East Jefferson General Hospital v. Heckler

617 F. Supp. 115
CourtDistrict Court, E.D. Louisiana
DecidedOctober 19, 1984
DocketCiv. A. No. 83-4107
StatusPublished

This text of 617 F. Supp. 115 (East Jefferson General Hospital v. Heckler) is published on Counsel Stack Legal Research, covering District Court, E.D. Louisiana primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
East Jefferson General Hospital v. Heckler, 617 F. Supp. 115 (E.D. La. 1984).

Opinion

[116]*116MEMORANDUM OPINION

ROBERT F. COLLINS, District Judge.

Plaintiffs in this action are a group of hospitals who are “providers of services” to Medicare patients, as defined in 42 U.S.C. § 1395x(u). They challenge the validity of the “Malpractice Rule,” 42 C.F.R. § 405.452(b)(1)(h), a recently adopted regulation which changes the formula by which provider hospitals are reimbursed for medical malpractice premiums by Medicaid and Medicare. The defendant, Margaret M. Heckler, Secretary of the Department of Health and Human Services, is the administrator of the Medicare program. The plaintiffs invoke the Court’s jurisdiction pursuant to 42 U.S.C. § 1395oo (f)(1).

The matter is before the Court on the parties’ cross motions for summary judgment. Also before the Court is defendant’s motion to strike Plaintiffs’ Exhibit 23. After oral argument on the matter, the Court took the matter under advisement.

In summary, the Court’s ruling of the pending motions are as follows:

(1) the motion to strike plaintiffs’ Exhibit 23 is GRANTED;1

(2) the defendant’s motion for summary judgment will be DENIED;

(3) the plaintiffs’ motion for summary judgment will be GRANTED; and

(4) the matter is remanded to the Secretary of the Department of Health and Human Services for further consideration in accordance with this Opinion.

Introduction

This suit challenges the procedural and substantive validity of a Medicare regulation, 42 C.F.R. § 405.432(b)(l)(ii), commonly known as the Malpractice Rule, governing the apportionment of a hospital’s malpractice insurance costs to the Medicare program. Plaintiffs argue that the Malpractice rule is invalid because: (1) it is arbitrary and capricious; (2) it violates the Medicare Act; and (3) it was not promulgated in accordance with the mandatory notice and comment procedures of the administrative procedure act.

Background

On March 15, 1979, the Secretary of the Department of Health and Human Services 2 (Secretary) announced an anticipated change in Medicare reimbursement policy through a notice of proposed rulemaking. 44 Fed.Reg. 15744. The final regulation, published on June 1, 1979, effective on June 30, 1979, dramatically changed the method of calculating reimbursement3 for malpractice insurance costs (or self-insurance fund contributions) incurred by qualified providers servicing Medicare patients. Prior to adoption of this regulation, providers pooled medical malpractice insurance [117]*117costs with other indirect administrative and general (A & G) costs. Reimbursement from Medicare funds for A & G costs was based on the percentage of services utilized by Medicare patients (a Medicare utilization rate). That is, if Medicare patients utilized 50% of a provider’s services, Medicare would reimburse that provider for 50% of its A & G costs, including 50% of its medical malpractice insurance premiums. The Medicare utilization rates for plaintiffs in this case range from approximately 44% to 57.4% for the cost years at issue here.4

The challenged regulation takes medical malpractice insurance premiums out of the A & G category and directly apportions them between Medicare and non-Medicare patients as follows:

For cost reporting periods beginning on or after July 1, 1979, costs of malpractice insurance premiums and self-insurance fund contributions must be separately accumulated and directly apportioned to Medicare. The apportionment must be based on the dollar ratio of the provider’s Medicare paid malpractice losses to its total paid malpractice losses for the current cost reporting period and the preceding 4-year period. If a provider has no malpractice loss experience for the 5-year period, the costs of malpractice insurance premiums or self-insurance fund contributions must be apportioned to Medicare based on the national ratio of malpractice awards paid to Medicare beneficiaries to malpractice awards paid to all patients. The Health Care financing Administration will calculate this ratio periodically based on the most recent departmental closed claim study. If a provider pays allowable insured malpractice losses incurred by Medicare beneficiaries, either through allowable deductible or coinsurance provisions, or as a result of an award in excess of reasonable coverage limits, or as a governmental provider, such losses and related direct costs must be directly assigned to Medicare for reimbursement.5

Plaintiffs are nine not-for-profit Louisiana hospitals which furnish services to Medicare patients. Prior to the promulgation of the Malpractice Rule, they were reimbursed for malpractice insurance rates under the traditional utilization approach.

As a result of the Malpractice Rule, for the years ending 1980-1981, plaintiffs were reimbursed according to the regulations direct apportionment method rather than on the basis of Medicare utilization. Eight of the plaintiffs were reimbursed 5.1% of their malpractice insurance costs in accordance with the “national ratio” applicable to hospitals with no paid claims for the relevant five year period.6 One of the • hospitals (Glenwood Regional Medical Center) received no Medicare reimbursement for its malpractice insurance costs because during the five year period, it had paid a non-Medicare claim but had not paid a Medicare claim. Because plaintiffs’ Medicare utilization rates range from 33% to 57.4%, defendants’ application of the Malpractice Rule [118]*118resulted in a substantial loss in Medicare reimbursement.7

This action followed a hearing before the Provider Reimbursement Review Board (Board) and certification of plaintiffs’ challenge to the Malpractice Rule pursuant to 42 U.S.C. § 1395oo (f)(1).8 42 U.S.C. § 1395oo(f) provides that the case “shall be tried pursuant to the applicable provisions under Chapter 7 of Title 5 [the Administrative Procedure Act (APA)]----” The provision of the APA governing the scope of review is 5 U.S.C. § 706, which requires an administrative decision to be set aside if it is arbitrary, capricious, an abuse of discretion, unsupported by substantial evidence, or otherwise not in accordance with law.

In Motor Vehicle Manufacturers Association of the United States, Inc. v. State Farm Mutual Insurance Co., 463 U.S. 29, 103 S.Ct. 2856, 2866-2867, 77 L.Ed.2d 443 (1983), the Supreme Court recently described the scope of review “under the arbitrary and capricious” standard as follows:

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Bluebook (online)
617 F. Supp. 115, Counsel Stack Legal Research, https://law.counselstack.com/opinion/east-jefferson-general-hospital-v-heckler-laed-1984.