Court Opinion

ID: 146496
Source: CourtListenerOpinion
Date Created: 2010-05-14 16:49:09+00
Date Added: 2024-06-11T09:41:17.836034
License: Public Domain

NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                                 _____________

                                     No. 09-3703
                                    _____________

                   HACKENSACK UNIVERSITY MEDICAL CENTER,
                                                 Appellant

                                            v.

                               KATHLEEN SEBELIUS,

                         Secretary, Health and Human Services,
                         (Substituted Pursuant to F.R.A.P. 43(c))
                                    _______________

                     On Appeal from the United States District Court
                               for the District of New Jersey
                                    (D.C. No. 08-cv-625)
                      District Judge: Honorable Susan D. Wigenton

                                   _______________

                               Argued February 25, 2010

         Before:    CHAGARES, STAPLETON, and LOURIE,* Circuit Judges.

                                  (Filed: May 14, 2010)

_______________
        *Honorable Alan D. Lourie, Circuit Judge of the United States Court of Appeals
for the Federal Circuit sitting by designation.
Clifton S. Elgarten
Robert L Roth (Argued)
Crowell & Moring LLP
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
       Counsel for Appellant

Paul J. Fishman
United States Attorney
Susan Handler-Menahem (Argued)
Assistant U.S. Attorney
District of New Jersey
970 Broad Street
Suite 700
Newark, NJ 07102
       Counsel for Appellees

                                     _______________

                                OPINION OF THE COURT
                                    _______________

LOURIE, Circuit Judge.

       Hackensack University Medical Center (“Hackensack”) appeals from the order of the

District Court for the District of New Jersey granting summary judgment in favor of appellee

Kathleen Sebelius, Secretary of the United States Department of Health and Human Services

(“the Secretary”), affirming the Provider Reimbursement Review Board’s (“PRRB”) decision

allowing only a temporary adjustment to Hackensack’s resident cap and denying a permanent

exception to the cap. Hackensack Univ. Med. Ctr. v. Johnson, No. 08-0625, 2009 WL

2168719 (D.N.J. July 17, 2009). Because Hackensack has failed to show that the District

Court erred in its decision, we will affirm.

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                                    I. BACKGROUND

      Hackensack is a not-for-profit hospital that trains residents at its facility as part of the

resident training program for the University of Medicine and Dentistry of New Jersey

(“UMDNJ”). Pursuant to the Medicare Act, 42 U.S.C. § 1395 et seq., Hackensack receives

Medicare payments under the Prospective Payment System (“PPS”) to reimburse it for

certain costs associated with its medical education program. These payments are based on

the number of full-time equivalent residents (“FTEs”) trained at the hospital. In February

1997, another hospital that trained residents from UMDNJ, United Hospital (“United”)

declared bankruptcy and closed permanently. In all, United had 49.5 FTEs rotating through

its facility when it went out of business. Those residents were displaced by United’s

bankruptcy and closure.

      Besides Hackensack and United, other hospitals that trained UMDNJ residents in

1996 included Morristown Memorial Hospital, St. Michael’s Medical Center, and UMDNJ’s

own hospital.   Following United’s closure, the other hospitals began negotiating the

placement of the displaced residents. The four hospitals subsequently reached an agreement

known as the “Agreement for an Aggregated Count of Residency Positions” (“the

Agreement”), according to which United’s FTEs were reallocated among the remaining four

hospitals. Under the Agreement, 12 of the 49.5 FTEs were allocated to Hackensack for the

academic years 1997 and 1998. The academic year for UMDNJ residents begins on July 1

and ends on June 30. The Agreement was entered into in June 1998, long after United had

                                               3
shut down. United was therefore not a signatory to the Agreement.

       In 1997, Congress enacted the Balanced Budget Act of 1997 (the “Act”), capping the

number of residents for whom Medicare provides reimbursement at levels that existed in

1996. However, in cases where hospitals share residents, the Act allows the Secretary to

make adjustments to the number of FTEs at each individual hospital as long as the aggregate

number of FTEs in the affiliated group remains capped.

       Based on the Agreement, Hackensack asked the Medicare Intermediary, Blue Cross

and Blue Shield of New Jersey (“the Intermediary”), to permanently raise its resident cap by

12 FTEs. After seeking guidance from the Center for Medicare and Medicaid Services

(“CMS”),1 the Intermediary denied Hackensack’s request for a permanent increase.

Hackensack appealed the Intermediary’s decision to the PRRB, an independent panel of

HHS, in January 2003.

       In November 2003, the Intermediary granted Hackensack a temporary adjustment to

allow for some of the costs claimed by Hackensack for accommodating the displaced United

residents in the fiscal year 1998. The Intermediary allotted 4.74 FTEs for Indirect Medical

Education costs and 4.38 FTEs for Direct Graduate Medical Education costs. Hackensack

appealed that temporary adjustment to the PRRB as well.

