Bethesda Health, Inc. v. Alex M Azar II ( 2019 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________
)
BETHESDA HEALTH, INC., et al., )
)
Plaintiffs, )
)
v. ) Civil Action No. 18-875 (RMC)
)
ALEX M. AZAR II, Secretary of the )
Department of Health and Human )
Services, )
)
Defendant. )
__________________________________ )
OPINION
This case concerns the application of a mathematical intersection between the
federal Medicare program and the joint state/federal Medicaid program insofar as inpatient
hospital care is reimbursed by Medicare. Hospitals that treat significant numbers of low-income
patients receive a higher amount per Medicare patient as a “disproportionate share hospital
(DSH) adjustment.” The size of the DSH adjustment to a given hospital is determined in part by
the percentage of the hospital’s total patient days attributed to Medicaid-eligible patients; the
more patients a hospital treats who are “eligible for Medicaid,” the greater its DSH adjustment
and the greater its reimbursement rate under Medicare. The phrase “eligible for Medicaid” thus
plays an important role in determining the amount of federal funding a hospital receives, and
much ink has been spilled over its meaning in various contexts. This case is one such example.
1
Plaintiffs are a group of hospital organizations 1 in the State of Florida which
provide uncompensated inpatient hospital services to uninsured and underinsured patients.
These patients would not typically be “eligible for Medicaid.” However, in 2006 Florida
authorized, and the Secretary of the Department of Health and Human Services (HHS) approved,
a Medicaid “demonstration project” which reformed Florida’s Medicaid program and
established, inter alia, a federally-matched $1 billion Low Income Pool (LIP). Funds from the
LIP were used to reimburse hospitals for the uncompensated inpatient hospital services provided
to uninsured and underinsured patients.
The Medicare statute and its regulations allow patients to be “deemed eligible for
Medicaid”—even if they are not—and counted towards a hospital’s DSH adjustment if those
patients are “eligible for inpatient hospital services” under a Medicaid demonstration project.
The question here is whether the uninsured and underinsured patients whose uncompensated
inpatient hospital services were reimbursed by the LIP, with the Secretary’s blessing, so qualify.
The Secretary has already answered “no.” Plaintiffs challenge this answer as arbitrary and
capricious. Both Parties move for summary judgment.
The Court concludes that the uninsured and underinsured patients whose
uncompensated inpatient hospital services were reimbursed by the LIP as part of a demonstration
project were “eligible for Medicaid” within the meaning of the statute and regulation and should
have had their patient days included in the relevant DSH calculations. Accordingly, the Court
1
Specifically, Plaintiffs are Bethesda Health, Inc.; Halifax Health; Indian River Memorial
Hospital; Lakeland Regional Medical Center, Inc.; LHP Hospital Group LLC; Martine Health
System; Naples Community Hospital; North Brevard County Hospital District; Sarasota
Memorial Hospital; and South Broward Hospital District, each doing business as various
hospitals.
2
will grant Plaintiffs’ motion for summary judgment and deny the government’s cross-motion.
The matter will be remanded for further proceedings.
I. BACKGROUND
A. The Medicaid Statute and Medicaid Demonstration Projects
Although this is a Medicare case, a brief introduction to Medicaid is necessary for
context. Medicaid was adopted in Title XIX of the Social Security Act (the Act), 42 U.S.C.
§ 1396 et seq. It is a joint federal-state program which “offers federal funding to States to assist
pregnant women, children, needy families, the blind, the elderly, and the disabled in obtaining
medical care.” Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519, 541 (2012). To receive
federal funding under Medicaid, a state must submit a plan for medical assistance for approval to
the Centers for Medicare and Medicaid Services (CMS), the agency within HHS which
administers both Medicaid and Medicare. This so-called State plan specifies who will receive
medical care and what care they will receive, among other details of the State plan’s
administration. Once a State plan is approved, CMS provides federal funds to the state
matching, to varying degrees, the amount the state itself “expended . . . as medical assistance
under the State plan.” 42 U.S.C. § 1396b(a)(1). The more “medical assistance” hospitals
provide to Medicaid patients under a State plan, the more payments the state makes to those
hospitals, and the more CMS reimburses the state.
Generally, under a traditional State plan, CMS only matches state expenditures
for “medical assistance,” a term limited by statute to certain enumerated services provided to
certain enumerated classes of individuals. See 42 U.S.C. § 1396d(a) (defining “medical
assistance”). Title XI § 1115(a) of the Social Security Act, 42 U.S.C. § 1315(a), however,
authorizes the Secretary to waive some of Medicaid’s statutory requirements for experimental
state “demonstration projects” which, in the Secretary’s judgment, will “assist in promoting the
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objectives of [Medicaid].” Id. These demonstration projects—also known as § 1115 waivers—
“enable the states to try new or different approaches to the efficient and cost-effective delivery of
health services, or to adapt their programs to the special needs of particular areas or groups of
recipients,” 42 C.F.R. § 430.25, and a state’s costs towards a demonstration project “shall, to the
extent and for the period prescribed by the Secretary, be regarded as expenditures under the State
plan.” 42 U.S.C. § 1315(a)(2)(A). In plain English, the law allows a state to adopt a
demonstration project, with prior approval from the Secretary, to “provide benefits to people
who wouldn’t otherwise be eligible for Medicaid benefits; and the costs of these benefits are
treated as if they are matchable Medicaid expenditures.” Forrest Gen. Hosp. v. Azar, No. 18-
60227, 2019 WL 2417409, at *2 (5th Cir. June 10, 2019). Patients not normally eligible for
Medicaid who nonetheless receive Medicaid benefits under a demonstration project are known as
“expansion waiver populations.” See Cookeville Reg’l Med. Ctr. v. Leavitt, 531 F.3d 844, 846
(D.C. Cir. 2008).
B. The Medicare Statute and the Disproportionate Share Hospital Adjustment
Medicare, adopted as Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et
seq., is a federal program which provides health insurance to those who qualify, mostly senior
persons receiving Social Security Income benefits at retirement or those receiving Social
Security Disability Income due to a covered disability. It is a huge program, paid for by taxes.
See Azar v. Allina, 139 S. Ct. 1804, 1808 (2019). Part A of Medicare reimburses hospitals for
the costs of inpatient medical care to such patients. Critically, Medicare no longer reimburses
hospitals for their actual operating costs. Described most simply, CMS reimburses hospitals “at
a fixed amount per patient” for each day of inpatient hospital services provided, according to a
patient’s diagnosis. Billings Clinic v. Azar, 901 F.3d 301, 303 (D.C. Cir. 2018). That fixed
amount per patient day differs among hospitals and is adjusted annually upwards or downwards
4
based on various local factors. As relevant here, Congress has determined that “[h]ospitals that
serve a disproportionate share of low-income patients have higher [M]edicare costs per case,”
H.R. Rep. No. 99-241, pt. 1, at 16 (1985), and those hospitals receive an upward adjustment to
their Medicare reimbursement, which is known as the disproportionate share hospital (DSH)
adjustment. 2
To determine whether a hospital serves a disproportionate share of low-income
patients, CMS looks to its “disproportionate patient percentage,” which is calculated by adding
together two fractions known as the Medicare fraction and the Medicaid fraction. Together these
two fractions “provide a proxy for the total low-income patient percentage.” 3 Catholic Health
Initiative Iowa Corp. v. Sebelius, 718 F.3d 914, 916 (D.C. Cir. 2013). This case involves only
the Medicaid fraction,
the numerator of which is the number of the hospital’s patient days
for such period which consist of patients who (for such days) were
eligible for medical assistance under a State plan approved under
subchapter XIX [i.e., Medicaid], but who were not entitled to
benefits under part A of this subchapter [i.e., Medicare], and the
denominator of which is the total number of the hospital’s patient
days for such period.
