Kansas Health Policy Auth. v. United States Dep't of Health & Human Servs.

798 F.Supp.2d 162

KANSAS HEALTH POLICY AUTHORITY, Plaintiff,

v.UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, Judgment et al., Defendants.

Case No. 1:09–cv–001587 BJR.

United States District Court, District of Columbia.

July 22, 2011.

Caroline Montrose Brown, Laura E. Schattschneider, Covington & Burling, Washington, DC, for Plaintiff.

Teresa M. Schreffler, U.S. Department of Justice, Washington, DC, for Defendants.

ORDER GRANTING DEFENDANTS' CROSS MOTION FOR SUMMARY JUDGMENT AND DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

BARBARA JACOBS ROTHSTEIN, District Judge.

This matter comes before the court on cross motions for summary judgement. The court has reviewed the relevant documents filed by the parties and, being fully informed, finds and rules as follows:

I. INTRODUCTION

This case is designated related to Virginia Dept. of Medical Assistance Services v. U.S. Dept. of Health and Human Services, 779 F.Supp.2d 129, (D.D.C.2011). While the facts of the cases vary, the legal issues are virtually identical. The central issue is how much the federal government, through Medicaid, should share in the cost of medical care for children residing in institutions for mental diseases (“IMDs”). Defendants, the United States Department of Health and Human Services (“HHS”) and Kathleen Sebelius as the Secretary HHS, contend that the Medicaid statute is clear—with respect to children residing in IMDs, federal funding is available only for psychiatric services provided in and by the IMDs. Plaintiff, Kansas Health Policy Authority (“KHPA”), claims that the Medicaid statute is ambiguous and Defendants' interpretation of it is arbitrary and capricious in violation of the Administrative Procedure Act (“APA”), 5 U.S.C. § 706(20)(A).¹ KHPA also alleges that Defendants took agency action without observance of procedure required by law pursuant to APA, 5 U.S.C. § 706(2)(D).

This court ruled in favor of Defendants in Virginia. See Virginia, 779 F.Supp.2d 129 (holding that the Medicaid statute and implementing regulations unambiguously provide that if a child is an IMD resident, federal funding is only available for inpatient psychiatric services, and substantial evidence existed in the record that the States had timely, actual notice of how HHS interpreted the statute). The court will not revisit its ruling on this issue. Instead, the court will address KHPA's remaining claim: whether the federal Centers for Medicare and Medicaid Services (“CMS”) approved an amendment to Kansas' State Medicaid plan permitting “add-on” payments to IMDs (over and above the facilities' per diem rates) to cover the costs of the health care services at issue.²

II. PROCEDURAL HISTORY

KHPA challenges a determination by CMS disallowing $3,883,143 in federal funding that KHPA claimed for medical services provided to children residing in Psychiatric Residential Treatment Facilities (“PRTF”).³ See Dkt. No. 23 at 19. CMS based the disallowance on an Office of the Inspector General (“OIG”) audit of KHPA's claims for services provided to children in PRTFs during the time period September 30, 2007 through June 30, 2008. Id. citing AR000101–03. KHPA appealed the disallowance to the HHS Departmental Appeals Board (the “DAB”) on December 18, 2008.⁴ The DAB upheld CMS's determination in Decision No. 2255, dated June 23, 2009. (AR00001–AR00022.). On August 20, 2009, KHPA filed this suit seeking declaratory and injunctive relief and reversal of DAB Decision No. 2255. ⁵

The parties agree that discovery is not appropriate and that the case can be resolved on the administrative record by dispositive motions. Accordingly, cross motions for summary judgment have been filed.

III. BACKGROUND

A. Statutory and Regulatory Background

The Medicaid program was established in 1965, under Title XIX of the Social Security Act (“SSA” or “Act”), as a cooperative state-federal program that enables States to provide medical assistance to families with dependent children, the elderly, and disabled individuals whose income and resources are inadequate to pay for necessary medical services. See SSA § 1901 (42 U.S.C. § 1396). The Medicaid program is administered by each State in accordance with a Medicaid State plan that is reviewed and approved by the Secretary. See id. The cost of providing Medicaid services is shared by each State and the federal government. SSA § 1903(a)(1) (42 U.S.C. § 1396b(a)(1)).

Section 1903(a)(1) of the Act makes federal funding available on a quarterly basis to States for amounts expended “as medical assistance under the State plan....” SSA § 1903(a)(1). Section 1905(a) defines “medical assistance” as payment for listed covered services, but does not include “any such payments” for any individual under age 65 who is a patient in an IMD “except as otherwise provided in paragraph (16).” SSA § 1905(a). Paragraph (16) states that payment is available only for “inpatient psychiatric hospital services for individuals under age 21, as defined in subsection (h)” of section 1905. SSA § 1906(a)(16).