1
  The Secretary delegates the responsibility of distributing Medicare payments for resident
training to the CMS, an agency within the Department of Health and Human Services
(“HHS”).

                                             4
       The PRRB held a hearing on February 28, 2006 and rendered its decision on

December 3, 2006. The PRRB agreed with the Intermediary that the Agreement was not an

“affiliation agreement” with respect to United under the HHS regulation, which allows

members of an affiliated group to reallocate their aggregate FTEs. See 63 Fed. Reg. at

26341. That was because United was not a signatory to the Agreement and did not exist at

the time the Agreement was entered into. United’s FTEs could thus not be reallocated to

other hospitals. The PRRB therefore concluded that the Intermediary correctly denied

Hackensack’s request for a permanent increase to its resident cap. The PRRB also found

that, absent evidence to support any alternative method, the Intermediary’s temporary

increase calculation was proper. On January 31, 2008, the CMS administrator notified

Hackensack that the PRRB decision would not be further reviewed.            The next day,

Hackensack filed a complaint in the District Court for the District of New Jersey seeking

additional Medicare payments that had been denied by the Intermediary.

       In the District Court, Hackensack moved for summary judgment that it was entitled

to a permanent exception to its resident cap for Medicare payments, and that the methodology

used to calculate the temporary increase to its reimbursement for the fiscal year 1998 was

facially irrational. The Secretary moved for summary judgment affirming both of the

PRRB’s decisions. The District Court, after considering all of the evidence presented to it

as well as the statutory purpose of the resident cap, granted the Secretary’s motion for

summary judgment and denied Hackensack’s. Hackensack timely appealed. We have

                                             5
jurisdiction pursuant to 28 U.S.C. § 1291.

                                    II. DISCUSSION

       Our standard of review of a grant of summary judgment is plenary. Gardner v. State

Farm Fire & Cas. Co., 544 F.3d 553, 557 (3d Cir. 2008). Under the Administrative

Procedure Act, we may only set aside agency actions, findings, and conclusions that are

“arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” or

“unsupported by substantial evidence.” 5 U.S.C. § 706(2)(A), (E). “Substantial evidence is

‘more than a mere scintilla. It means such relevant evidence as a reasonable mind might

accept as adequate to support a conclusion.’” Mercy Home Health v. Leavitt, 436 F.3d 370,

380 (3d Cir. 2006) (quoting Richardson v. Perales, 402 U.S. 389, 401 (1971)).

A. Permanent Exception to Hackensack’s Resident Cap

       Hackensack argues that the District Court erred in affirming the PRRB’s denial of its

permanent increase claim. Hackensack argues that the Secretary is not allowed to reduce the

total number of residents being trained at an affiliated group of hospitals. Hackensack

contends that under sections 4621 and 4623 of the Act, Congress simply intended to cap the

number of residents, not to cut residents from existing programs. By allowing the Secretary

to apply caps on an aggregate basis, Hackensack argues, Congress clearly provided for

affiliated hospitals to reallocate shared residents without increasing resident counts.

According to Hackensack, the PRRB misread the law to force a decrease in resident levels

any time an affiliated hospital shuts down.

                                              6
       Hackensack further argues that the Secretary retroactively imposed an impossible

requirement that the affiliation and reallocation of resident positions be subject to a signed

agreement between all hospitals involved. Hackensack points out that the individual

residents were in fact rotating between the various New Jersey hospitals even before the Act

was enacted. Therefore, Hackensack contends that all of those hospitals did qualify as being

affiliated under the regulation, and, under the Act, they were allowed to reallocate residents,

regardless whether United signed the reallocation Agreement or not. Hackensack argues that

Congress could not have intended to authorize the Secretary to reduce resident levels and

thereby adversely impact medical education and access to medical care.

       In response, the Secretary argues that the hospitals that entered into the Agreement

did not constitute an “affiliated group” as defined by the regulation. The Secretary points out

that under the regulation, the definition of an affiliated group requires that the individual

residents work at each of the hospitals that are part of the group. Under that definition, the

Secretary argues, after United closed, none of the residents worked at United, and United

could not have been a part of any affiliated group. Moreover, the Secretary argues, under the

regulation that existed in 1997, United’s signature was essential to any reallocation

agreement between the affiliated hospitals in order for it to be valid. Regarding the

retroactive enforcement of the statute, the Secretary argues that the statute employs 1996 as

the base year to determine the cap and is therefore applicable to Hackensack’s claim

regardless when Hackensack took on the United FTEs. The Secretary also argues that its

                                              7
interpretation of the statute does not run afoul of congressional intent because the legislative

history of the Act shows that Congress was clearly concerned about gaming of residents by

hospitals. In fact, it notes, Congress has offered incentives to hospitals that reduce the

number of eligible residents at their facilities.

