Jackson Purchase Medical Center et al v. Sebelius et al

Filing 38

OPINION & ORDER: 1. Plaintiffs' motion for summary judgment (DE 22 ) is DENIED;2. Defendants' motion for summary judgment (DE 29 ) is GRANTED; and 3. A judgment consistent with this Opinion and Order will be entered contemporaneously. Signed by Judge Karen K. Caldwell on 08/12/2015.(MRS)cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
SOUTHERN DIVISION
AT LONDON
JACKSON PURCHASE MEDICAL
CENTER and LAKE CUMBERLAND
REGIONAL HOSPITAL,

CIVIL ACTION NO. 6:14-cv-1-KKC

Plaintiffs,
V.

OPINION AND ORDER

UNITED STATES DEPARTMENT OF
HEALTH AND HUMAN SERVICES,
CENTERS FOR MEDICARE AND
MEDICAID SERVICES, et al.,
Defendants.

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Plaintiffs (“the Providers”) appeal the final administrative decision of the Secretary
of Health and Human Services (“the Secretary”) to exclude certain low-income populations
from the formula used to determine whether a Provider qualifies for increased Medicare
reimbursement rates. Part of the Medicare formula includes patient days for individuals
“eligible for medical assistance under a State plan approved under subchapter XIX.” 42
U.S.C. § 1395ww(d)(5)(F)(vi)(II). The Providers assert that the Secretary unlawfully
interpreted this statutory provision. The Court will affirm the Secretary’s interpretation
because the low-income patients that the Providers seek to add in the Medicare formula are
not “eligible for medical assistance” under an approved State plan.
I. BACKGROUND
A. MEDICARE AND MEDICAID
Congress created the Medicare and Medicaid programs through Titles XVIII and
XIX of the Social Security Act. Medicare is a federally funded health insurance program for

older and disabled individuals. 42 U.S.C. § 1395 et seq. Medicaid is a federal grant
program—unavailable to Medicare recipients—that requires each state to create federalstate partnerships to provide certain medical services to individuals “whose income and
resources are insufficient to meet the costs of necessary medical services.” 42 U.S.C. § 13961. The design, funding, and reimbursement for these programs are distinct; however, both
programs seek to improve the quality of care for vulnerable populations.
1. Medicare Reimbursement
Medicare utilizes the prospective payment system (“PPS”) to reimburse providers for
inpatient hospital services. 42 U.S.C. § 1395ww(d). Generally, PPS sets a fixed
reimbursement rate “for each discharge, based on the patient’s diagnosis, and regardless of
actual cost.” Good Samaritan Hosp. v. Shalala, 508 U.S. 402, 406 n.3 (1993) (citing 42
U.S.C. § 1395ww(d)). The Secretary may, however, adjust PPS reimbursement rates based
on hospital-specific factors. 42 U.S.C. § 1395ww(d)(5). For example, “the Secretary shall
provide . . . for an additional payment amount for each [provider that] serves a significantly
disproportionate number of low-income patients.” 42 U.S.C. § 1395ww(d)(5)(F)(i)(I). This
provision is known as the Medicare disproportionate share hospital (“Medicare DSH”)
adjustment.
2. Medicare DSH
Qualification for Medicare DSH—and the degree of an adjustment—depends on
whether a provider meets a defined “disproportionate patient percentage.” 42 U.S.C.
§ 1395ww(d)(5)(F)(v). A provider’s “disproportionate patient percentage” is the sum of two
fractions. 42 U.S.C. § 1395ww(d)(5)(F)(vi). The first fraction is the “Medicare fraction.” 42
U.S.C. § 1395ww(d)(5)(F)(vi)(I). The second fraction is a proxy for the percentage of a
provider’s low-income, non-Medicare patients; this is the “Medicaid fraction.” The
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numerator of the Medicaid fraction consists of the number of patient days a provider
treated “patients who (for such days) were eligible for medical assistance under a State plan
approved under subchapter XIX of this chapter, but who were not entitled to [Medicare]
benefits” and patient days a provider treated patients receiving “benefits under a
demonstration project,” and the denominator of the Medicaid fraction consists of the total
number of the provider’s patient days. 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II). The Providers
contest the Secretary’s interpretation of the patients that should be credited in the
numerator of the “Medicaid fraction.”
3. Medicaid Reimbursement
Medicaid is a state-specific program where, pursuant to a federally approved “state
Medicaid plan,” the federal government provides matching payments for medical assistance
to eligible, low-income individuals. The “state Medicaid plan” specifies the qualifications for
eligibility and establishes the nature and scope of the medical care and services covered
pursuant to the state plan. 42 C.F.R. § 430.10. The Secretary must approve the state plan
before federal matching payments commence, but “[c]onsiderable deference is provided to
states under the [Medicaid] Act to decide ‘eligible groups, types and range of services,
payment levels for services, and administrative and operating procedures.’” Linton by
Arnold v. Comm’r of Health & Env’t, State of Tenn., 65 F.3d 508, 516 n.10 (6th Cir. 1995)
(quoting 42 C.F.R. § 430.0); 42 U.S.C. §§ 1396a, 1396d(b). Federal matching payments are
available for “the total amount expended . . . as medical assistance under the State plan,” 42
U.S.C. § 1396b(a)(1) (emphasis added), and the states distribute these federal funds for
medical care and services described in the state Medicaid plan, 42 C.F.R. § 430.0.