42 U.S.C. § 1395ww(d)(5)(F)(vi)(II). Put simply, for the purposes of this case, hospitals must
count how many in-hospital days were spent treating “patients who . . . were eligible for medical
assistance under a State plan approved under [Medicaid].” The effect of this fraction is that “the
more a hospital treats patients who are eligible for medical assistance under . . . Medicaid, the
2
The underlying concern is that low-income patients are less likely to receive regular health care
and therefore present upon admission to a hospital with greater needs than those with more
financial assets. See H.R. Rep. No. 99-241, pt. 1, at 16.
3
Medicaid patients are a helpful proxy for the number of low-income patients a hospital serves
because the program is geared towards low-income patients who do not qualify for Medicare due
to work history, age, or similar situations.
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more money it receives for each patient covered by Medicare.” Adena Reg’l Med. Ctr. v.
Leavitt, 527 F.3d 176, 178 (D.C. Cir. 2008) (internal marks omitted) (emphasis in original).
That said, the meaning of the phrase “patients who . . . were eligible for medical
assistance under a State plan approved under [Medicaid]” is not as obvious as it may sound.
This is because there is a second part to the definition of the Medicaid fraction:
In determining under [the Medicaid fraction] the number of the
hospital’s patient days for such period which consist of patients who
(for such days) were eligible for medical assistance under a State
plan approved under [Medicaid], the Secretary may, to the extent
and for the period the Secretary deems appropriate, include patient
days of patients not so eligible but who are regarded as such
because they receive benefits under a demonstration project
approved under subchapter XI.
42 U.S.C. § 1395ww(d)(5)(F)(vi)(II) (emphasis added). This means that hospitals may count
“both (1) days a hospital treated patients who were Medicaid-eligible, and (2) days a hospital
treated patients who are regarded as Medicaid-eligible because they received demonstration
project benefits.” Forrest Gen. Hosp., 2019 WL 2417409, at *2 (emphasis added).
Interestingly, although the Medicare DSH provisions have existed since 1986, Congress only
recently added this second part of the Medicaid fraction statute, as § 5002(a) of the Deficit
Reduction Act of 2005, Pub. L. No. 109-71, § 5002(a), 120 Stat. 4, 31 (Feb. 8, 2006). To
understand this development, we turn to the regulations implementing the Medicaid fraction.
C. The Medicare DSH Regulation
The regulation implementing the Medicaid fraction of the DSH calculation is
found at 42 C.F.R. § 412.106(b)(4) and includes in the Medicaid fraction “the number of the
hospital’s patient days of service for which patients were eligible for Medicaid.” 42 C.F.R.
§ 412.106(b)(4) (emphasis added). Initially, patient days attributable to expansion waiver
populations could not be included in a hospital’s DSH calculation because CMS only considered
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patients “eligible for Medicaid” if they were “eligible for medical assistance under an approved
Medicaid state plan.” 42 C.F.R. § 412.106(b)(4)(i) (1999). Demonstration projects, approved
under Title XI, are not part of State plans approved under Title XIX. See Cookeville, 531 F.3d at
848. This language was not applied evenly across the states, however, see id. at 846, so in
January 2000 the Secretary promulgated an Interim Final Rule allowing all patient days
attributable to expansion waiver populations to be included in the DSH adjustment calculation:
For the purposes of counting days under paragraph (b)(4)(i) of this
section, hospitals may include all days attributable to populations
eligible for Title XIX matching payments through a waiver
approved under section 1115 of the Social Security Act.
65 Fed. Reg. 3,136, 3,137 (Jan. 20, 2000) (codified at 42 C.F.R. § 412.106(b)(4)(ii)) (2000
Interim Final Rule); see also id. at 3,136 (“[W]e believe allowing hospitals to include the section
1115 expanded waiver population in the Medicare DSH calculation is fully consistent with the
Congressional goals of the Medicare DSH adjustment to recognize the higher costs to hospitals
of treating low income individuals covered under Medicaid.”).
But while the 2000 Interim Final Rule resolved one problem, it introduced
another: Some Medicaid demonstration projects provided only limited benefits to expansion
waiver populations, such as family planning and prescription drugs benefits. While such
demonstration projects were permissible and approved, the expansion waiver populations which
received such limited benefits tended to have higher incomes than traditional Medicaid
beneficiaries and including them in the DSH calculation essentially skewed the low-income
proxy. See 68 Fed. Reg. 45,346, 45,420-21 (Aug. 1, 2003) (2003 Clarifying Rule). In August
2003, the Secretary thus clarified that his “intention in allowing hospitals to include patient days
related to section 1115 expansion waiver populations was to include patient days of
demonstration populations who receive benefits under the demonstration project that are similar
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to traditional Medicaid beneficiaries, including inpatient benefits,” id. (emphasis added), and
amended the implementing regulation to state:
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 . . . .
Id. at 45,470 (emphasis added) (codified at 42 C.F.R. § 412.106(b)(4)(i)).
Congress approved this understanding of the DSH adjustment statute because in
addition to amending the statutory definition of the Medicaid fraction, as discussed above, the
Deficit Reduction Act also expressly ratified the 2000 Interim Final Rule and 2003 Clarifying
Rule. See Deficit Reduction Act § 5002(b). As a result, hospitals may now include in their DSH
calculations patient days attributable to patients “eligible for inpatient hospital services” under a
demonstration project. 42 C.F.R. § 412.106(b)(4)(i).
D. Florida’s Demonstration Project
The Secretary approved a five-year demonstration project for Florida’s Medicaid
program in 2006, pursuant to certain Special Terms and Conditions (STC). 4 See generally STC
at AR398-433. The demonstration project had several components, but as described in the STC,
one fundamental element was the creation of a Low Income Pool (LIP), a federally-matched $1
billion dollar capped annual allotment which was established “to ensure continued government
support for the provision of health care services to Medicaid, underinsured and uninsured
populations.” STC ¶ 91 at AR421.
Hospitals generally provide health care services to uninsured and underinsured
patients in the form of uncompensated care—also known as charity care—which is
4
This demonstration project was renewed for another three-year term in 2011. See Renewal of
Expenditure Authority for Florida’s Medicaid Reform Section 1115 Demonstration at AR943.
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unreimbursed, generally because a patient has insufficient third-party health insurance, if any at
all, and cannot afford to pay the cost themselves. Without government support, the cost of
uncompensated care is borne entirely by the hospital, limiting how much care it can afford to
provide to the uninsured and underinsured. The LIP “continued government support” because
LIP funds could be used “for health care expenditures . . . that would be within the definition of
medical assistance in [42 U.S.C. § 1936d(a)],” that were incurred by hospitals “for
uncompensated medical care costs of medical services for the uninsured.” STC ¶ 94 at AR422.
The use of LIP funds was implemented according to a Reimbursement and Funding
Methodology (RFM) document negotiated between Florida and CMS and approved by the latter.
See STC ¶ 101 at AR423-24; see generally RFM at AR449-71.
As discussed earlier, under traditional Medicaid, the federal government matches
a state’s reimbursements to its hospitals pursuant to the State plan so that more medical
assistance to Medicaid patients costs more to that state and to CMS in reimbursements. The LIP
portion of Florida’s demonstration project functioned similarly, but with a caveat: The LIP was
a capped allotment, which meant that each year Florida could receive no more than $1 billion in
matching federal funds to the LIP to reimburse hospitals for providing uncompensated care to
uninsured and underinsured patients not otherwise covered by Medicaid. While $1 billion is a
large amount of money, Florida is also a large state, and the allotment was consistently
“insufficient to fund a statewide benefit for the uninsured.” RFM at AR449. Accordingly,
Florida “adopted a basic distribution methodology similar to CMS’ methodology of providing a
predetermined pool to fund the uninsured, underinsured, and Medicaid shortfalls.” RFM at
AR450. In this way, Florida developed a formula by which hospitals could claim a share of the
limited LIP funds to reimburse them for specified expenditures for underinsured and uninsured
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patients under the demonstration project, but no share would reimburse “100% of the cost of
services for the uninsured [and] underinsured.” RFM at AR451.
