Saint Francis Hosp., Inc. v. Azar

476 F.Supp.3d 1149

SAINT FRANCIS HOSPITAL, INC., AHS Hillcrest Medical Center, LLC, and St. John Medical Center, Plaintiffs,

v.Alex M. AZAR, II, Secretary, U.S. Department of Health and Human Services, Defendant.

Case No. 19-CV-170-GKF-JFJ

United States District Court, N.D. Oklahoma.

Signed August 4, 2020

Daniel J. Hettich, King & Spalding, Washington, DC, John W. Dowdell, Kristen Pence Evans, Steven William Soule, Hall Estill Hardwick Gable Golden & Nelson, Tulsa, OK, Juliet M. McBride, King & Spalding, Houston, TX, for Plaintiffs.

Cathryn Dawn McClanahan, United States Attorney's Office, Tulsa, OK, Jonathan Claude Brumer, US Department of Health & Human Services, Washington, DC, for Defendant.

OPINION AND ORDER

GREGORY K. FRIZZELL, UNITED STATES DISTRICT JUDGE

Plaintiffs Saint Francis Hospital, Inc., AHS Hillcrest Medical Center, LLC, and St. John Medical Center (collectively, Providers) bring this suit under Title XVIII of the Social Security Act, as amended , seeking judicial review of the January 25, 2019 decision of the Provider Reimbursement Review Board (PRRB), designated Decision Number 2019-D11. The parties filed opposing briefs on the issue: the Motion for Summary Judgment [Doc. 30] of the Providers and the Motion for Judgment on the Administrative Record [Doc. 33] of defendant Alex M. Azar, II, the Secretary of Health and Human Services (the Secretary). For the reasons set forth below, the court concludes that Decision Number 2019-D11 is not arbitrary, capricious, an abuse of discretion, or contrary to law.

I. Factual and Regulatory Background

"Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395 et seq. (2006), establishes the federally funded health insurance program for the aged and disabled, commonly known as Medicare." Via Christi Reg'l Med. Ctr., Inc. v. Leavitt , 509 F.3d 1259, 1261 (10th Cir. 2007), abrogated on other ground by , Azar v. Allina Health Servs. , ––– U.S. ––––, 139 S. Ct. 1804, 204 L.Ed.2d 139 (2019). The Medicare program provides reimbursement to hospitals for both direct graduate medical education costs (direct GME) and indirect costs of medical education (IME). 42 U.S.C. §§ 1395ww(d)(5)(B), (h). The amount reimbursable by Medicare for direct GME and IME depends, in part, on the number of full-time equivalent (FTE) residents trained by the hospital during the reporting year. 42 C.F.R. §§ 412.105(a)(1), 413.76(a). In 1986, Congress amended the Medicare statute to permit the inclusion of time spent by residents in nonhospital settings towards determining FTE for purposes of direct GME payments owed "if the hospital incurs all, or substantially all, of the costs for the training program in that setting." Omnibus Budget Reconciliation Act of 1986, Pub. L. No. 99-509, § 9314(a), codified at , 42 U.S.C. § 1395ww(h)(4)(E). Similarly, in 1997, Congress amended the Medicare statute to authorize inclusion of time spent by residents or interns in a nonhospital setting to determine FTE for purposes of IME "if the hospital incurs all, or substantially all, of the costs for the training program in that setting." Balanced Budget Act of 1997, Pub. L. 105-33, § 4621(b)(2), codified at , 42 U.S.C. § 1395ww(d)(5)(B)(iv).

In 2010, Congress enacted § 5504 of the Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (Mar. 23, 2010) (ACA), which amended the Medicare statute. Specifically, § 5504 amended § 1395ww(h)(4)(E) of the Medicare statute—related to direct GME—to insert the following prefatory statement before the existing language related to calculation of FTE: "effective for cost reporting periods beginning before July 1, 2010." The ACA also amended § 1395ww(h)(4)(E) to include the following new clause:

[E]ffective for cost reporting periods beginning on or after July 1, 2010, all the time so spent by a resident shall be counted towards the determination of full-time equivalency, without regard to the setting in which the activities are performed, if a hospital incurs the costs of the stipends and fringe benefits of the resident during the time the resident spends in that setting. If more than one hospital incurs these costs, either directly or through a third party, such hospitals shall count a proportional share of the time, as determined by written agreement between the hospitals, that a resident spends training in that setting.

