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Eastern Maine Medical Center v. Burwell

United States District Court, D. Maine

February 9, 2016

SYLVIA BURWELL, Secretary of United States Department of Health and Human Services, Defendant


D. Brock Hornby United States District Judge

This case presents two questions. Does section 5504(c) of the Patient Protection and Affordable Care Act (“ACA”), enacted in 2010, require the Secretary of Health and Human Services to apply the Act’s new provisions to hospital cost reimbursements for 2003 and 2004 because a hospital still had an appeal pending as to those two years in 2010? If not, has the Secretary properly applied earlier law concerning required documentation for a hospital’s request for reimbursement for its offsite graduate medical education training? The earlier law allowed Medicare reimbursement for such training if the hospital incurred “all, or substantially all” the costs of the offsite training program. 42 U.S.C. §§ 1395ww(d)(5)(B)(iv) (2003), 1395ww(h)(4)(E) (2004). The ACA is more precise and allows reimbursement for offsite training simply “if a hospital incurs the costs of the stipends and fringe benefits of the resident.” 42 U.S.C. § 1395ww(h)(4)(E)(ii) (2012). I conclude that the ACA’s new provisions do not apply to a previous cost reimbursement request, even though that request was still under appeal when the ACA was enacted. I also conclude that the Secretary properly applied the previous law and regulations. Accordingly, the plaintiff hospital’s Motion for Judgment on the Administrative Record (ECF No. 19) is Denied, and the defendant Secretary’s Cross-Motion for Judgment on the Administrative Record (ECF No. 22) is Granted.

Factual Background[1]

Eastern Maine Medical Center (“EMMC”) is a nonprofit, short-term, acute care hospital in Bangor, Maine. R. at 24. EMMC has maintained a family practice residency program of graduate medical education since 1975. Id. at 142-43. EMMC obtains Medicare reimbursement for a share of the direct and indirect costs associated with operating this residency program. The program involves 52 week-long rotations for each of three years. Rotations taking place entirely on the hospital’s campus are known as “inside rotations.” Id. at 144-45. Rotations occurring partially or entirely off campus are called “outside rotations.” Id. at 145. The hospital has used outside rotations in its graduate medical education program since the beginning. Id. Traditionally, off-campus physicians agree to supervise EMMC’s medical residents in patient care activities off campus without compensation for their supervisory role. Id. at 24. For the years in dispute (fiscal years 2003 and 2004), some of these agreements were written, others were not, and some agreements were not signed until after the residency began. Id.

Procedural History

The Secretary uses the Centers for Medicare and Medicaid Services to administer Medicare and Medicaid programs. Id. at 2. The parties also call it “CMS” or “the Administrator” or “the CMS Administrator.” I shall call it “the CMS Administrator.” The CMS Administrator contracts with “Fiscal Intermediaries”[2]to manage hospital reimbursement and auditing functions for Medicare-approved graduate medical education reimbursements. Id. at 2-3, n.1. A Fiscal Intermediary’s ruling is appealable to a Provider Reimbursement Review Board under 42 U.S.C. § 1395oo(a). Id. at 2. The statute provides that the Board’s ruling is in turn reviewable by the Secretary acting through the CMS Administrator. 42 U.S.C. § 1395oo(f). That final decision is reviewable in federal court under 5 U.S.C. §§ 701-706, the Administrative Procedure Act.

(1) Fiscal Intermediary’s Decision

In this case, after auditing EMMC’s outside rotation schedules and agreements in connection with a reimbursement request for the family practice residency educational program, the Fiscal Intermediary disallowed many of the outside rotations for fiscal years 2003 and 2004. R. at 24. (Disallowance results in reduced Medicare reimbursements to the hospital.) EMMC then provided additional documentation, and the Fiscal Intermediary made adjustments, allowing more, but not all, of the rotations. Id. at 24-25. Rotations were disallowed because there was no signed agreement with the volunteer physician, the agreement was signed after the rotation took place, or the compensation arrangement with the supervising volunteer physician was not “properly documented.” Id. EMMC thereafter conceded that some, but not all, of the remaining rotations were appropriately disqualified by the Fiscal Intermediary. Id. As for the rest, EMMC appealed the Fiscal Intermediary’s ruling to the Provider Reimbursement Review Board. Id. at 2.

