new mandates that Congress adds to Title
`
`XIX.
`
`41. Once the state plan or SPA is approved, FFP for furnishing items and services
`
`covered to persons covered under the state plan generally is paid quarterly using a matching
`
`percentage (from about 50% to 80% of the total costs) set by statute in relation to each state’s
`
`respective average per capita income level. See 42 U.S.C. §§ 1396a, 1396b(a).
`
`10
`
`
`
`
`
`
`
`
`
`
`
`

`

`Case 1:21-cv-01922-RJL Document 1 Filed 07/16/21 Page 11 of 35
`
`VI.
`
`THE ACA EXPANSION OF MEDICAID ELIGIBILITY AND COVERAGE
`
`42. As part of the ACA, Congress “expanded” Medicaid eligibility effective January
`
`1, 2014. Congress established a new Medicaid eligibility category for an expanded class of
`
`low-income persons by adding a new subpart (VIII) to 42 U.S.C. § 1396a(a)(10)(A)(i).
`
`43. Simultaneously, Congress enacted an individual coverage mandate which requires
`
`most persons to procure health insurance coverage in a QHP. QHPs relevantly may include
`
`Medicaid coverage or enrollment in individual commercial coverage (subsidized through
`
`refundable tax credits for persons with incomes up to 400% of the FPL) purchased through a
`
`state or a federal marketplace “exchange.”
`
`44. Persons who qualify for Medicaid are not eligible for subsidies for commercial
`
`individual QHPs, as Congress presumed such persons would obtain comprehensive coverage for
`
`little or no cost through Medicaid.
`
`45. This case involves so-called Medicaid “expansion” patients. This new Medicaid
`
`low-income eligibility category includes “individuals . . . who are under 65 years of age, not
`
`pregnant, not entitled to or enrolled for, benefits under Part A of Title XVIII [and not already
`
`eligible for Medicaid in their state] . . . and whose income does not exceed 133 percent of the
`
`poverty line [plus a 5% statutory disregard],” added as a mandatory benefits category at 42
`
`U.S.C. § 1396a(a)(10)(A)(i)(VIII). See ACA at sec. 2001(a)(1).47.
`
`46. Medicaid expansion was enacted by Congress to make health insurance coverage
`
`available to a significant class of previously uninsured very low-income persons. As of 2014,
`
`the thresholds for expansion coverage (including the 5% set aside) was $16,105 for an
`
`individual and $32,913 for a family of four. These are persons who had no health insurance
`
`and, for the most part, have incomes at or below the 10th percentile of all Americans.
`
`11
`
`
`
`
`
`
`

`

`Case 1:21-cv-01922-RJL Document 1 Filed 07/16/21 Page 12 of 35
`
`47. For the sake of simplicity and uniformity, Congress based expansion eligibility
`
`strictly on modified adjusted gross income (MAGI) data, which could be verified using
`
`available federal income tax-and related information.
`
`48. The ACA prescribed the use of a single portal to apply for either Medicaid or
`
`QHP coverage.
`
`49. The majority of states—including those where Plaintiffs do business—utilize
`
`federally established exchanges (FEEs) run by the Centers for Medicare and Medicaid Services
`
`(CMS) and through which CMS verifies eligibility for Medicaid and/or QHP subsidies based on
`
`MAGI through access to IRS, SSA and other electronic data sources. See 42 C.F.R. § 155.302.
`
`See also 42 C.F.R. § 603; Verification Procedures and Eligibility Rules in the Federally-
`
`facilitated Exchange, HHS-0938-2020-F-3442 (August 31, 2020).
`
`50. Congress shielded states from most of the costs of medical assistance for newly
`
`eligible Medicaid populations, initially providing for 100% in FFP (for the first two years) and
`
`thereafter at least 90% in FFP to fund the ACA’s Medicaid expansion mandate.
`
`51. Congress legislatively presumed that expanded Medicaid coverage would be
`
`universally included under all state Medicaid plans and adopted through pro forma submission
`
`of SPAs required to achieve compliance with the ACA. This presumption was manifest from
`
`the fact that Congress made eligibility for the ACA expansion population mandatory rather than
`
`optional under the ACA amendments, leaving states (but for NFIB) no choice but to submit
`
`conforming SPAs to incorporate expansion coverage effective by January 1, 2014 as a condition
`
`of the continued receipt of federal Medicaid funding.
`
`52. Consistent with these statutory presumptions, the Secretary issued a variety of
`
`published guidance which similarly presumed that all states participating in Medicaid would
`
`12
`
`
`
`
`
`
`