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4. Medicaid DSH
Medicaid also requires an upward reimbursement rate adjustment for providers
serving a disproportionate share of low-income patients. All state Medicaid plans must
establish a “process for determination of rates of payment under the plan . . . [that] take[s]
into account . . . the situation of [providers] which serve a disproportionate number of lowincome patients . . . .” 42 U.S.C. § 1396a(a)(13)(A). This provision is known as the Medicaid
disproportionate share hospital (“Medicaid DSH”) adjustment.
Although both Medicare and Medicaid provide DSH adjustments, Medicare DSH
and Medicaid DSH operate differently and address different objectives. Medicare DSH
utilizes a rigid formula set by the Medicare statute. See 42 U.S.C. § 1395ww(d)(5)(F).
Conversely, Medicaid DSH adjustments are defined by each state, and the Medicaid statute
permits states significant latitude in determining which patients to include in its Medicaid
DSH definition. See 42 U.S.C. § 1396r-4(a)(1). A state’s Medicaid DSH adjustment may
include “patients eligible for medical assistance under a State plan approved under this
subchapter or [other] low-income patients.” 42 U.S.C. § 1396r-4(c)(3)(B) (emphasis added).
Thus, Congress explicitly allowed a state to define its Medicaid DSH adjustment to include
patients not eligible for any assistance contemplated under the Social Security Act.
Congress also clarified that Medicaid DSH adjustments are intended to satisfy a
broad statutory purpose.
The purpose of the Medicaid DSH payment adjustment is to
assist those facilities with high volumes of Medicaid patients in
meeting the costs of providing care to the uninsured patients
that they serve, since these facilities are unlikely to have large
numbers of privately insured patients through which to offset
their operating losses on the uninsured.

