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Empire Health Foundation v. Price

United States District Court, E.D. Washington

September 1, 2017

EMPIRE HEALTH FOUNDATION, for Valley Hospital Medical Center, Plaintiff,
THOMAS E. PRICE, MD, Secretary of the United States Department of Health and Human Services, Defendant.



         Plaintiff Empire Health Foundation, for Valley Hospital Medical Center (the “Hospital”) brings this action against Thomas E. Price, MD, in his capacity as Secretary of the United States Department of Health and Human Services (the “Secretary”). The matter presently is before the Court on the Secretary's Motion to Dismiss for Lack of Subject Matter Jurisdiction, ECF No. 11, pursuant to Fed.R.Civ.P. 12(b)(1), and the Hospital's Motion to Supplement the Record, ECF No. 19. Having considered the parties' filings and oral argument, the remaining record, and the relevant law, the Court is fully informed. For the reasons set forth below, the Hospital's motion is granted, and the Secretary's motion is denied.


         As alleged in the complaint, the Hospital provided short-term acute care to patients insured under the federal health insurance program Medicare in fiscal year 2008. ECF No. 1 at 3. Under Part A of the Medicare Act, the Medicare program reimburses providers for inpatient services based on the Prospective Payment System (“PPS”), which derives reimbursements from standardized reimbursable expenditure rates that are subject to adjustments based on certain hospital-specific factors. See 42 U.S.C. §§ 1395c to 1395i-5, 1395ww(d). The Hospital's challenge concerns the disproportionate share hospital (“DSH”) adjustment, created to “compensate hospitals for the additional expense per patient associated with serving high numbers of low-income patients.” Phoenix Mem. Hosp. v. Sebelius, 622 F.3d 1219, 1221 (9th Cir. 2010).

         Whether a hospital receives a DSH adjustment, and the amount of the adjustment received, is determined by a calculation of the hospital's disproportionate patient percentage (“DPP”). 42 U.S.C. § 1395ww(d)(5)(F)(v), (vii). The regulation governing the DPP, as amended in 2004, provides a formula for determining the DPP, which serves “as a proxy for all low-income patients.” Legacy Emanuel Hosp. & Health Ctr. v. Shalala, 97 F.3d 1261, 1263 (9th Cir. 2010) (internal citation omitted). The formula is as follows, represented visually:

Supplemental Security Income (“SSI”)/Medicare Fraction

Medicaid Fraction

Medicare, SSI days (incl. Part C Days)/ Total Medicare Days

Medicaid Days/Total Patient Days


See 42 C.F.R. § 412.106(b).

         As referenced in the above equation, the numerator of the Medicare fraction consists of the number of patient days in the relevant period for patients who were both “entitled to benefits under Part A” and “entitled to SSI benefits.” 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I). The regulation expressing the DPP formula, as amended in 2004, also considers patients who elect coverage under Part C of the Medicare Act, the “Medicare Advantage” program that provides benefits through a managed care plan, to be “entitled to benefits under Part A” for purposes of the Medicare fraction. 42 C.F.R. § 412.106(b)(2)(i)(B).

         The Hospital filed the complaint in this matter on June 9, 2016, alleging that the Secretary's interpretation of the DSH payment adjustment statute, 42 U.S.C. § 1395ww(d)(5)(F)(vi), is invalid and that the agency should be enjoined from applying its interpretation against the Hospital. Specifically, the Hospital disagrees with the Secretary's position that “unpaid Medicare Part A days are ‘days entitled to benefits under part A' for purposes of the DSH social security income (SSI) and Medicaid fractions[.]” ECF No. 1 at 15. Alternatively, if the Court agrees with the Secretary regarding the treatment of unpaid Medicare Part A days, the Hospital asks that the Court direct the Secretary “to include unpaid SSI eligible patient days in the numerator of the SSI percentage utilizing SSI payment status codes that reflect the individuals' eligibility for SSI-even if the individuals did not receive SSI payments[, ]” as a matter of consistency. ECF No. 1 at 15-16.

         The Hospital alleges that this Court has jurisdiction to review a final decision of the Provider Reimbursement Review Board (“PRRB”), an adjudicative body within the Department of Health and Human Services, under 42 U.S.C. § 1395oo(f)(1). The PRRB issued a final decision on April 8, 2016, granting the Hospital's request for “expedited judicial review” and determining that the PRRB “lacks the authority to decide the [sic] whether the regulation, 42 C.F.R. § 412.106(b)(2) (2008) is valid . . . .” ECF No. 1-1 at 4.

         Rather than filing an answer, the Secretary moved to dismiss the Hospital's complaint for lack of jurisdiction, on the basis that the PRRB's decision to issue a final agency decision and grant expedited judicial review did not encompass the issues for which the Hospital seeks judicial determination in this action.


         Plaintiff bears the burden of proving the existence of subject matter jurisdiction. See Thompson v. McCombe, 99 F.3d 352, 353 (9th Cir. 1996). The plaintiff must have exhausted the administrative review process for a court to exercise jurisdiction. See Mathews v. Eldridge, 424 U.S. 319, 323, 327 (1976). A final decision consists of two elements: a jurisdictional, non-waivable requirement that the claim for benefits has been presented for decision to the agency; and a waivable requirement of exhaustion of the agency's administrative review process. Mathews, 424 U.S. at 328-30; Weinberger v. Salfi, 422 U.S. 749, 764-65 (1975).

         Federal district courts have jurisdiction over Medicare provider reimbursement disputes only to the extent provided by 42 U.S.C. § 1395oo(f). See Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1, 5-6, 10 (2000); see also 42 U.S.C. § 1395ii. Under 42 U.S.C. § 1395oo(f)(1), a Medicare provider may pursue an initial judicial determination of an issue over which the PRRB determines it is “without authority to ...

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