Participating hospitals entered into agreements with the state to use LIP funds “to
increase the provision of health services for the Medicaid, uninsured, and underinsured people of
. . . Florida.” See, e.g., Letter of Agreement at AR2550. So that Florida could calculate each
hospital’s shares of LIP funding, hospitals were required to submit to the state “Milestone
Reports” which summarized the “unduplicated count of Medicaid and uninsured/underinsured
visits at their respective facilities funded by LIP resources.” RFM at AR468. Hospitals were
further required “to document the number of services provided to those individuals,”
distinguishing between inpatient and outpatient hospital services provided. RFM at AR468; see,
e.g., Low Income Pool Milestone Reporting Requirements at AR1083; see also Transcript of
PRRB Hearing at AR279 (Michele Golden) (“[P]roviders . . . must maintain medical records and
track . . . the individuals they’re providing services to using the low-income pool funding, and at
any time, they may be requested to provide supporting documents or an onsite visit to verify
those.”).
One result of this funding methodology was that although Florida hospitals
provided and documented inpatient care to individual patients, and although that inpatient care
was factored into their LIP reimbursements, the hospitals received lump sums from the LIP that
were not earmarked for any particular individual but, rather, partially reimbursed the hospitals’
costs for all qualifying inpatient hospital services provided to all uninsured and underinsured
patients.
In each of the first three years following implementation of the LIP, hospitals
reimbursed by the LIP were estimated to have provided approximately 1.5 million days of
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inpatient hospital services to underinsured and uninsured patients, up from roughly 1 million
days in the year prior to implementation. See University of Florida, Evaluation of the Low-
Income Pool Program Using Milestone Data: SFY 2008-09 (University of Florida Study) at
AR1814, AR1841, AR1856.
E. Procedural History
Per standard procedure, Plaintiffs each requested Medicare reimbursements by
filing annual cost reports with a fiscal intermediary 5 (essentially, private contractors who process
and audit Medicare reimbursements for CMS). See Banner Health v. Sebelius, 715 F. Supp. 2d
142, 146 (D.D.C. 2010). Plaintiffs included inpatient days attributable to underinsured and
uninsured LIP patients in their submissions. The fiscal intermediary excluded those days.
Plaintiffs each timely appealed to the Provider Reimbursement Review Board
(Board), a five-person independent panel within CMS which, as its name suggests, reviews
reimbursement decisions made by fiscal intermediaries. Analyzing the applicable regulation, the
Board upheld the fiscal intermediary’s consolidated decisions for three reasons. First it
explained that, based on the preamble to, and the language of, the 2000 Interim Final Rule, “the
Secretary intended to limit the inclusion of patient days in the DSH calculation to individuals
who become eligible under the terms of the waiver, or who receive specific medical services
under the waiver,” and that the DSH adjustment “is not intended to include payments made to a
hospital to compensate it for services provided to an unspecified population.” Board Decision at
AR25 (emphasis in original). Put another way, the Board considered it impermissible for the
LIP to issue to hospitals bulk reimbursements for uncompensated care to uninsured and
5
Fiscal intermediaries are now officially called Medicare Administrative Contractors, or MACs.
However, as the regulation, the Parties’ briefs, and much of the relevant case law still refers to
fiscal intermediaries, the Court will continue to use that term here.
11
underinsured patients in lieu of payments on behalf of specific patients who were identified with
each reimbursement.
Second, the Board found that the waiver did not “adequately describe the exact
nature of what [was] being paid for and whether it would be an ‘approved expenditure under
Title XIX.’” Id. For comparison, the Board identified a demonstration project in Massachusetts
which “established eligibility criteria” and “provided a clearly established benefit—premium
subsidy to enroll in a managed care plan which provided the same benefits as provided to
traditional Medicaid-eligible individuals.” Id. at AR26 (citing Sw. Consulting UMass Mem’l
Health Care & Steward Health 2009 DSH CCHIP Section 1115 Waiver Days Grps. v. Nat’l
Gov’t Servs., Inc., No. 2017-D4, 2017 WL 909303 (P.R.R.B. Jan. 27, 2017), rev’d 2017 WL
2403398 (CMS Adm’r Rev. Mar. 21, 2017), vacated and remanded sub nom. HealthAlliance
Hosps., Inc. v. Azar, 346 F. Supp. 3d 43 (D.D.C. 2018)). 6 The Board also identified a
demonstration project in Mississippi by which hospitals were reimbursed for uncompensated
care provided to inpatients displaced by Hurricane Katrina, because “the State of Louisiana made
expedited determinations of eligibility for specific individuals and . . . hospitals made claims
specific to these individuals.” Id. (citing CCT&B 2005-2006 Hurricane Katrina § 1115 Waiver
UCP Days Grp. v. Novitas Solutions, Inc., No. 2016-D18, 2016 WL 6299482 (P.R.R.B. Sep. 16,
2016), rev’d 2016 WL 7744987 (CMS Adm’r Rev. Nov. 18, 2016), aff’d sub nom. Forrest Gen.
Hosp. v. Hargan, No. 2:17-CV-8 (S.D. Miss. Feb. 22, 2018), rev’d and remanded Forrest Gen.
Hosp., 2019 WL 2417409). 7 In Plaintiffs’ case, the Board concluded that the lack of established
6
The Board’s decision was reversed by the CMS Administrator whose decision, in turn, was
vacated by the district court. The court decision in HealthAlliance is discussed in Part III, infra.
7
Forrest General Hospital also has a complicated procedural history. The Board’s decision was
reversed by the CMS Administrator, whose decision was sustained by the district court but then
reversed by the Fifth Circuit. The Circuit’s analysis is discussed in Part III, infra.
12
eligibility criteria in the § 1115 waiver documents themselves meant that there was no “defined
group of eligible . . . Section 1115 waiver individuals” and that “it is not the individual patients
whose eligibility is established and benefits paid on their behalf.” Id. at AR27.
Finally, the Board reasoned that for “patient days to be included in the DSH
calculation, these days must be for ‘populations who receive benefits under the demonstration
project that are similar to those available to traditional Medicaid beneficiaries.’” Id. (quoting 68
Fed. Reg. 27,154, 27,207 (May 19, 2003)). The Board then concluded that patient days
attributable to expansion waiver populations whose inpatient care was reimbursed by the LIP
could not be included in the DSH calculation because the terms of the demonstration project did
not specify what benefits such populations were to receive. Id.Plaintiffs requested review by the CMS Administrator. Review was denied,
rendering the Board’s opinion the relevant final agency action. Plaintiffs now challenge the
Board’s decision as arbitrary and capricious under the Administrative Procedure Act (APA).
The matter is ripe for review. 8
II. LEGAL STANDARD
Summary judgment is the proper stage for determining whether, as a matter of
law, final agency action is supported by the administrative record and is consistent with the
APA. See Fed. R. Civ. P. 56; Richards v. INS, 554 F.2d 1173, 1177 (D.C. Cir. 1977). The law
provides that “[t]he reviewing court shall . . . hold unlawful and set aside agency action” that is
“arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” or that is
8
See Pls.’ Mot. for Summ. J. (Pls.’ Mot.) [Dkt. 18]; Pls.’ Mem. in Supp. of Their Mot. for
Summ. J. (Pls.’ Mem.) [Dkt. 18]; Def.’s Mot. for Summ. J. [Dkt. 19]; Mem. of P. & A. in Opp’n
to Pls.’ Mot. for Summ. J. and in Supp. of Def.’s Cross-Mot. for Summ. J. (Def.’s Opp’n) [Dkt.
