Plaintiff MAINE MEDICAL CENTER represented by BENJAMIN E. FORD VERRILL DANA LLP
Defendant KATHLEEN SEBELIUS Secretary U.S. Department of Health and Human Services represented by EVAN J. ROTH U.S. ATTORNEY'S OFFICE DISTRICT OF MAINE
RECOMMENDED DECISION ON CROSS-MOTIONS FOR JUDGMENT ON ADMINISTRATIVE RECORD
JOHN H. RICH III, UNITED STATES MAGISTRATE JUDGE
The plaintiffs, eight Maine hospitals, seek relief from a decision of the defendant that overturned a decision of the Medicare Provider Reimbursement Review Board (“Board” or “PRRB”) directing the Fiscal Intermediary to repay them approximately $17, 127, 665 in Medicare disproportionate share hospital payment reimbursement that the Fiscal Intermediary had recouped from the plaintiffs. I recommend that the court grant the parties’ respective motions for judgment in part.
I. Factual and Procedural Background
The following facts are not disputed by the parties.
Medicare is a national program of health insurance for the aged and disabled. 42 U.S.C. § 1395 et seq. Medicare reimburses hospitals for the costs of inpatient hospital services through the Prospective Payment System, which bases payments on prospectively-determined rates rather than actual costs. 42 U.S.C. § 1395ww(d)(1)–(4). Statutory provisions adjust payments based on hospital-specific factors. 42 U.S.C. § 1395ww(d)(5).
This case involves the application of one of these provisions, the adjustment for disproportionate share hospital (“DSH”) reimbursement. 42 U.S.C. § 1395ww(d)(5)(F). The DSH provision requires the defendant to provide increased prospective payments to hospitals that serve a “significantly disproportionate number of low-income patients.” 42 U.S.C. § 1395ww(d)(5)(F)(i). The amount of the adjustment, where it is available, depends upon the hospital’s “disproportionate patient percentage.” 42 U.S.C. § 1395ww(d)(5)(F)(v). The disproportionate patient percentage is the sum of the “Medicare fraction” and the “Medicaid fraction.” 42 U.S.C. § 1395ww(d)(5)(F)(vi).
The Medicaid fraction is defined as follows:
the fraction (expressed as a percentage), 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 [the Medicaid program], but who were not entitled to benefits under part A of [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).
The numerator of the Medicare fraction is the number of Medicare inpatient days for patients who were entitled to Supplement Security Income (“SSI”) benefits and the denominator is the total number of Medicare inpatient days. 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I).
Prior to February 1997, the defendant construed the phrase “eligible for medical assistance under [the Medicaid program]” to include in the Medicaid numerator only those days for which the hospital received Medicaid payment for inpatient hospital services. Record at 369-70. However, in HCFA Ruling 97-2, the defendant construed the statutory phrase to include any day on which the patient was eligible for Medicaid, regardless of whether a Medicaid payment had been made for such day. Id.
In a memorandum dated June 13, 1997, directed to the intermediary agencies that processed prospective payments to hospitals,  the defendant noted that the statute precluded the inclusion in the Medicaid numerator of “days furnished to patients entitled to both Medicare Part A and Medicaid.” Id. at 357-59. The defendant thus instructed its fiscal intermediaries to subtract “dual entitlement days” from the calculation. Id. at 358. The plaintiffs refer to dual-eligible days as “non-SSI Type 6 Days.” Motion for Judgment on Administrative Record (“Plaintiffs’ Motion”) (ECF No. 20) at 1.
In December 1999, the defendant issued Program Memorandum, HCFA Pub. 60A, No. A-99-62 to its fiscal intermediaries, noting that some states provided medical assistance to individuals who were not eligible for Medicaid, and that such “state-only” days were not appropriately included in the Medicaid numerator. Record at 399-401. The Memorandum reiterated that days on which the patient was entitled to both Medicare Part A and Medicaid were not included in the calculation. Id.
At the end of each fiscal year, each plaintiff is required to file a Medicare cost report with its fiscal intermediary. 42 C.F.R. § 413.24(f). The report identifies the hospital’s costs and the percentage of those costs allocated to services furnished to Medicare beneficiaries. 42 C.F.R. §§ 413.20, 413.24. The intermediary analyzes the cost report, audits it if necessary, and issues a notice of program reimbursement, identifying the amount due the hospital from Medicare for the period. 42 C.F.R. § 405.1803.