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H.R. Rep. No. 103-111, at 211 (1993), reprinted in 1993 U.S.C.C.A.N. 378, 538 (emphasis
added). The Administrator of the Centers for Medicare and Medicaid Services (“CMS”) also
noted that Medicaid DSH payments are paid prospectively and not in contemplation of any
specific medical services or diagnoses. (DE 1-3 at 17.) These prospective payments help
providers offset expenses associated with treating uninsured, low-income patients. (DE 1-3
at 17 (“The Medicaid DSH payment is not considered a “payment” for the year for which the
data used in the calculation was taken and is not intended as even an indirect
compensation for those patient days.”).)
Despite each state’s broad discretion in defining its Medicaid DSH adjustments,
every state must include this definition in its state Medicaid plan for approval from the
Secretary. 42 U.S.C. § 1396r-4(a). Congress requires approval of this definition to guarantee
that Medicaid DSH payments assist medical facilities providing care to high volumes of
low-income patients rather than “for unrelated purposes, such as building roads, operating
correctional facilities, [or] balancing State budgets.” H.R. Rep. No. 103-111, at 212 (1993),
reprinted in 1993 U.S.C.C.A.N. 378, 539; see also Univ. of Wash. Med. Ctr. v. Sebelius, 634
F.3d 1029, 1034–35 (9th Cir. 2011). Therefore, the Secretary’s scrutiny of a state’s Medicaid
DSH definition is limited to verifying that these payments are directed to low-income
medical care and service. See Nazareth Hosp. v. Sec’y United States Dep’t of Health &
Human Servs., 747 F.3d 172, 183 (3d Cir. 2014). The Secretary does not, however, approve
the details of a state’s plan to use Medicaid DSH payments to assist medical facilities
providing care to high volumes of low-income patients. See id.
B. KENTUCKY’S MEDICAID PLAN AND THE KENTUCKY HOSPITAL CARE PROGRAM
The Kentucky Medicaid Plan established the requirements for statewide Medicaid
eligibility. For example, a family of three could earn no more than thirty-nine percent of the
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federal poverty level (“FPL”) to receive Kentucky Medicaid benefits. (DE 22 at 10–11.) The
state plan also described Kentucky’s Medicaid DSH definition. Kentucky’s Medicaid DSH
definition included “traditional” Medicaid patients and Kentucky Hospital Care Program
(“KHCP”) patients. (See DE 1-3 at 2–3); see also 42 U.S.C. § 1396r-4(c)(3)(B) (permitting a
state to include “patients eligible for medical assistance under a State plan approved under
this subchapter or [other] low-income patients” in its Medicaid DSH definition).
KHCP is a state program that provides medical assistance to individuals and
families that (1) can demonstrate Kentucky residency; (2) earn less than one hundred
percent of the FPL; and (3) are ineligible for traditional Medicaid. (DE 22 at 11.) Thus, a
family of three earning forty-three percent of the FPL could not qualify for Medicaid but
could receive medical assistance under KHCP. KHCP is funded through state and local
payments, and Kentucky also authorizes Medicaid DSH payments to offset the costs
providers incur when treating KHCP patients. (See DE 1-2 at 9; DE 22 at 12.)
Kentucky submitted its state Medicaid Plan, including the state Medicaid DSH
definition, to the Secretary for approval. The Secretary approved the Kentucky Medicaid
Plan. (DE 22 at 10.)
C. ADMINISTRATIVE PROCEEDINGS
The Providers are acute care hospitals located in the Eastern District of Kentucky
that participated in Medicare, Medicaid, and KHCP. Medicare funds are distributed to
providers through fiscal intermediaries. 42 C.F.R. § 405.1801(b)(1). The Providers
submitted cost reports to their fiscal intermediary. (DE 1-2 at 5.) Cost reports include
information necessary to determine PPS reimbursements and the Medicare DSH