20]; Pls.’ Reply and Resp. to Def.’s Cross-Mot. for Summ. J. (Pls.’ Reply) [Dkt. 21]; Reply in
Supp. of Def.’s Mot. for Summ. J. (Def.’s Reply) [Dkt. 24].
13
“in excess of statutory jurisdiction, authority, or limitations, or short of statutory right.” 5 U.S.C.
§ 706(2)(A), (C). That said, arbitrary and capricious review is “narrow.” Citizens to Pres.
Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971). A court is not to “substitute its judgment
for that of the agency.” Motor Vehicle Mfrs. Ass’n of the U.S., Inc. v. State Farm Mut. Auto. Ins.
Co., 463 U.S. 29, 43 (1983).
Courts may set aside as arbitrary and capricious agency action which contradicts
that agency’s own regulations. See Erie Boulevard Hydropower, LP v. Fed. Energy Regulatory
Comm’n, 878 F.3d 258, 269 (D.C. Cir. 2017). However, deference is due to an agency’s
interpretation of its own otherwise ambiguous regulation, unless that interpretation is “plainly
erroneous or inconsistent with the regulation.” Auer v. Robbins, 519 U.S. 452, 461 (1997).
Deference to an agency’s interpretation of its own ambiguous regulation is particularly called for
when the regulation concerns a highly technical or complex area, such as Medicare, and the
agency has unique expertise. See Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994).
A court’s review is normally limited to the administrative record, Holy Land
Found. for Relief & Dev. v. Ashcroft, 333 F.3d 156, 160 (D.C. Cir. 2003), and the party
challenging an agency’s action bears the burden of proof, City of Olmsted Falls v. FAA, 292 F.3d
261, 271 (D.C. Cir. 2002).
III. ANALYSIS
At the risk of repeating the procedural history of this case, it is helpful to state at
the outset specifically what agency action this Court is reviewing. As described above, the
Secretary has promulgated a regulation, codified at 42 C.F.R. § 412.106(b)(4), that instructs
fiscal intermediaries as to which patient days shall be included in the Medicaid fraction of the
Medicare DSH adjustment. The fiscal intermediary, applying that regulation, determined that
patient days attributable to underinsured and uninsured patients who received inpatient hospital
14
services, but which services were reimbursed en gros by the Florida LIP, should be excluded
from Plaintiffs’ Medicaid fraction. Plaintiffs appealed that determination to the Board, which
interpreted the Secretary’s intent animating said regulations and affirmed the fiscal
intermediary’s decisions. At bottom, then, the question for this Court is whether the Board and
the fiscal intermediary correctly interpreted and applied 42 C.F.R. § 412.106(b)(4).
This same question has recently been addressed by two different courts. In
HealthAlliance Hospitals, Inc. v. Azar, 346 F. Supp. 3d 43, Judge Ketanji Jackson of this District
Court considered the same regulation in an almost identical case and reversed the CMS
Administrator based on the plain language of the regulation. In that case, the Commonwealth of
Massachusetts had applied for, and the Secretary had approved, a demonstration project known
as Commonwealth Care, which allowed Massachusetts to subsidize private health insurance for
many individuals who were not otherwise eligible for insurance under Medicare or Medicaid. Id.
at 50. Neither Massachusetts’ application nor the Secretary’s waiver identified any particular
benefit or type of coverage that was mandated. Id. at 51. As a matter of fact, however,
Commonwealth Care required all subsidized insurance plans to cover the same inpatient hospital
services for their subscribers that were extended to Medicaid patients. Id. Nonetheless, because
of this omission from the § 1115 waiver documents themselves, the CMS Administrator reversed
the Board and found that Commonwealth Care patients were not “eligible” for such inpatient
hospital services under the demonstration project. Id. at 53. The CMS Administrator thus
disapproved inclusion of the waiver expansion population’s patient days in the DSH calculation.
Id.
On review, Judge Jackson held that the CMS Administrator’s decision was
arbitrary and capricious, explaining that the “plain language of the applicable regulation
15
unambiguously requires that all patient days attributable to individuals receiving health insurance
through Medicaid or through a roughly equivalent authorized demonstration project (as
evidenced by the provision of ‘inpatient hospital services’) must be counted in the Medicaid
fraction’s numerator.” Id. at 56 (emphasis added). Judge Jackson further explained that the
language of the waiver was irrelevant to the fiscal intermediary’s calculation because the
regulation at § 412.106(b)(4) does not define, discuss, or otherwise cross-reference those
portions of the Code of Federal Regulations addressing the requirements for a demonstration
project, and as such there was no reason for the fiscal intermediary to look beyond the plain
language of § 412.106(b)(4). See id at 58. Thus, “the only . . . question from the standpoint of
the fiscal intermediary who is charged with counting the patient days associated with an
approved demonstration project under section 412.106(b)(4) . . . is whether patients covered by
Commonwealth Care were capable of receiving inpatient health services through the insurance
plans this program financed,” which the court determined in the affirmative. Id. at 60.
In Forrest General Hospital v. Azar, 2019 WL 2417409, the Fifth Circuit also
considered the same regulation and statute. Plaintiffs there were Mississippi hospitals which
provided inpatient hospital services to Hurricane Katrina evacuees under a demonstration project
that permitted Mississippi “to reimburse providers that incurred uncompensated care costs for
medically necessary services . . . for Katrina evacuees and affected individuals who did not have
coverage under . . . Medicaid, . . . private insurance, or under State-funding health insurance
programs for a five-month period—the uncompensated care pool (UCCP).” Id. at *4.
Notwithstanding, when Mississippi hospitals sought reimbursement under Medicare, the CMS
Administrator reversed the Board and disallowed UCCP patient days from their DSH
calculations. As in this case, the CMS Administrator analogized all uncompensated care to state-
16
only charity care and found that uninsured patients were not “eligible for medical assistance
under a State plan approved under [Medicaid],” despite the approved waiver. Id.The Fifth Circuit found the Secretary’s decision there also arbitrary and
capricious, holding that the unambiguous “statute means that patients who aren’t actually
Medicaid-eligible still count towards the Medicaid fraction’s numerator if they’re considered or
accounted to be capable of receiving a demonstration project’s helpful or useful effects by reason
of a demonstration project’s authority.” Id. at *7; see also id. at *11 (“The law governing the
inclusion of § 1115 waiver patient days in the Medicaid fraction is straightforward: The plain
regulatory text demands that such days be included—period.”). As a result, the Fifth Circuit
concluded that even though UCCP patients were uninsured or underinsured and otherwise
Medicaid-ineligible, they nonetheless “were capable of receiving inpatient health services” as
uncompensated care “under a § 1115 demonstration” that was clearly authorized by the Secretary
and so should have been included in the DSH calculation. See id. at *11.
A. 42 C.F.R. § 412.106(b)(4)
1. Interpreting the Regulation
To recap, the DSH implementing regulation for the Medicaid fraction states:
(4) Second computation. The fiscal intermediary determines . . .
the number of the hospital’s patient days of service for which
patients were eligible for Medicaid but not entitled to [Medicare],
and divides that number by the total number of patient days in the
same period. For purposes of this second computation, the
following requirements apply:
(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.
17
(ii) . . . [F]or purposes of counting days under paragraph (b)(4)(i) of
this section, hospitals may include all days attributable to
populations eligible for [Medicaid] matching payments through a
waiver approved under section 1115 of the Social Security Act.
42 C.F.R. § 412.106(b)(4). As did the courts in HealthAlliance and Forrest General Hospital,
this Court finds that the regulation is clear and unambiguous, and that the government’s
interpretation warrants no deference.
