East Alabama Medical Center v. Shalala

925 F. Supp. 27, 1996 U.S. Dist. LEXIS 6410, 1996 WL 248821
CourtDistrict Court, District of Columbia
DecidedMay 3, 1996
DocketCivil Action 95-01927 (CRR)
StatusPublished
Cited by1 cases

This text of 925 F. Supp. 27 (East Alabama Medical Center v. Shalala) is published on Counsel Stack Legal Research, covering District Court, District of Columbia primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
East Alabama Medical Center v. Shalala, 925 F. Supp. 27, 1996 U.S. Dist. LEXIS 6410, 1996 WL 248821 (D.D.C. 1996).

Opinion

MEMORANDUM OPINION

CHARLES R. RICHEY, District Judge.

INTRODUCTION

Before the Court in the above-captioned case are the parties’ cross-motions for summary judgment. The plaintiff, a hospital that participates in the Medicare program, challenges the validity of a final rule by the Secretary of the Department of Health and Human Services, 42 C.F.R. § 412.230(a)(5)(ii) (the “1995 Regulation”). 1 The 1995 Regulation, effective October 1, 1996, precludes a hospital from obtaining Medicare geographic reclassification for purposes of using another area’s “standardized amount” if the area to which the hospital seeks reclassification does not have a higher standardized amount than the one the hospital currently receives. Upon careful consideration of the pleadings, the entire record herein, and the law applicable thereto, and for the reasons expressed below, the Court shall deny the plaintiff’s motion for summary judgment and shall grant the defendant’s motion for summary judgment.

BACKGROUND

The Medicare program, established under title XVIII of the Social Security Act (“Act”), 42 U.S.C. § 1395 et seq., pays for covered medical services furnished primarily to eligible aged and disabled persons. Part A of the program authorizes payment for covered care in institutions, including hospitals that have entered into a provider agreement with the Secretary. 42 U.S.C. § 1395x(u), 1395ee. Most hospitals that have entered into such agreements, including the plaintiff, are reimbursed under the “Prospective Payment System” (“PPS”). Id. Under the PPS, the amount of reimbursement to a provider hospital for a given service is dependent upon the hospital’s average “standardized amount” per ' discharge, see 42 U.S.C. § 1395ww(d)(2)(C)-(D), and the area wage index applicable to the hospital, see 42 U.S.C. § 1395ww(d)(3)(E).

All hospitals participating in the Medicare program are classified as located in “rural areas,” “large urban areas,” and “other urban areas.” The standardized amount and the wage index are determined with reference to these classifications. For federal fiscal years prior to FY1995, the Act re *30 quired the Secretary to compute a separate average of hospital standardized amounts for the three different classifications. 42 U.S.C. § 1395ww(d)(2)(D).

Congress has established a process for hospitals to apply for “reclassification” to another geographic area for certain Medicare payment purposes. 42 U.S.C. § 1395(d)(10). To implement this process, Congress established the Medicare Geographic Classification Review Board (“MGCRB” or “Board”) to consider applications for reclassification. 42 U.S.C. § 1395ww(d)(10)(A) — (C). The MGCRB reviews reclassification applications pursuant to statutory standards, as well as guidelines prescribed by the Secretary. 42 U.S.C. § 1395ww(d)(10)(C) — (E).

Pursuant to 42 U.S.C. § 1395ww(d)(10)(D)(i), the Secretary has issued regulations establishing guidelines to be used by the MGCRB in reviewing applications for reclassification. 42 C.F.R. §§ 412.230-412.280. Under the guidelines, a hospital may be reclassified to another area for the purpose of using the other area’s wage index, standardized amount, or both, if the requesting hospital meets certain criteria. 42 C.F.R. §§ 412.230-412.234.

The PPS also applies additional reimbursement factors for certain hospital-specific characteristics, such as the Disproportionate Share Hospital (“DSH”) adjustment relevant to the present case. The DSH adjustment reflects the higher costs that hospitals incur for treating a large proportion of low-income patients, as well as the higher indirect costs of operating in areas accessible to the poor. 42 U.S.C. § 1395ww(d)(5)(F). The Act does not specify the effect, if any, of reclassification on these reimbursement factors; however, the Secretary has tied these reimbursement factors to the standardized amount classification. 55 Fed.Reg. 36,761 (Sept. 6, 1990); 56 Fed.Reg. 25,471 (June 4,1991). In general, urban hospitals receive more favorable DSH payments than do rural hospitals.

After the MGCRB guidelines were promulgated, Congress amended the Act in November 1990 to mandate the gradual merger of the “rural” and “other urban” standardized amounts so that, beginning in FY1996, the Secretary must calculate a single “other area” standardized amount applicable to both rural and other urban hospitals, while large urban areas continue to receive a separate, higher standardized amount. 42 U.S.C. § 1395ww(d)(3)(A)(iv). When Congress phased out the distinct standardized amounts for “rural” and “other urban areas,” the Secretary proposed a change to the regulations that a hospital would not be eligible for reclassification for the purpose of the standardized amount if the area to which it sought reclassification did not have a higher standardized amount than the area in which the hospital was located. 60 Fed.Reg. 29,202, 29,216 (June 2, 1995) (proposed rule). Prior to this proposed change, the Secretary had accepted, processed, and approved MGCRB applications by hospitals to seek geographic reclassification to an urban area, even if such reclassification would not result in the hospital receiving a higher standardized amount. In proposing the change, the Secretary reasoned that, while the statutory language permitted her to tie reimbursement factors such as DSH to the standardized amount, it did not require her to perform reclassifications for a purpose other than changing a hospital’s standardized amount or wage index. After notice and comment, the Secretary adopted the proposed rule as final on September 1, 1995. 60 Fed.Reg. 45,799-802, 45,848-49 (Sept. 1, 1995) (final rule); 42 U.S.C. § 412.230(a)(5)(ii).

The plaintiff is a 294-bed, non-profit, acute care hospital located in Opelika, Alabama, a rural area roughly 30 miles from Columbus, Georgia.

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Cite This Page — Counsel Stack

Bluebook (online)
925 F. Supp. 27, 1996 U.S. Dist. LEXIS 6410, 1996 WL 248821, Counsel Stack Legal Research, https://law.counselstack.com/opinion/east-alabama-medical-center-v-shalala-dcd-1996.