`

`Case 1:21-cv-01922-RJL Document 1 Filed 07/16/21 Page 13 of 35
`
`submit ministerial SPAs to expand coverage to cover the new class of low-income patients as
`
`mandated by the ACA by 2014.
`
`53. The joint assumption that all states would be universally amending their approved
`
`Medicaid plans to extend coverage to the newly mandated expansion population was partially
`
`upended by the decision in NFIB. NFIB upheld the underlying Medicaid expansion, which
`
`remains a mandate under the terms of the Act. At the same time, a plurality ruling within NFIB
`
`empowered recalcitrant states on a de facto basis and without penalty to forego statutorily
`
`mandated expansions of their existing Medicaid programs.
`
`54. As a result, a minority of (non-expansion) states, with many in the deep South,
`
`chose not to amend their state plans to comply with Section 1396a(a)(10)(A)(VIII). As a result
`
`they did not submit what should, under the terms of the ACA, have been pro forma SPAs
`
`amendments adding the additional coverage terms required by the ACA for expansion
`
`populations.
`
`55. The decisions of some states not to submit SPAs due to NFIB had the unintended
`
`consequence of unexpectedly reducing the Medicare DSH adjustments due hospitals located in
`
`non-expansion states, as discussed next.
`
`56. Following the NFIB decision, legislation was proposed that would have changed
`
`“expansion population” coverage from mandatory to optional. That amendment was never
`
`enacted. See H.R. 1628, Sec. 112: Repeal of Medicaid Expansion (115th Cong. 1st Sess. 2017).
`
`Consequently, to this day, and as courts and the Secretary (in court filings) have recognized,
`
`Medicaid expansion is still considered mandatory as a matter of law under the terms of the Act
`
`and notwithstanding NFIB.
`
`13
`
`
`
`
`
`
`
`
`

`

`Case 1:21-cv-01922-RJL Document 1 Filed 07/16/21 Page 14 of 35
`
`VII. A DEEPER DIVE INTO THE MEDICARE
`DISPROPORTIONATE SHARE HOSPITAL ADJUSTMENT
`57. As noted, Medicare DSH adjustments are designed to supplement the regular
`
`prospectively determined federal Medicare payments of hospitals serving high proportions of
`
`low-income patients in the form of a percentage add-on to their regular DRG rates. As the
`
`Secretary has observed, “the Congressional goals of the Medicare DSH adjustment [was] to
`
`recognize the higher costs to hospitals of treating low income patients covered by Medicare.”
`
`65 Fed. Reg. 3137 (Jan. 20, 2000).
`
`58. A hospital’s eligibility to receive DSH supplements and the amount of its
`
`supplemental Medicare DSH payments both turn on each hospital’s “disproportionate share
`
`percentage” (DPP). See 42 U.S.C. §§ 1395ww(d)(5)(F)(v) and (vi). This DPP is meant to
`
`capture the share of a hospital’s patients who are deemed to be of low-income and more
`
`expensive to treat (due to their indigency and corresponding inability to pay for medical
`
`services) as a matter of legislative fact.
`
`59. To determine the DPP, Title XVIII – whose language is mirrored in the
`
`regulations – prescribes calculating and then combining two fractions that serve as low-income
`
`proxies: the so-called Medicare fraction and Medicaid fractions (low-income proxies) are set
`
`forth in the statute and in the Secretary’s implementing regulations.
`
`60. While Medicare is not income-based, a subpopulation of Part A beneficiaries are
`
`low-income persons who also qualify for Supplemental Security Income (SSI) benefits. The
`
`Medicare low-income fraction is the ratio (for the relevant cost year) of the number of inpatient
`
`days of Medicare patients who are “entitled to receive” SSI benefits – the numerator – divided
`
`by the total number of patients who are “entitled to benefits under” Part A. See 42 C.F.R.
`
`§ 412.106(b)(2).
`
`14
`
`
`
`
`
`
`

`

`Case 1:21-cv-01922-RJL Document 1 Filed 07/16/21 Page 15 of 35
`
`
`
`61. This so-called Medicare fraction captures the low-income ratio of the hospitals
`
`“entitled to benefits” under Medicare Part A. Courts have regularly held that “entitlement” to
`
`Part A benefits refers to receipt of actual payments for services under Part A, as distinct from
`
`merely being “eligible” to apply for and receive such benefits.
`
`62. The current action does not involve the Medicare fraction, but only the second, or
`
`so-called Medicaid low-income fraction. The Medicaid low-income fraction includes patients
`
`who are not entitled to receive healthcare benefits under Part A of Medicare and is based on the
`
`ratio of inpatient days of inpatients who are “eligible” for Medicaid (the numerator) divided by
`
`the hospital’s total inpatient days (the denominator).
`
`63. The Medicaid fraction clause states specifically as follows:
`
`The fraction (expressed as a percentage), the numerator of
`(ii)
`which is the number of the hospital’s patient days for such period
`which consists of patients who (for such days) were eligible for
`medical assistance under a State plan approved under Title XIX of
`this chapter, but who were not entitled to benefits under Part A of
`this Title, and the – denominator of which is the total number of
`the hospital patient days for such period.
`
`42 U.S.C. § 1395ww(d)(5)(F)(vi) (emphasis added).
`64. The Secretary’s regulation implementing the second fraction, which long pre-
`
`dates NFIB, similarly states:
`
`Second Computation
`
`
`
`(i)
`
`For purposes of this computation, a patient is deemed
`eligible for Medicaid on a given day only if the patient is
`eligible for inpatient hospital services under an approved
`State Medicaid plan or under a waiver authorized under
`section 1115(a)(2) of the Act on that day, regardless of
`whether particular items or services were covered or paid
`under the State plan or the authorized waiver.
`
`42 C.F.R. § 412.106(b)(4)(i) (emphasis added).
`
`
`
`
`15
`
`