       We agree with the District Court and the Secretary that the Secretary’s decision

denying a permanent increase in FTEs for Hackensack was not arbitrary or capricious and

that it was supported by substantial evidence. By enacting the Act, Congress “capped” the

number of FTEs that a hospital can claim for Medicare Direct Graduate Medical Education

costs and Indirect Medical Education costs purposes. See §§ 4621 and 4623 of the Act, Pub.

L. No. 105-33 (August 5, 1997), codified at 42 U.S.C. §§ 1395ww(d)(5)(B)(v),

1395ww(h)(4)(F). In relevant part, the Act provides as follows:

       [F]or purposes of a cost reporting period beginning on or after October 1, 1997
       the total number of full-time equivalent residents . . . may not exceed the
       number of such full-time equivalent residents for the hospital’s most recent
       cost reporting period ending on or before December 31, 1996.

42 U.S.C. § 1395ww(h)(4)(F)(i).

       Congress did, however, allow for a permanent exception to the cap by, pursuant to

Section 4623 of the Act, permitting the Secretary to prescribe rules that allow only member

institutions of an affiliated group to elect to apply the FTE cap on an aggregate basis:

       The Secretary may prescribe rules which allow institutions which are members
       of the same affiliated group (as defined by the Secretary) to elect to apply the
       limitation . . . on an aggregate basis.”

Id. § 1395ww(h)(4)(H)(ii). The Secretary has defined an “affiliated group” as follows:

                                                8
       Two or more hospitals located in the same urban or rural area . . . or in
       contiguous areas if individual residents work at each of the hospitals during the
       course of the program . . . .

63 Fed. Reg. at 26,336 codified at 42 C.F.R. § 413.86(b)(1) (1998).

       Under the plain language of that definition, the group of hospitals that entered into the

Agreement in June 1998, well after the United shutdown, was clearly not an affiliated group

that included United. The District Court was correct in stating that the individual residents

no longer worked at United and that United was not a signatory to the Agreement to

redistribute its FTEs. Therefore, it was proper for the Secretary to consider the hospitals to

be no longer affiliated with United. Absent an affiliated group, it would have been a

violation of the statute for the Secretary to have allowed Hackensack, or any of the other

New Jersey hospitals, to unilaterally increase the number of its residents solely because one

of the hospitals in the region had gone out of business.

       Hackensack mistakenly implies that since the Secretary cannot increase the aggregate

number of residents over existing levels under the Act, she is not authorized to decrease that

number either. However, the clear intent of the Act is also to limit the number of residents

both at national and facility levels. See H.R. C ONF. R EP. N O. 105-217, at 821 (1997),

reprinted in 1997 U.S.C.C.A.N. 176, 442. Furthermore, as the District Court noted,

Congress enacted an incentive under the Act for hospitals to reduce the number of residents

by five percent. See 42 U.S.C. § 1395ww(h)(6). The District Court also noted that the

House Committee Report lists Congress’s concerns with hospitals gaming residency

                                               9
positions, given the large Medicare payments they receive for each resident. See H.R. R EP.

N O. 105-149, at 1366 (1997). In light of that, the District Court reasoned that the PRRB’s

decision was in line with the congressional intent behind the Act. We agree. Hackensack

can point to nothing that demonstrates that Congress intended to allow affiliated hospitals

to increase the number of residents reimbursed by Medicare at their facilities any time one

of the affiliated hospitals closes. Moreover, given her finding that an affiliated group did not

exist, the Secretary’s refusal to permanently reallocate a shutdown facility’s FTEs was not,

as Hackensack claims, clearly a reduction of the aggregate number of residents at an

affiliated group of hospitals.

       Hackensack also argues that the correct time for determining whether United was part

of an affiliated group is the fiscal year 1996. However, the Agreement to reallocate the

residents did not occur until 1998, when United was no longer in business. The relevant time

to determine whether an affiliated group existed is therefore 1998, and, at that time, United

was not a part of an affiliated group of hospitals.

B. Temporary Exception to Hackensack’s Resident Cap

       Hackensack next argues that the Intermediary’s calculation of the temporary

adjustment of 4.74 FTEs for Indirect Medical Education costs and 4.38 FTEs for Direct

Graduate Medical Education costs to Hackensack for the displaced United residents that it

accommodated in fiscal year 1998 was arbitrary. Hackensack argues that it took on the

burden from United of continuing the training of 12 FTEs, and the Intermediary could have

                                              10
simply calculated a temporary increase based on resident slots. Because residents train at a

facility for only part of the year, 12 FTEs may correspond to many more individual residents.