A fiscal intermediary may reopen a cost report within three years of the date of the notice of program reimbursement by notifying the parties. 42 C.F.R. § 405.1885(a) & (b)(1). If the reopening results in a revision of the prior decision, the fiscal intermediary is required to issue a notice that includes a complete explanation of the basis for the revision. 42 C.F.R. § 405.1887(c).
A hospital may obtain a hearing on an original or revised notice of program reimbursement before the Board, if certain jurisdictional conditions are met. 42 U.S.C. § 1395oo; 42 C.F.R. § 405.1889. The Board’s decision is final, unless the Secretary reverses or modifies the decision within 60 days. 42 U.S.C. § 1395oo(f)(1). The hospital may obtain judicial review of any final decision. Id.
In 1997, one of the plaintiffs, Central Maine Medical Center, settled an appeal it had brought to the Board. Record at 1320-23. One of the terms of the settlement agreement required the defendant to allow the hospital to include non-SSI Type 6 Days in the calculation of the disproportionate share hospital reimbursement. Id. at 1343-44. After this settlement was reached, the plaintiffs’ fiscal intermediary began to include the non-SSI Type 6 Days for all other Maine hospitals. Id. at 1348. It prepared instructions to Maine hospitals setting out the manner in which non-SSI Type 6 Days were to be handled in connection with the hospitals’ cost reports. Id. at 1348-49. The fiscal intermediary sent letters to Maine hospitals encouraging them to claim the non-SSI Type 6 Days. Id. at 1366-67.
In 2003, the fiscal intermediary changed its position on this issue. Id. at 229-30. It issued a memorandum dated May 19, 2003, advising the plaintiffs that dual-eligible days should be excluded from the calculation. Id. at 373-75. In letters dated from June 9, 2003, to September 27, 2004, the fiscal intermediary notified the plaintiff hospitals that it was reopening their cost reports for certain years “[t]o review and correct the [Medicare DSH] payment calculation in accordance with” the Medicare statute and regulations. Id. at 73, 76-80.
Representatives of the plaintiffs and the fiscal intermediary met with program authorities in the defendant’s regional office in Boston and with the acting deputy director of CMS (the Centers for Medicare and Medicaid Services), a division of the Department of Health and Human Services, in Washington, D.C. Id. at 230. During a subsequent conference call, CMS representatives did not suggest that the “without fault” analysis found in the Medicare Intermediary Manual, Section 3708.1 did not apply under the circumstances. Id. at 230. This provision required each plaintiff to make “full disclosure of all material facts, ” and show that “on the basis of information available to it, including, but not limited to, the Medicare instructions and regulations, it had a reasonable basis for assuming that the payment was correct[.]” Id. at 231 .
The CMS representatives agreed that the plaintiffs made full disclosure, but they concluded that the plaintiffs did not satisfy the second prong of this test because the statute involved was “clear” in prohibiting hospitals from counting dual-eligible patients in the Medicaid fraction. Id. at 230 .
By letters dated June 20, 2005, to August 2, 2007, the fiscal intermediary advised the plaintiffs that the dual-eligible days would be excluded from the DSH calculations for the affected years. Id. at 74-75, 83-84, 85-86, 87-88, 145-46. The fiscal intermediary issued final reopening determinations in letters dated January 25 to August 18, 2006. Id. at 148-49, 512-13. Each notice advised the hospital of the amount due based on the revised DSH calculation.
The appeals of the plaintiffs were consolidated. Id. at 57. The Board held a hearing and issued a decision on March 29, 2013. Id. at 51-70. The Board found that the fiscal intermediary had issued timely and adequate notices of reopening for certain of the cost reports at issue, and affirmed the adjustments for these reports. Id. at 65. However, it found that the fiscal intermediary had failed to issue timely and adequate notices for the remaining cost reports, and, therefore, reversed the disallowances imposed by the fiscal intermediary for those years. Id. at 65-66.
On April 19, 2013, the defendant notified the parties that she would review the Board’s decision. Id. at 39. On May 30, 2013, she reversed the Board’s decision that certain of the cost reports had been improperly reopened and rejected all ...