“The regulation describes the pool of qualifying hospital patient days.” Forrest
General, 2019 WL 2417409, at *8. Clearly, a fiscal intermediary is required to include all “days
of service for which patients were eligible for Medicaid” in the DSH calculation. 42 C.F.R.
§ 412.106(b)(4). The regulation further states that a patient is “deemed eligible for Medicaid . . .
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).” Id. § 412.106(b)(4)(i) (emphasis added).
Thus, this provision equates, for the purposes of the DSH calculation, patient days for otherwise
Medicaid-ineligible patients with patient days for Medicaid-eligible patients if such ineligible
patients receive inpatient hospital services under a demonstration project “authorized under
section 1115(a)(2).” Id. Section 412.106(b)(4)(i) accomplishes this equivalency by using the
same “eligible for Medicaid” terminology found in § 412.106(b)(4) and by connecting Medicaid-
eligible patients to demonstration projects patients with the word “or.” Id. “On a given day”
also directs the fiscal intermediary to look at the patient’s actual eligibility for inpatient hospital
services directly under Medicaid or under a § 1115 waiver demonstration project authorized by
the Secretary. HealthAlliance, 346 F. Supp. 3d at 57. “What does not matter for purposes of this
regulation is what the plan documents say about eligibility for particular services.” Forrest Gen.
Hosp., 2019 WL 2417409, at *8 (emphasis in original).
18
Moreover, the key words of subsection (i) are plain to understand. “Eligible” is
no term of art and is generally construed to mean “capable of receiving.” See Jewish Hosp., Inc.
v. Sec’y of Health & Human Servs., 19 F.3d 270, 274 (6th Cir. 1994); Covenant Health Sys. v.
Sebelius, 820 F. Supp. 2d 4, 12 (D.D.C. 2011); cf. Eligible, Black’s Law Dictionary 634 (11th
ed. 2019) (“Fit and proper to be selected or to receive a benefit.”). “Under” also has no special
meaning and is best read in context to mean “subject or pursuant to” or “by reason of the
authority of.” HealthAlliance, 346 F. Supp. 3d at 57-58. Taken together, then, “the phrase
‘eligible for inpatient hospital services . . . under a waiver authorized under section 1115(a)(2)’ is
plainly understood as describing those individuals who were capable of receiving inpatient
hospital services pursuant to the project that the Secretary approved in the section 1115(a)(2)
waiver.” HealthAlliance, 346 F. Supp. 3d at 58 (emphasis in original).
The words of subsection (ii) are similarly clear. “Eligible” and “under” share the
same meaning, and “through” in this context means “because of” or “on account of.” Through,
Oxford English Dictionary, https://www.oed.com/view/Entry/201386. Thus, “populations
eligible for [Medicaid] matching payments through a waiver approved under section 1115” are
populations capable of receiving Medicaid matching payments on account of a waiver approved
pursuant to section 1115.
2. Applying the Regulation
The record in this case could not state any more clearly that the Secretary
intended to designate uninsured and underinsured patients as an expansion waiver population
under Florida’s demonstration project and to make matching federal payments for their care
through the LIP. It is also uncontested that uninsured and underinsured patients actually
received inpatient hospital services, and that Plaintiffs determined on a case-by-case basis
whether that care was entitled to funding under the LIP.
19
We begin with the Expenditure Authority for Florida’s Medicaid Reform Section
1115 Demonstration (Expenditure Authority), by which the Secretary explicitly exercised his
authorities under 42 U.S.C. § 1315(a)(2) to waive expenditure restrictions so that CMS could
match “not otherwise matchable” “[e]xpenditures made by Florida for costs related to providing
health care services to uninsured and or underinsured.” Expenditure Authority at AR440. This
purpose was made manifest in the Special Terms and Conditions, which established the LIP “to
ensure continued government support for the provision of health care services to Medicaid,
underinsured and uninsured populations.” STC ¶ 91 at AR421. Further, the Special Terms and
Conditions approved a distinct eligibility group for LIP patients. See STC ¶ 108(b) at AR426
(“The Florida Medicaid Reform eligibility groups (MEGs) . . . include . . . MEG 3: Low Income
Pool.”); id. ¶ 109(b) at AR430 (“The term ‘Demonstration eligibles’. . . refers to the following
categories of enrollees [including] . . . MEG 3: Low Income Pool.”); cf. Nazareth Hosp. v. Sec’y
U.S. Dep’t of Health & Human Servs., 747 F.3d 172, 179 (“The eligibility criteria for the
individual State section 1115 populations are federally approved and set forth in the terms and
conditions of the section 1115 waiver project.”).
CMS also plainly acknowledged that the LIP would fund “[h]ealth care
expenditures” that could include “uncompensated costs of medical services for the uninsured”:
Funds from the LIP may be used for health care expenditures that
would be within the definition of medical assistance [in] section
1905(a) of the Social Security Act. Health care expenditures may
be incurred by the State, hospitals, clinics, or by other providers for
uncompensated costs of medical services for the uninsured.
LIP Expenditure Authorization Letter (June 30, 2006) at AR435 (emphasis added); see also STC
¶ 94 at AR422 (same). Consistent in purpose to the Expenditure Authority, under the Special
Terms and Conditions CMS agreed to “provide [federal financial payments] . . . for . . . [n]et
expenditures associated with the Low Income Pool.” STC ¶ 111 at AR429; see also LIP
20
Expenditure Authorization Letter at AR435 (“The availability of Federal matching funds for the
LIP is contingent upon the State meeting all LIP Milestones.”). These were not misstatements:
Other than these documents, CMS confirmed that LIP costs were eligible for matching payments
in a subsequent regulatory statement. See 72 Fed. Reg. 29,748, 29,814 (May 29, 2007) (“For
Florida, while we are still working with the State to define expenditures that can be made
through the Low Income Pool, approved expenditures will be eligible for Medicaid matching
consistent with the authority under section 1115(a)(2).”); cf. id (“Under the [California]
demonstration, the uninsured costs are considered eligible under Medicaid . . . .”).
Milestone Reports submitted pursuant to the negotiated Reimbursement and
Funding Methodology show that Florida hospitals actually used LIP resources to provide
inpatient services to uninsured and underinsured patients. See, e.g., Low Income Pool Milestone
Reporting Requirements at AR1083; see also University of Florida Study at AR1841 (“Hospitals
receiving LIP payments served approximately 3.6-3.8 million Medicaid, uninsured, and
underinsured individuals in the first three years of Medicaid Reform, in comparison to
approximately 2.0 million in the year prior.”); University of Florida Study at AR1856
(estimating hospitals reimbursed by the LIP increased uninsured and underinsured inpatient days
by approximately 500,000 yearly). Although the Milestone Reports are summaries, “the patient
specific claims underlying [the reporting documents] must be maintained by the provider and
must be furnished to the State upon request.” Florida Memorandum on Medicaid Waiver Patient
Days at AR473. Hospitals were thus required to “evaluate, essentially, account by account,
encounter by encounter, and eligibility determination by eligibility determination, whether the
individuals that make up these statistics” received inpatient hospital services, were uninsured or
underinsured, and were eligible for reimbursement for inpatient hospital care from the LIP.
21
Transcript of PRRB Hearing at AR208 (Scott Davis); see also id. at AR268 (Michele Golden)
(“[U]pon request those records could be identified for the individual that received services, . . .
their health records, what services were received, to demonstrate that that low-income pool
funding was being used for the purposes of those services for those individuals.”). In short,
Plaintiffs had an auditable “paper trail” (probably maintained electronically) for each patient day
attributed to a patient whose inpatient hospital care was reimbursed by the LIP under Florida’s
demonstration project. See Transcript of PRRB Hearing at AR268 (Michele Golden).