`

`Case 1:21-cv-01922-RJL Document 1 Filed 07/16/21 Page 16 of 35
`
`65. Courts have universally recognized that “eligibility” for Medicaid means the
`
`person is capable under law of applying for and receiving coverage, rather than actually having
`
`their benefits actually paid for by Medicaid (as would a person actually “entitled” to be paid
`
`benefits under the program).
`
`66. The first and second low-income fractions – i.e., the SSI percentage and the
`
`Medicaid days to total patient days percentage – are combined under the Medicare DSH
`
`provisions into a single low-income patient volume proxy representing the hospitals’ so-called
`
`disproportionate patient percentage or DPP (in which persons eligible for Medicaid are deemed
`
`by statute to be low-income patients for DPP purposes).
`
`67. As the Ninth Circuit Court of Appeals observed in Portland Adventist Medical
`
`Ctr. v. Thompson, 399 F.3d 1091, 1095 (9th Cir. 2005) (quoting Legacy Emanuel Hosp. &
`
`Health Ctr. v. Shalala, 97 F.3d 1261, 1265 (9th Cir. 1996)):
`
`Congress’s “overarching intent” in passing the [Medicare]
`disproportionate share provision was to supplement the prospective
`payment system payments of hospitals serving “low income”
`persons . . . Congress intended the Medicare and Medicaid
`fractions to serve as a proxy for all low-income patients.
`(Emphasis added).
`VIII. THE HOSPITALS’ CLAIMS AND ADMINISTRATIVE APPEALS
`
`68. The Secretary has delegated responsibility for administering the Medicare
`
`Program to CMS, formerly known as the Health Care Financing Administration (and
`
`collectively referred to herein as CMS). CMS, in turn, delegates day-to-day audit and payment
`
`functions to organizations formerly known as fiscal intermediaries, and now called MACs. See
`
`42 U.S.C. § 1395h.51.
`
`69. Medicare DRG payments are processed using fixed rates and estimated add-on
`
`amounts (such as DSH supplements) are reconciled at the close of each fiscal year. After the
`
`fiscal year, each hospital submits to its MAC a cost report showing the allowable costs incurred
`
`16
`
`
`
`
`
`
`

`

`Case 1:21-cv-01922-RJL Document 1 Filed 07/16/21 Page 17 of 35
`
`and amounts due from Medicare for the fiscal year and the payments received from Medicare.
`
`The MAC audits the cost report, reconciles the amounts finally due with interim payments made
`
`during the course of the fiscal year, and informs the hospital of a final determination of the
`
`amount of Medicare reimbursement due through a Notice of Program Reimbursement (NPR).
`
`42 C.F.R. § 405.1803.
`
`70. A hospital “dissatisfied” with its MAC’s program reimbursement determination
`
`may file an appeal to the PRRB within 180 days after receiving its NPR if its claim satisfies the
`
`amount-in-controversy threshold. See 42 U.S.C. § 1395oo(a). The Secretary’s rules include
`
`provisions for the filing of “group appeals” by related or unrelated providers pursuing relief on
`
`commons issues. See 42 C.F.R. § 405.1837.
`
`71. The decision of the PRRB also is subject to review by the CMS Administrator
`
`upon motion or the Administrator’s own motion. Upon review, the Administrator may reverse,
`
`affirm or modify the PRRB’s decision. 42 U.S.C. § 1395oo(f). Unless the Administrator
`
`reverses or modifies the PRRB’s decision (which was not the case in this appeal), the decision
`
`of the PRRB becomes the final administrative decision of the Secretary.
`
`72. When the PRRB lacks the authority to grant relief because the relief sought is
`
`prohibited under the terms of one of the Secretary’s regulations, the provider is entitled under
`
`42 U.S.C. § 1395oo(f)(1) to file in federal district court for EJR without a full administrative
`
`review. This occurs upon a certification of EJR by the PRRB that the outcome is controlled by
`
`a regulation or CMS policy that the PRRB is powerless to disregard. See 42 C.F.R. § 405.1842.
`
`73. A provider may obtain judicial review of a final decision of the PRRB, including
`
`the