42 U.S.C. § 1395ww(h)(4)(E)(ii). Additionally, § 5504 of the ACA amended § 1395ww(d)(5) of the Medicare statute—related to IME—to insert the following prefatory statement before the existing language related to calculation of FTE: "[e]ffective for discharges occurring on or after October 1, 1997, and before July 1, 2010." The Act also amended § 1395ww(d)(5) to include the following new clause:

Effective for discharges occurring on or after July 1, 2010, all the time spent by an intern or resident in patient care activities in a nonprovider setting shall be counted towards the determination of full-time equivalency if a hospital incurs the costs of the stipends and fringe benefits of the intern or resident during the time the intern or resident spends in that setting. If more than one hospital incurs these costs, either directly or through a third party, such hospitals shall count a proportional share of the time, as determined by written agreement between the hospitals, that a resident spends training in that setting.

42 U.S.C. § 1395ww(d)(5)(B)(iv)(II). Subsection (c) of § 5504 states as follows:

The amendments made by this section shall not be applied in a manner that requires reopening of any settled hospital cost reports as to which there is not a jurisdictionally proper appeal pending as of the date of the enactment of this Act on the issue of payment for indirect costs of medical education under section 1886(d)(5)(B) of the Social Security Act ( 42 U.S.C. § 1395ww(d)(5)(B) ) or for direct graduate medical education costs under section 1886(h) of such Act ( 42 U.S.C. 1395ww(h) ).

The Providers are Medicare-certified acute care hospitals located in Tulsa, Oklahoma. [AR 000026]. From 2001 to 2007, the Providers each operated graduate medical education programs for interns and residents in various specialty areas in affiliation with the University of Oklahoma/University of Oklahoma College of Medicine, Tulsa (University). [Id. ]. To that end, the Providers were members of the Tulsa Medical Education Foundation, Inc. (Foundation), which was established to administer the training of residents in hospital and nonhospital settings. [AR 000027].

The Providers executed written Graduate Medical Education Affiliation Agreements with the University (Affiliation Agreements). [Id. ]. Pursuant to the Agreements, the Providers together incurred "all or substantially all" of the costs for the training programs in the Nonhospital Clinics, as defined in 42 C.F.R. § 413.78, to which the FTEs rotated. [AR 000029].

From Fiscal Years 2001 through 2006, the Providers claimed intern and resident FTEs in their cost reports to reflect intern and resident time spent in patient care activities at Nonhospital Clinics in connection with approved medical residency training programs (Claimed FTEs).¹ [AR 000027]. The Medicare Contractor initially approved the Providers’ Medicare reimbursement for resident training at Nonhospital Clinics, the documentation of which included the Claimed FTEs. [AR 000028]. However, in 2007, the Medicare Contractor reopened the Providers’ FY 2001 through FY 2006 cost reports, and removed the Claimed FTEs based on its determination the Providers did not individually (that is, one hospital alone) incur "all or substantially all of the costs for a training program in a nonhospital setting." [Id. ; AR 000340-000384; AR 000390-000399]. The Providers appealed the disallowances to the PRRB. [AR 000028; AR 000125-000169]. After several years of procedural back and forth, on January 25, 2019, the PRRB issued the Decision, concluding that the Medicare Contractor "properly reduced the Providers’ GME and IME FTE resident counts to exclude resident rotations spent in nonhospital settings for the fiscal years at issue." [Doc. 1-1, p. 15]. Because the CMS Administrator declined to review the PRRB's decision, [AR 000018], the PRRB's decision constitutes the final decision of the Secretary in this matter. See 42 U.S.C. § 1395oo(f).

II. Standard of Review

The Providers seek judicial review pursuant to 42 U.S.C. § 1395oo(f)(1), which incorporates the Administrative Procedure Act's standard of review.² 5 U.S.C. § 706 ; see also Thomas Jefferson Univ. v. Shalala , 512 U.S. 504, 512, 114 S.Ct. 2381, 129 L.Ed.2d 405 (1994). Pursuant to the Administrative Procedure Act, the court shall set aside agency action found to be "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law" or "in excess of statutory jurisdiction, authority, or limitations, or short of statutory right." 5 U.S.C. § 706(2)(A), (C).

The Tenth Circuit has stated

[a]n agency's action is arbitrary and capricious where the agency (1) entirely fail[s] to consider an important aspect of the problem, (2) offer[s] an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view of the product of agency expertise, (3) fail[s] to base its decision on consideration of the relevant factors, or (4) ma[kes] a clear error of judgment.

N.M. Health Connections v. U.S. Dep't of Health & Human Servs. , 946 F.3d 1138, 1162 (10th Cir. 2019) (quoting W. Watersheds Project v. Bureau of Land Mgmt. , 721 F.3d 1264, 1273 (10th Cir. 2013) ). However, the scope of review is "narrow." Dep't of Commerce v. New York , ––– U.S. ––––, 139 S. Ct. 2551, 2569, 204 L.Ed.2d 978 (2019). The court must determine only "whether the Secretary examined ‘the relevant data’ and articulated ‘a satisfactory explanation’ for his decision, ‘including a rational connection between the facts found and the choice made.’ " Id....