In sum, it is obvious to the Court that uninsured and underinsured patients
received inpatient hospital services through the LIP—which was authorized by the
demonstration project and received matching federal funds—and their patient days should have
been included in the Medicaid fraction of the Medicare DSH calculation.
B. The Government’s Arguments Are Unpersuasive and Post-Hoc Lawyering
Given the record summarized above, the government’s position appears to be that,
despite the broad authority granted to the Secretary under § 1115 to explore “new or different
approaches to the efficient and cost-effective delivery of health services” and to help states
“adapt their programs to the special needs of particular areas or groups of recipients,” 42 C.F.R.
§ 430.25, the Secretary cannot make expansion waiver populations eligible for inpatient hospital
services under a demonstration project by reimbursing hospitals for such uncompensated care.
The government offers a smorgasbord of arguments which meander back and forth between the
statute and the regulation. Only some of its arguments support the reasons expressed by the
Board. None is convincing.
22
1. The statutory text does not require uninsured and underinsured patients to
enroll in a health insurance plan
Not once does the government address or attempt to distinguish HealthAlliance. 9
Instead, it starts its argument by insisting that the statutory text—not the text of the regulation—
drives the outcome here.
Plaintiffs readily concede that LIP patients are not eligible for medical assistance
under a traditional State plan, Pls.’ Reply at 15, but note that “the Secretary may, to the extent
and for the period the Secretary determines appropriate, include patient days of patients not so
eligible but who are regarded as such because they receive benefits under a demonstration
project approved under subchapter XI.” 42 U.S.C. §1395ww(d)(5)(F)(vi)(II). The government
argues that this provision cannot save Plaintiffs because the Secretary has interpreted the phrase
“not so eligible but who are regarded as such because they receive benefits under a
demonstration project” to mean that “a specific patient is to receive a specific benefit package
under the demonstration project.” Opp’n at 21 (emphasis added). 10
When “a statute is silent or ambiguous with respect to a specific issue” within an
agency’s expertise, courts generally give considerable deference to that agency’s reasonable
interpretation. See Chevron, U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 844
(1984). Agencies are generally free to establish their interpretations through either rulemaking
or case-by-case adjudication, see United States v. Mead Corp., 533 U.S. 218, 243-44 (2001)
(Scalia, J. dissenting), and precedent instructs that an agency’s interpretation warrants no less
9
The HealthAlliance decision was issued before the government filed its Opposition and was
mentioned several times in Plaintiffs’ Reply brief.
10
The government cites C.F.R. § 412.106(b)(4)(i) to support its interpretation, but the phrases
“specific patient” and “specific benefit package” are nowhere to be found in the regulation or the
statute.
23
deference if made on a case-by-case basis instead of through notice and comment. See I.N.S. v.
Cardoza-Fonseca, 480 U.S. 421, 448 (1987). But cf. Azar v. Allina, 139 S. Ct. 1804, 1811-14
(2019) (leaving open whether notice-and-comment requirements apply to all Medicare statutory
interpretations). The government asks for Chevron deference here. 11
The government’s proposed interpretation would informally add new and limiting
phrases to a statute that is already clear when unadorned. See Forrest Gen. Hosp., 2019 WL
2417409, at *5-6 (“[T]he statute means that patients who aren’t actually Medicaid-eligible still
count towards the Medicaid fraction’s numerator if they’re considered or accounted to be
capable of receiving a demonstration project’s helpful or useful effects by reason of a
demonstration project’s authority. There’s only one plausible way to read this.”); cf. Benefit,
Black’s Law Dictionary (11th ed. 2019) (defining “benefit” as the “the helpful or useful effect
something has”). But even if the law were ambiguous, the government is not entitled to
deference because it points to no agency source for its interpretation. That is, it is apparent from
the Board’s decision on Plaintiffs’ appeal that the Board was interpreting only the regulation
without regard to the statute. See Board Decision at AR25 (discussing the effects of the 2000
Interim Final Rule); id (“Second, federal DSH regulation specifies . . . .”); id at AR27 (“Finally,
the most recent amendment to the DSH regulation in 2003 clarified . . . .”); see generally id. at
AR24-27 (including no citations to the Medicare statute). Indeed, there was no need for the
11
The government argues that its interpretation is also compelled by policy: The Medicaid
fraction is a proxy for the number of low-income patients served by a hospital which will be
distorted by allowing hospitals in different states to count different patients. But even if this
post-hoc rationale is correct, such distortion would have long been inherent to any expansion
waiver population included in the DSH calculation, and the government does not explain why
the expansion waiver population here should be treated differently from any other similarly
approved by the Secretary.
24
Board to interpret the statute instead of the regulation because the question before the Board was
whether the fiscal intermediary had properly interpreted the already-existing regulation that
guides its work. 12
“It is well-established that an agency’s action must be upheld, if at all, on the
basis articulated by the agency itself.” Motor Vehicle Mfrs., 463 U.S. at 50. Post hoc
rationalizations will not suffice. Id. at 49-50; see also Inv. Co. Inst. v. Camp, 401 U.S. 617, 628
(1971) (“Congress has delegated to the administrative official and not to appellate counsel the
responsibility for elaborating and enforcing statutory commands.”). Because the Board did not
rely on a new interpretation of the statute in its decision, the government may not attempt to do
so now.
2. The regulatory text does not require uninsured and underinsured patients to
enroll in a health insurance plan
The Board was concerned that the Florida “waiver does not adequately describe
the exact nature of what is being paid for and whether it would be an ‘approved expenditure
under Title XIX.’” Board Decision at AR25. The Board thought this ambiguity could have been
resolved if uninsured and underinsured patients were “eligible to enroll” in some program on an
individuated basis, as in two other decisions where the Board had included expansion waiver
population days (although each was reversed by the CMS Administrator). Board Decision at
AR26 (citing Sw. Consulting, 2017 WL 909303; UCP Days Grp., 2016 WL 6299482).
12
Although Congress separately added language to the Medicare statute, see DRA § 5002(a),
and ratified the existing regulation, see DRA § 5002(b), the Board appears to understand both
parts together as merely ratifying the existing regulation. See, e.g., UCP Days Grp., 2016 WL
6299482, at *4 (stating 42 C.F.R. § 412.106(b)(4) was “‘ratified’ . . . when Congress amended
the federal DSH statute” at 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II)).
25
Reversed twice by the CMS Administrator, perhaps the Board offered the best
analysis it could consistent with the Administrator’s previous decisions. But the Board’s
interpretation has no basis in the regulatory text. As the court in HealthAlliance made clear, and
the government concedes here, the government “cannot[] explain why the express terms of the
demonstration project waiver agreement matter in the context of a regulation that is simply and
solely concerned with the fiscal intermediary’s proper calculation of a hospital’s DSH
adjustment.” HealthAlliance, 346 F. Supp. 3d at 58 (emphasis in original); see also Forrest Gen.
Hosp., 2019 WL 2417409, at *8 (“What does not matter for purposes of this regulation is what
the plan documents say about eligibility for particular services.”). The regulation tasks the fiscal
intermediary only with determining whether a patient was eligible for inpatient hospital services
under a demonstration project on a given day; neither the words nor the concepts of “enroll” or
“eligible to enroll” appear anywhere in the DSH adjustment statute or the regulation. Cf. 42
U.S.C. § 1395ww(d)(12) (describing individuals in a different adjustment program as “enrolled
for[] benefits under [Medicare]”). Thus, both federal courts which have since ruled on Southwest
Consulting and UCP Days Group, 13 in HealthAlliance and Forrest General Hospital,
respectively, included expansion waiver patient days in the DSH calculation based on the care
expansion waiver patients actually received, not on the text of the waiver or on the structure of
the hospitals’ reimbursement claims. See Forrest Gen. Hosp., 2019 WL 2417409, at *10.