Subsection 1905(h) states that “ ‘inpatient psychiatric hospital services for individuals under age 21’ includes only—inpatient services which are provided” in a “psychiatric hospital” or other qualifying “inpatient setting[s]”. See SSA § 1905(h)(1). The implementing regulations also state that federal funding is only available for inpatient services provide by a qualifying hospital, hospital program, or facility. See, e.g., 42 C.F.R. §§ 435.1008, 436.1004, 440.160 and 441.13(a).

B. Factual Background

In 2001, the OIG began auditing States' claims for federal participation in the cost of providing medical assistance to children residing in IMDs. (Dkt. No. 23 at 14–15.). The OIG audited seven States and eventually recommended disallowances for all federal funding that was provided to each State for medical care—other than inpatient psychiatric services—provided to children in IMDs. Id. Officials in four of the seven States did not object to the disallowances. See DAB Decision No. 2222 (Dec. 31, 2008) 2008 WL 5510324 (H.H.S.), incorporated into DAB Decision No. 2255 at AR000010. However, New York, Virginia and Texas contested the audit results. In 2007, New York appealed the disallowance to the DAB, raising substantially similar legal grounds to those raised here. In re New York State Department of Health, DAB Decision No. 2066 (Feb. 8, 2007), 2007 WL 522134 (H.H.S.). The DAB rejected New York's claim, holding that the plain meaning of the IMD exclusion unambiguously provides that federal funding is available for services provided to children residing in IMDs only if those services are provided in and by the IMD. Virginia also appealed, again on substantially similar grounds, and the DAB again upheld CMS' interpretation of the IMD exclusion and upheld the disallowance (with the possibility of some modification pending further substantiation of claims from Virginia).⁶ In re Virginia Department of Medical Assistance, DAB Decision No. 2222 (Dec. 31, 2008), 2008 WL 5510324. In 2009, the DAB rejected Texas' appeal, and in doing so, affirmed its holdings in New York and Virginia. Texas Health & Human Servs. Comm'n, DAB Decision No. 2237 (2009), 2009 WL 1176322 (H.H.S.).

Against this backdrop, in 2006, Kansas sought to convert some of its residential treatment facilities for foster children and children in the juvenile justice system with behavioral and mental health needs into PRTFs available to serve all Medicaid children with mental health needs. (Dkt. No. 23 at 16.). KHPA claims that most of its PRTFs do not have on-site facilities or staff who can provide all of the screening and subsequent treatment deemed medically necessary in accordance with Medicaid requirements. ⁷ Id. at 17. Instead, the PRTFs typically arrange for, and incur the cost of, additional health care service (such as laboratory tests and pharmaceuticals) by outside medical providers. Id. Based on the OIG's previous audits, KHPA was concerned that federal funding would not be available for these additional costs. Id.

KHPA claims that it approached CMS with its concern. KHPA claims, and CMS does not dispute, that there were extensive discussions between the parties during 2006 and 2007 regarding this issue. KHPA states that it sought an amendment to its state Medicaid plan that would allow for federal funding for not only inpatient psychiatric services provided by the PRTFs but also for other non-psychiatric and/or outpatient medical services provided to PRTF residents under age 21. Id. at 17. KHPA proposed that the amendment authorize an add-on per diem component to the PRTF reimbursement base rate for the additional health care services. Id.

Thereafter, KHPA submitted to CMS proposed amendment to Attachment 4.19–A of Kansas' Medicaid State plan (“Transmittal No. 06–09”). (AR000005–AR000006.). Transmittal No. 06–09 was meant to implement the reimbursement methodology for the PRTFs. (AR000096.). The actual language proposed by KHPA is not in the record. (AR000005.).

However, a letter to KHPA dated September 27, 2006 from CMS reflects that the proposed reimbursement formula included a component for “a per diem add-on intended to reimburse facilities for the cost of ‘health care services' which must be incurred by facilities for their residents.” (AR000005 citing AR000092.). The proposal defined “health care services” as “all medically necessary health care services covered by Medicaid excluding mental health and substance abuse treatment services (which are already included in the base reimbursement rate).” Id. The CMS letter stated that CMS was still evaluating the proposal and needed further information to assist in that evaluation, specifically, information “describing the nature of these ‘health care services', the expected frequency/cost of these services, who the provider of the services will be, and how the facilities will arrange and pay for the services.” Id. The record does not...