Opinion ID: 810135
Heading Depth: 1
Heading Rank: 2

Heading: Ill Comp. Stat. 5/5A-4(a) (2004).

Text: In the event the Access Payments were not eligible for federal matching funds under Medicaid, the Legislation provided that the Tax Assessment “shall not take effect or shall cease to be imposed, and any moneys remaining in the Fund shall be refunded to hospital providers[.]” 305 Ill. Comp. Stat. 5/5A-10(a)(3) (2004). Furthermore, if the Tax Assessment was determined to be an impermissible tax under Medicaid, the Tax Assessment “[would] not take effect or [would] cease to be imposed[.]” 305 Ill. Comp. Stat. 5/5A-10(b) (2004). No. 11-2809 15 D. State Plan Amendments to Illinois’ Medicaid Plan In 2004, Illinois submitted two State plan amendment (“SPA”) requests to CMS for approval of adjustments to the payment methodologies for inpatient and outpatient hospital services. Illinois also requested that CMS grant a waiver of the broad-based requirement for the Tax Assessment under 42 C.F.R. § 433.68(e)(1).5 Illinois requested the waiver because some hospitals were exempt from paying the Tax Assessment. Upon review of the proposed SPAs, CMS noted that the proposed SPAs conditioned payment on approval of the waiver request and requested that Illinois remove this conditional language. Illinois removed the conditional language from the proposed SPAs, although the language of the Legislation remained intact. CMS then approved the SPAs and granted the waiver request. E. The Administrator’s Decision During fiscal years 2005 and 2006, the Hospitals sought reimbursement for services provided to Medicare patients on a reasonable cost basis. See 42 U.S.C. § 1395f(b)(1). In their cost reports, the Hospitals included the Tax Assess- 5 Pursuant to Medicaid regulations, permissible health care related taxes must be broad-based, uniformly imposed, and may not violate the hold harmless provisions of the regulations. 42 C.F.R. § 433.68(b). States may nonetheless request a waiver from CMS of the broad-based requirement. 42 C.F.R. § 433.68(c)(3). 16 No. 11-2809 ments they paid as a reasonable cost to be reimbursed under Medicare. The fiscal intermediary (“Intermediary”) disallowed the Tax Assessment payments as costs and made audit adjustments reducing the Hospitals’ Medicare reimbursement by all or a portion of the Access Payments the Hospitals received. The Hospitals appealed the Intermediary’s decisions to the Board, which consolidated the appeals into one group appeal. The Board reversed the Intermediary’s decisions, holding that the Tax Assessment was an allowable cost under Medicare and further concluding that the Tax Assessment was a permissible tax under Medicaid and that the Access Payments were not a refund of the Tax Assessment. The Intermediary sought review of the Board’s decision, and the CMS Administrator reversed. The Administrator held that although the Tax Assessment was an allowable tax, the Access Payments were properly treated as refunds of the Tax Assessment. The Administrator reasoned that the statutory language of the Legislation evinced a link between the Tax Assessments and the Access Payments. The Administrator therefore concluded that the Tax Assessment payments were properly offset against the amount of Access Payments each of the Hospitals received, such that the allowable tax was properly calculated as the amount of the Tax Assessment less the amount refunded by Illinois in the form of Access Payments. The Administrator further concluded that whether the Tax Assessment met Medicaid’s hold harmless provision was not pertinent to whether the refund should be offset under Medicare principles to determine the amount of necessary and reasonable tax expenses. No. 11-2809 17 The Hospitals then brought suit in the Central District of Illinois, contending that the Administrator’s decision violated the Administrative Procedure Act (“APA”). In a thorough and detailed opinion granting summary judgment to the Secretary and denying summary judgment to the Hospitals, Judge Myerscough upheld the Administrator’s decision, finding that the Secretary’s interpretation of the Medicare statutes and regulations “was not arbitrary, capricious, or contrary to law, and is supported by substantial evidence.” Abraham Lincoln Mem’l Hosp. v. Sebelius, No. 10-3122, 2011 WL 2293233, at - (C.D. Ill. June 8, 2011).