13
The Board states that it was significant in UCP Days Group that “the State of Louisiana made
expedited determinations of eligibility for specific individuals and . . . hospitals made claims
specific to these individuals.” Board Decision at AR26 (citing UCP Days Grp., 2016 WL
6299482). The Court finds no mention of expedited determinations or specific hospital claims in
the cited decision. That said, the Court notes that the Board in UCP Days Group
“distinguish[ed] between patient days ‘sanctioned’ as part of an § 1115 waiver and those ‘state
only’ days, such as general assistance or charity care days, for which Medicare hospitals have
long argued should be included in the Medicare DSH calculation,” and found that the former
“should be included in the Medicare DSH calculation.” Id. at *6.
26
As applied here, the government does not contest that uninsured and underinsured
patients received inpatient hospital services funded by the LIP. Regardless of whatever else the
LIP may have paid for, this is enough to satisfy the regulation.
3. Benefits similar to those available to traditional Medicaid beneficiaries means
inpatient hospital services
The 2003 Clarifying Rule states that the Secretary intended to include in the DSH
calculation only “patient days of demonstration populations who receive benefits under the
demonstration project that are similar to traditional Medicaid beneficiaries, including inpatient
benefits.” 68 Fed. Reg. at 45,420. The government contends that the Secretary thereby “made
clear that the phrase ‘inpatient hospital services’ refers to a specific benefit of eligibility that is
cued to the ‘benefit package’ available to a Medicaid beneficiary.” Def.’s Reply at 10.
Similarly, the Board stated that “it cannot determine whether the benefit to the patient was
similar to those available to traditional Medicaid beneficiaries, limited or otherwise” because
Florida’s waiver does not specify the benefits to be received. Board Decision at AR27.
The government reads more into these words than they will support. “Inpatient
hospital services” cannot also imply a broader “benefit package,” since inpatient services are
already an enumerated subset of the benefits Medicaid provides. 42 U.S.C. § 1396d(a)(1). Nor
can “eligible” support the government’s argument, since it does not imply any specific
mechanism for providing inpatient hospital services. Indeed, such an implication would be so
context specific that it could not possibly comport with the plain meaning of the word. Cf. Sw.
Consulting, 2017 WL 909303, at *7 (Nix and Benson, Bd. Members, concurring) (“[T]he
preamble discussion [to § 412.106(b)(4)] only states in generic terms that inpatient benefits must
be ‘received’ under the § 1115 waiver.”).
27
Contrary to these contortions, the regulation is clear on its face: for their patient
days to be included in the DSH calculation, Medicaid-ineligible patients must be “eligible for
inpatient hospital services under . . . a waiver authorized under section 1115(a)(2).” 42 C.F.R.
§ 412.106(b)(4)(i). That is to say, Medicaid-ineligible patients in demonstration projects receive
“similarly comprehensive” benefits to Medicaid-eligible patients when they receive inpatient
hospital services. See Forrest Gen. Hosp., 2019 WL 2417409, at *8; HealthAlliance, 346 F.
Supp. 3d at 56 (finding “roughly equivalent” benefits are “evidenced by the provision of
‘inpatient hospital services’”); see also 68 Fed. Reg. 45,421 (including expansion waiver
population patient days is appropriate “only to the extent that those individuals receive inpatient
benefits under the section 1115 demonstration project”); cf. Transcript of PRRB Hearing at
AR266 (Michele Golden) (“[T]he design of the low-income pool was to provide the same
services that would have been provided if the member . . . was . . . a typical Medicaid eligible.”).
Further, it makes sense that the 2003 Clarifying Rule ultimately identified inpatient hospital
services as the critical Medicaid service; unlike the government’s vague allusions to a specific
benefit package, eligibility for inpatient hospital services is a clear, definite standard by which to
determine whether a patient receives benefits similar to those available to traditional Medicaid
beneficiaries. The government’s position leaves unclear by what yardstick “similar benefits”
would be measured.
4. The statutory definition of medical assistance is irrelevant
The government devotes lengthy pages to arguing that the definition of “medical
assistance” is limited and patients under Florida’s demonstration project whose inpatient hospital
services are reimbursed by the LIP do not qualify. To start, it is unclear that the government’s
premise is correct. The record demonstrates that, in the context of demonstration projects,
neither Congress, CMS, nor the Judiciary has limited the use of the term “medical assistance” to
28
individuals already eligible for Medicaid. See, e.g., Deficit Reduction Act § 6201(a)(1)(B)
(authorizing funding, “with respect to evacuees who do not have coverage for such assistance
through insurance . . . under [Medicaid], . . . for those evacuees receiving medical assistance
under the [demonstration] project for the total uncompensated care costs incurred”); LIP
Expenditure Authorization Letter at AR435 (“[H]ealth care expenditures that would be within
the definition of medical assistance . . . may be incurred by . . . hospitals . . . for uncompensated
costs of medical services for the uninsured.”); STC ¶ 94 at AR422 (same); Forrest Gen. Hosp.,
2019 WL 2417409, at *11 (finding uninsured patients received “medical assistance” through an
uncompensated care pool); Adventist Health Sys./Sunbelt, Inc. v. Sebelius, 715 F.3d 157, 159
(6th Cir. 2013) (finding the Secretary may “waive, among other things, statutory eligibility
limitations on the payment of ‘medical assistance’ to individuals under the Medicaid
program”). 14
But all of this is ultimately beside the point because the government’s argument
patently ignores critical language of the Medicare statute. The Secretary may count in the DSH
calculation patient days for patients who were “eligible for medical assistance” and for “patients
not so eligible but regarded as such because they receive benefits under a demonstration project
approved under subchapter XI.” 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II); cf. Regard, Oxford
English Dictionary, https://www.oed.com/view/Entry/161187 (“To consider, look on, view, as
being something specified.”). There is no doubt that uninsured and underinsured patients in
Florida received benefits under a demonstration project and that even if not strictly eligible for
14
The government relies heavily on the D.C. Circuit’s decision in Adena to anchor the definition
of “medical assistance,” but as with the government’s other cited cases, Adena addressed only
whether patients who received uncompensated care reimbursed by Medicaid DSH supplemental
funding received “medical assistance under a State plan approved under [Medicaid].” Adena,
527 F.3d at 178. All references to “medical assistance” were limited to that context.
29
“medical assistance,” as the government contends, these uninsured and underinsured patients in
Florida were “regarded as such.” 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II). The government cannot
explain why the definition of medical assistance matters here; all of the cases upon which the
government relies that discuss “medical assistance” and the DSH calculation concern only the
first half of 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II), which addresses patients eligible for traditional
Medicaid, and not the second, which addresses Medicare-ineligible patients who are “regarded
as” eligible for medical assistance under a demonstration project for purposes of inclusion in the
DSH calculation. See also 42 U.S.C. § 1315(a)(2) (stating demonstration project costs “shall, to
the extent and for the period prescribed by the Secretary, be regarded as expenditures under the
State plan”).
5. The regulation does not differentiate between payments to hospitals and
patients
In its decision on Plaintiffs’ appeal, the Board stated that the Medicare DSH
calculation is “intended to limit the inclusion of patient days in the DSH calculation to
individuals who become eligible under the terms of the waiver” and not “payments made to a
hospital to compensate it for services provided to an unspecified population.” Board Decision at
AR25 (emphasis in original); see also id (“Florida’s Low-Income Pool provides a gross payment
to hospitals . . . for services provided to uninsured and underinsured individuals as an
undifferentiated group, not identified or qualified individually for waiver services.”). Thus,
according to the Board, because the LIP “provides a gross payment to hospitals . . . to reimburse
them for services provided to uninsured and underinsured individuals,” it is inconsistent with the
regulation. In a similar vein, the Board expressed concern that LIP patients are “not required to
apply for the hospital’s charity care program, do not apply or receive a Medicare card, a
certificate of coverage, have a right of reconsideration on appeal and do not receive a bill or
30
notification when a claim is paid.” Board Decision at AR27. In this way, the Board concluded
“that it is not the individual patients whose eligibility is established and benefits paid on their
behalf,” as required by the regulation which “focuses on individuals.” Id.The distinction the Board makes between LIP reimbursements for individuals and
reimbursements for groups of individuals is nowhere to be found in the plain text of the
regulation. The Board is correct that § 412.106(b)(4) does not mention gross payments made to
hospitals for services rendered to a group of persons. But nor does it mention or require specific
payments to hospitals for services rendered to individual patients. In fact, it does not mention
payments at all. Section 412.106(b)(4) only directs the fiscal intermediary to count patient days
for patients who were eligible for inpatient hospital services, and the fiscal intermediary is
directed to include qualifying patient days in the DSH calculation “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).