Hackensack argues that the Intermediary erred by trying to trace the movements of specific

residents displaced by United’s closure. That, Hackensack argues, was a task of utmost

complexity, leading the Intermediary to abandon it and arbitrarily use a sample of two

months to determine the appropriate increase in Hackensack’s burden.              According to

Hackensack, that snapshot technique is not a proper mathematical sample and does not

reflect most of the potential United resident rotations for most of the year. At the very least,

it argues, it was entitled to a temporary increase of 7.5 FTEs for the fiscal year 1998.

Hackensack bases this calculation on the United slots that it picked up and the average

residency period for each of those slots. It argues that it was entitled to a total increase of 9

FTEs in the period of January through June 1998 and 6 FTEs for the period from July

through December 1998. Hackensack argues that the Secretary’s rationale in upholding the

Intermediary’s approach based on the lack of documentation supporting a different

methodology is indeed arbitrary. Hackensack contends that it presented proposed resident

rotation schedules, which the Intermediary rejected outright. It contends that those resident

records provided the best available evidence of which residents would have been trained at

United from July 1, 1996 through June 30, 1997 and was the best measure of Hackensack’s

burden.

                                               11
       In response, the Secretary argues that under the regulation, the purpose of a temporary

increase is solely to allow 1996-97 residents to complete their training, and the

Intermediary’s calculation accomplished that purpose.        The Secretary points out that

Hackensack initially submitted no documentation for a temporary increase, and when it later

did so, the documentation was unreliable in establishing which of the potential United

residents rotated through Hackensack during the year. The Secretary argues that it was

Hackensack’s burden to prove its entitlement to a temporary increase and that Hackensack

failed to do so. She points out that Hackensack’s claim for a temporary increase has been

a moving target. Given the fact that 12 slots do not equate to 12 residents that Hackensack

had to train, and that resident schedules changed frequently, the Secretary argues,

Hackensack’s request for a slot-based reimbursement is unsupported by any reliable evidence

and would result in an unjust benefit to Hackensack. Instead, the Secretary contends, the

Intermediary properly chose to rely on the actual number of residents who were at United in

the two months preceding its closure and compared those residents with Hackensack’s 1998

rotation schedules and sign-in sheets. The Intermediary also reviewed the audit work papers

for United for its fiscal year ending in 1997 and arrived at the temporary increase figures to

which Hackensack was entitled. That, the Secretary argues, was clearly the most reliable

evidence before the Intermediary. The Secretary urges us to affirm the District Court’s

finding that in the absence of an alternate reliable method, the method employed by the

Intermediary and approved by the PRRB cannot be considered arbitrary.

                                             12
       We agree and conclude that the Secretary’s decision was not arbitrary or capricious.

The burden of proving a claim for reimbursements under the Medicare statute rests with the

hospital making the claim for reimbursement and the Secretary may require specific

documentation to prove the claim. See 42 U.S.C. §1395ww(h)(4)(H)(iii); see also Girling

Health Care Inc.v. Shalala, 85 F.3d 211, 215-16 (5th Cir. 1996) (holding that the provider

carries the burden of maintaining financial records for proper determination of costs payable

under the program). Here, Hackensack failed to meet its burden of demonstrating that it was

entitled to a higher increase than the one calculated by the Intermediary. It is undisputed that

the rotation schedules submitted by Hackensack were indeed unreliable to accurately

determine where the residents actually trained.

       As discussed above, Congress’s intent behind enacting the Act was to impose caps on

the number of residents that are reimbursed under Medicare, and the regulation on temporary

increases specifically requires that any increase be limited to reimbursing a facility

accommodating actual displaced residents. See 63 Fed. Reg. at 26330. In keeping with that

regulatory purpose, the Intermediary initially attempted to determine the actual number of

displaced residents by tracking resident movements between the hospitals over the year.

However, as Hackensack concedes, there was no evidence that accurately demonstrated

resident movements. It was only then that the Intermediary decided to use a sampling

method to calculate the increase. Given the lack of reliable evidence, the Intermediary did

not err in relying on the one piece of evidence that was in fact reliable, namely, the list of

                                              13
residents who were at United at the time it shut down. In determining how many FTEs

Hackensack had taken, the Intermediary compared the list of residents last trained at United

with Hackensack’s 1998 rotation schedules and sign-in sheets. The Intermediary’s method

at least ensured that Hackensack would be reimbursed for residents that were directly

impacted by United’s closure. In all, we find that there is substantial evidence to support the

method that the Intermediary used to calculate a temporary increase. See Mercy Home

Health, 436 F.3d at 380 (holding that substantial evidence is evidence that a reasonable mind

might accept as adequate to support a conclusion). Because the Secretary’s decision took

into account relevant evidence, and it was rational under the circumstances presented here,

we will affirm. See Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins.

Co., 463 U.S. 29, 43 (1983).

                                   III. CONCLUSION

       For the foregoing reasons, we will affirm the District Court’s order affirming the

PRRB’s decision to allow only a temporary adjustment to Hackensack’s resident cap and

denying a permanent exception to the cap.

                                              14