(2) Provider Reimbursement Review Board Hearing

The Board held a live testimonial hearing, reviewed the Fiscal Intermediary’s findings on the remaining challenged rotations, and concluded that the findings conflicted with the 2010 Affordable Care Act, under which compensation for the outside teaching physician is no longer relevant. The Board ruled that for “jurisdictionally proper pending appeals as of the date of the enactment” of the ACA, section 5504(c) of that Act[3] and the Secretary’s implementing regulation (42 C.F.R. § 413.78(g)(6)) require that the new, more lenient reimbursement provisions (i.e., that the hospital can obtain reimbursement if it simply pays the resident’s stipend and fringe benefits) of section 5504(a) and (b) apply. Id. at 3. The Board therefore ordered the Fiscal Intermediary to apply the provisions of section 5504 to EMMC’s disallowed rotations, id. at 4, which would result in greater Medicare reimbursement to EMMC.[4]

(3) CMS Administrator Review

At the Fiscal Intermediary’s request, the CMS Administrator, acting on the Secretary’s behalf, reviewed the Board’s decision. Id. at 2. The CMS Administrator disagreed with the Board’s interpretation that section 5504(c) and its implementing regulation required retroactive application of the new standards to pending appeals. Id. at 25.

The CMS Administrator then analyzed EMMC’s disallowed outside rotations under the law as it stood before passage of the ACA. Id. at 25-29. The CMS Administrator ruled that in order for outside rotations to qualify for reimbursement, 42 C.F.R. § 413.86(f) required that a written agreement with the off-campus physician specify the amount of compensation paid for supervisory teaching activities (even if EMMC did not pay the compensation). Id. at 27. Furthermore, the CMS Administrator ruled that the agreement must be in writing before the resident’s rotation began. Id. The CMS Administrator declared:

[W]here this is no agreement, no timely agreement, or fully executed timely agreement, [EMMC] has failed the requirement of a timely executed written agreement. . . . Where the supervisory physician is a volunteer, the appropriate documentation must be provided on the physicians’ salaried or compensation basis, or else the regulatory documentation requirement, inter alia, that [EMMC] incur all or substantially all of the costs are not met. Thus, the Intermediary’s exclusion of the disallowed [rotations] was proper.

Id. at 28-29.[5] As a result, the CMS Administrator reversed the findings of the Provider Reimbursement Review Board and reinstated the findings of the Intermediary. Id. at 29.

EMMC appealed the CMS Administrator’s decision to this court under 42 U.S.C. § 1395oo(f)(1), which provides for judicial review of Medicare Provider Reimbursement Review Board decisions (or Board decisions which have been modified by the Secretary through the CMS Administrator) according to the terms of the Administrative Procedure Act (“APA”), 5 U.S.C. §§ 701-706. Both EMMC and the Secretary have filed cross-motions for judgment on the administrative record. EMMC asks this court to reinstate the Board’s decision, while the Secretary urges the court to affirm the CMS Administrator’s decision.


(1) Standard of Review

The APA states that a reviewing court shall “hold unlawful and set aside agency action, findings, and conclusions found to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law, ” or “unsupported by substantial evidence in the administrative record.” 5 U.S.C. § 706(2)(A) and (E). See also South Shore Hosp., Inc. v. Thompson, 308 F.3d 91, 97 (1st Cir. 2002). Under the APA’s arbitrary and capricious standard, “agency action is presumptively valid, ” and the standard “precludes a reviewing court from substituting its own judgment for that of the agency.” Rhode Island Hosp. v. Leavitt, 548 F.3d 29, 33-34 (1st Cir. 2008). Nevertheless, a court should not ...

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