This is not to say that the hospitals may provide inpatient hospital services to just
anyone and include those patient days in their DSH calculations. To the Board’s point, under 42
C.F.R. § 412.106(b)(4)(iii), hospitals must make individual patient eligibility determinations and
further be able to justify those determinations to CMS. See 42 C.F.R. § 412.106(b)(4)(iii). But it
is important that the requirements of subsection (iii) are separate from subsections (i) and (ii);
what day the hospital finds convenient to make eligibility determinations—before or after
services are provided—does not itself figure into whether or when patients are eligible for
inpatient hospital services. Further, the record is clear that hospitals did make individuated
patient eligibility determinations, and that documents related to those patient-specific
determinations were available for audit by CMS, and in fact had been audited. See Medicaid
31
Reform in Florida: Key Events and Activities in 2008 at AR1712. The Board’s reliance on
cards, certificates, and rights of appeal as indicia of eligibility has no basis in the regulation.
6. The charity care cases are inapplicable
The government argues that several cases have already held that uninsured and
underinsured patients receiving charity care, i.e., uncompensated care, are not “eligible for
Medicaid” and may not be included in the DSH calculation. Opp’n at 32 (citing Adena, 527 F.3d
at 179; Owensboro Health, Inc. v. U.S. Dep’t of Health & Human Servs., 832 F.3d 615, 623 (6th
Cir. 2016); Ne. Hosp. Corp. v. Sebelius, 699 F. Supp. 2d 81, 86-87 (D.D.C. 2010)). As the
government puts it, “this case is identical to the charity care cases . . . except for the fact that the
uncompensated care subsidy is authorized under a Section 1115 demonstration project rather
than the Medicaid state plan.” Def.’s Reply at 11 (emphasis in original); see also Opp’n at 11
n.6 (“Functionally, the Florida LIP fund is equivalent to an additional pool of money available
for [State-plan uncompensated care] payments made to hospitals.”). 15
The Court agrees that “patients who obtain charity care” are not “eligible for
medical assistance under a State plan approved under [Medicaid]” and cannot be included in the
DSH calculation. See Adena, 527 F.3d at 179. But the government’s description of the case law
provides the critical distinction: section 412.106(b)(4)(i) instructs that patients are “deemed
eligible for Medicaid” if they are “eligible for inpatient hospital services under an approved State
Medicaid plan or a waiver authorized under section 1115(a)(2).” 42 C.F.R. § 412.106(b)(4)(i)
15
States also receive capped federal allotments under traditional Medicaid, which they can use to
reimburse hospitals for uncompensated care to low-income patients as part of their own
Medicaid DSH adjustment. See 42 U.S.C. § 1396r-4. Unlike the LIP, a state’s uncompensated
care and Medicaid DSH programs are approved as part of a traditional State plan approved under
Title XIX. See Adena, 527 F.3d at 179. Interestingly, during the relevant time periods, Florida
received both LIP funding and a Medicaid DSH allotment. See Report of the Low Income Pool
(LIP) Cost Limit Work Group (Feb. 20, 2006) at AR568.
32
(emphasis added). In each of the cases cited by the government, the health care providers argued
that their patients were eligible for inpatient hospital services under an approved State Medicaid
plan, not under a demonstration project. See, e.g., Adena, 527 F.3d at 178 (“It is clear . . . that
under Ohio law HCAP patients do not receive care pursuant to the Medicaid plan.”); Owensboro
Health, 832 F.3d at 620 (“KHCP patient days can be rationally distinguished from § 1115 patient
days based on the fact that statutes treat the two groups differently and on the fact that the federal
government has control over § 1115 projects but not over KHCP.”); Ne. Hosp. Corp., 699 F.
Supp. at 90 (“[T]he treatment these charity care patients receive is not provided ‘under a State
[Medicaid] plan.’” (internal quotes omitted)). So, the only question before those courts was
whether uncompensated care fell within the ambit of a State plan approved under Medicaid;
plainly it did not. However, those courts did not address how uncompensated care should be
treated when authorized and funded by a demonstration project. Cf. Verdant Health Comm’n v.
Hargan, 708 Fed. App’x 459, 460 (9th Cir. 2018) (finding patients who receive uncompensated
care through traditional State plans are “legally distinct from § 1115 expansion populations, even
if they share certain characteristics”); Forrest Gen. Hosp., 2019 WL 2417409, at *11 (including
uncompensated care patient days authorized by a demonstration project in the DSH calculation).
The government admits the distinction and then, by sleight of hand, ignores it. The attempt to
persuade fails.
7. The Secretary has already exercised his discretion to include LIP patients in
the DSH calculation
Finally, the government suggests that the Secretary merely exercised his inherent
authority to exclude LIP patient days from the DSH calculation, a point not relied upon by the
Board and seemingly invented for this litigation. The Secretary may have such discretion if
reasonably exercised and explained. See Cookeville, 531 F.3d at 848 (“Plausibly, the ‘to the
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extent’ language is a grant of discretion to the Secretary to determine which costs or how much
of the costs are to be treated as expenditures.”). But such discretion must be exercised
“prospectively,” see id. at 848, not after a demonstration project has already been fully approved
and implemented and the bill comes due. See Forrest Gen. Hosp., 2019 WL 2417409, at *10
(“Once the Secretary authorizes a demonstration project, no take-backs.”).
On this record, the government cannot reasonably argue that the Secretary has
exercised such discretion vis-à-vis the Florida demonstration project. While the Secretary had
multiple opportunities to disapprove Florida’s demonstration project, to disapprove the LIP, to
negotiate different provisions and definitions in the Special Terms and Conditions, and to
disapprove the Reimbursement and Funding Methodology guiding implementation of the LIP, he
did none of those things. Instead, notwithstanding any administrative complications highlighted
by the Board, at each of those stages the Secretary made obvious that he intended to provide
medical care to Florida’s underinsured and uninsured patients—however poorly that group might
be defined—by reimbursing hospitals for uncompensated care with matching Medicaid funds
through a demonstration project. See Letter from HHS Secretary Michael O. Leavitt to Governor
Jeb Bush Approving Florida’s Section 1115 Waiver (Oct. 19, 2005) at AR899 (“My Department
looks forward to working with your staff as Florida implements . . . a Low Income Pool to
provide services to uninsured individuals.”). The Secretary’s § 1115 waiver included no caveats
as to the Medicare DSH adjustment, even though the demonstration project had natural
consequences for such hospital funding. The government’s briefs argue to the contrary without
explanation of or regard to the record evidence.
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IV. CONCLUSION
Plaintiffs’ Motion for Summary Judgment, Dkt. 18, will be granted and
Defendant’s Cross-Motion for Summary Judgment, Dkt. 19, will be denied. The Court will
vacate the Board’s decision and will remand this case for further proceedings consistent with this
Opinion. A memorializing Order accompanies this Opinion.
Date: July 23, 2019
ROSEMARY M. COLLYER
United States District Judge
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