adjustment. See Metro. Hosp. v. United States Dep’t of Health & Human Servs., 712 F.3d
248, 254 (6th Cir. 2013). The Providers submitted cost reports that included both Medicaid
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and KHCP patient days in their Medicare DSH adjustment, but the fiscal intermediary
disagreed and excluded KHCP patient days from the Providers’ Medicare DSH adjustment.
(DE 1-2 at 5.) As a result, the Providers received a significantly lower Medicare DSH
reimbursement.
The Providers filed a timely administrative appeal of the fiscal intermediary’s
decision to the Provider Reimbursement Review Board (“PRRB”). (DE 1-2). The PRRB
affirmed the fiscal intermediary’s decision to exclude KHCP patient days from the
Providers’ Medicare DSH adjustment. (DE 1-2 at 10.) The Providers appealed the PRRB’s
decision to the Administrator of CMS for final agency review. (DE 1-3). The Administrator
affirmed the PRRB’s decision. (DE 1-3 at 21.) The Administrator’s decision constituted the
final administrative decision of the Secretary. The Providers timely filed the present action
to seek judicial review of the Secretary’s administrative decision. (DE 1). The Providers and
the Secretary filed cross motions for summary judgment. (DE 22; DE 29).
II. DISCUSSION
This Court has jurisdiction to review any final decision of the PRRB if a civil action
is timely commenced after notice of the Secretary’s reversal, affirmance, or modification of
the PRRB’s decision. 42 U.S.C. § 1395oo(f)(1).
The Social Security Act incorporates the standards of judicial review established for
agencies pursuant to Title 5 Chapter 7. 42 U.S.C. § 1395oo(f)(1). This Court reviews factual
findings for substantial evidence, 5 U.S.C. § 706(2), and analyzes the Secretary’s
interpretation of the Medicare and Medicaid statutes under the two-step process
established in Chevron, U.S.A., Inc. v. Natural Res. Defense Council, Inc., 467 U.S. 837,
842–43 (1984). “First, always, is the question whether Congress has directly spoken to the
precise question at issue.” Id. at 842. If so, the court and the agency “must give effect to the
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unambiguously expressed intent of Congress.” Id. at 843. But, “if the statute is silent or
ambiguous with respect to the specific issue, the question for the court is whether the
agency’s answer is based on a permissible construction of the statute.” Id.
The issue in this matter concerns implementation of the Medicare DSH statutory
language: “eligible for medical assistance under a State plan approved under subchapter
XIX.” 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II). The Providers assert that the statute “plainly
requires KHCP patients to be counted,” and—therefore—the Secretary’s interpretation is
not accorded deference. (DE 22 at 16–21.) Because the Court finds that “eligible for medical
assistance under a State plan approved under subchapter XIX” unambiguously excludes
patients receiving KHCP benefits, the Court rejects the Providers’ Chevron Step One
interpretation.
The statutory language defines which patients may be credited in the numerator of
the “Medicaid fraction” of the Medicare DSH formula. See 42 U.S.C. § 1395ww(d)(5)(F)(vi).
The more patients lawfully included in the numerator, the greater the Medicare DSH
adjustment. But the statute only permits a provider to include patients in the numerator
that meet following requirements: (1) patients must receive—or be eligible to receive—
medical assistance (2) pursuant to a State plan approved under subchapter XIX.1 KHCP
patients do not receive “medical assistance” as defined by the Social Security Act and
KHCP is not a State plan approved under subchapter XIX; therefore, a provider may not
include KHCP patients in the numerator of the “Medicaid fraction” of the Medicare DSH
formula.

The statue also permits a provider to include patients receiving benefits under a “demonstration
project” in the numerator, 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II); however, that provision is not at issue
in this matter.
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A. MEDICAL ASSISTANCE
A provider must give “medical assistance” to qualifying patients for the provider to
include the patient in the numerator of the Medicare DSH adjustment formula. “Medical
assistance” is not defined in Title XVIII, the Medicare provisions, but is defined in Title
XIX, the Medicaid provisions. Both Titles XVIII and XIX are part of the Social Security Act,
and textual canons dictate that “medical assistance” has the same meaning in the Medicare
DSH statute as in the Medicaid statutes.
“A standard principle of statutory construction provides that identical words and
phrases within the same statute should normally be given the same meaning.” Powerex
Corp v. Reliant Energy Servs., Inc., 551 U.S. 224, 232 (2007). But “[c]ontext counts.” Envtl.
Def. v. Duke Energy Corp., 549 U.S. 561, 576 (2007); see also Util. Air Regulatory Group v.
E.P.A., 134 S. Ct. 2427, 2441 (2014). “[I]t is fundamental that a section of a statute should
not be read in isolation from the context of the whole Act.” Richards v. United States, 369
U.S. 1, 11 (1962); see also King v. Burwell, 135 S. Ct. 2480, 2489 (2015) (Courts “must read
words in their context and with a view to their place in the overall statutory scheme . . .
[because courts must] construe statutes, not isolated provisions.” (internal quotations
omitted)). For example, the presumption of statutory consistency may be rebutted if it is
obvious that Congress intended that the statutory provisions could define the disputed term
differently; if the disputed term is broad and frequently defined differently; and if an
agency adopted “longstanding, reasonable, and differing interpretations” of the disputed
term. Envtl. Def., 549 U.S. at 574–76.
Here, “[n]othing in the context of the Social Security Act overcomes” the
presumption of statutory consistency. Univ. of Wash. Med. Ctr., 634 F.3d at 1034; Adena
Reg’l Med. Ctr. v. Leavitt, 527 F.3d 176, 179–80 (D.C. Cir. 2008). Additionally, the Medicare
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DSH provision explicitly references Title XIX, see 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II);
therefore, it is natural to incorporate the Title XIX definition to this provision, Univ. of
Wash. Med. Ctr., 634 F.3d at 1034; see also United Sav. Ass’n of Tex. V. Timbers of Inwood
Forest Assocs., Ltd., 484 U.S. 365, 371–76 (1988).
Accordingly, the canons of textual integrity decisively favor incorporating the
Medicaid statutory definition of “medical assistance” to the Medicare DSH statute. The
Medicaid statute defines “medical assistance” as “payment of part or all of the cost of
[certain enumerated categories of] care and services.” 42 U.S.C. § 1396d(a).
KHCP is funded through local, state, and federal funds. (See DE 1-2 at 9; DE 22 at
12.) The federal funds are not disbursed from the federal government; rather, Kentucky
chose to designate Medicaid DSH payments to KHCP. (See DE 1-2 at 9; DE 22 at 12.) Also,
Medicaid DSH payments are distributed prospectively and not as remuneration for part or
all of the cost of any medical care or services. (DE 1-3 at 17.) Because Medicaid DSH
payments are distributed prospectively and not directed towards specific care or services,
Medicaid DSH funds do not constitute “medical assistance.” See 42 U.S.C. § 1396d(a).
Therefore, KHCP patients do not receive—and are not capable of receiving—“medical
assistance” from the federal government and may not be credited in the numerator of the
“Medicaid fraction” of the Medicare DSH formula. Univ. of Wash. Med. Ctr., 634 F.3d at
1034–35; Adena Reg’l Med. Ctr., 527 F.3d at 179–80; see also Jewish Hosp., Inc. v. Sec’y of
Health & Human Servs., 19 F.3d 270, 274 (6th Cir. 1994) (noting that “the word ‘eligible’
refers to whether a patient is capable of receiving federal medical assistance”).
B. APPROVAL UNDER SUBCHAPTER XIX
The Medicare DSH statute also requires patients receive medical care pursuant to “a
State plan approved under subchapter XIX.” 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II). The
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Providers assert that, in approving the Kentucky Medicaid Plan, the Secretary also
approved the KHCP program (see DE 22 at 10–12); however, the Providers conflate
approval of a definition with approval of a plan.
KHCP is a Kentucky program for low-income individuals distinct from Medicaid.
(See DE 22 at 11–13.) Kentucky defined and approved the program. Kentucky then
included this program in its definition of the Medicaid DSH adjustment, and the Secretary
approved the definition of Kentucky’s Medicaid DSH adjustment. The Secretary did not
approve the qualifications, nature, or scope of the KHCP program. See H.R. Rep. No. 103111, at 212 (1993), reprinted in 1993 U.S.C.C.A.N. 378, 539 (noting that the Secretary must
approve a state’s Medicaid DSH definition to establish that a state will use Medicaid DSH
payments to treat low-income patients rather than “for unrelated purposes, such as
building roads, operating correctional facilities, [or] balancing State budgets”).
Thus, the Secretary did not approve the KHCP plan under subchapter XIX, and
KHCP patients may not be credited in the numerator of the “Medicaid fraction” of the
Medicare DSH formula. See Adena Reg’l Med. Ctr., 527 F.3d at 178–79.
III. CONCLUSION
Although KHCP requires participating providers to care for low-income patients,
KHCP patients do not—and are not eligible to—receive “medical assistance” within the
meaning of the Medicare DSH statute and the Secretary does not approve the KHCP
program. Therefore, providers may not include KHCP patients in the numerator of the
“Medicaid fraction” of the Medicare DSH formula. See 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II).
Accordingly, IT IS ORDERED as follows:
1. Plaintiffs’ motion for summary judgment (DE 22) is DENIED;
2. Defendants’ motion for summary judgment (DE 29) is GRANTED; and
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3. A judgment consistent with this Opinion and Order will be entered
contemporaneously.
Dated August 12, 2015.

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