2011 in Review: Appellate Courts and Hospitals

While much of the attention on the courts in 2011 was on the many decisions rendered by district and appellate courts relating to the Patient Protection and Affordable Care Act (P.L. 111-148), the appellate courts were also busy issuing significant decisions affecting hospitals. Here is a review –

Graduate Medical Education

Covenant Medical Center, Inc. v. Sebelius, U.S. Court of Appeals, Sixth Circuit, No. 09-2443, May 20, 2011. The CMS Administrator properly reversed the Provider Reimbursement Review Board ruling that the hospital was entitled to reimbursement for the graduate medical education (GME) costs attributable to medical residents shared with a related party. The regulation then in effect, 42 CFR §413.86(f), required a written agreement between hospitals and other entities that shared residents even if they were related organizations.

In addition, the regulation required that the contract place the responsibility for all of the costs of the residents’ salaries and benefits on the hospital and require the hospital to compensate the nonhospital for the costs of supervisory teaching activities. The requirement of a written agreement was a procedural mechanism to implement Soc. Sec. Act §1886(h)(4), which governs the compensation of hospitals for the costs of GME, and Soc. Sec. Act §1815(a) gives the Secretary the authority to establish documentation requirements for reimbursement. The regulations were based on a reasonable interpretation of the statutes and consistent with the authority granted.

Disproportionate Share Calculation

University of Washington Medical Center v. Sebelius, U.S. Court of Appeals, Ninth Circuit, Doc. No. 09-36044, 634 F.3d 1029. February 11, 2011. The district court properly ruled that the “Medicaid fraction” used to calculate the disproportionate share hospital (DSH) adjustment does not include patient days attributable to individuals whose care was covered by the state’s General Assistance for the Unemployable (GA) or Aid to the Medically Indigent (AMI) programs. Soc. Sec. Act §1867(d)(5)(F)(vi)(II) provides that the numerator of the Medicaid fraction is the number of days a hospital furnished inpatient services to individuals who were “eligible for medical assistance under a state plan approved under Title XIX” of the Social Security Act but not eligible for Medicare. Soc. Sec. Act §1905(a) defines “medical assistance” as payment of part or all the cost of providing specified services to individuals who meet criteria related to age, disability or family status. This definition applies throughout the Social Security Act.

The GA and AMI programs are funded only by the state and are available only to individuals who are not eligible for Medicaid. Although the state uses its DSH allotment to fund the GA and AMI payments to hospitals, the GA and AMI patients receive that assistance specifically because they are not eligible for medical assistance under the state Medicaid plan. The mention of these patients in the state’s methodology for calculating its DSH payments does not make them eligible for medical assistance under the state plan. The state and federal DSH payments are calculated using different fractions.

Soc. Sec. Act §1923(b) allows the state to count other low-income individuals, such as those receiving charity care, in addition to individuals eligible for Medicaid to calculate its DSH payments to hospitals. The language of the statute is clear and unambiguous, and all parties agree that the individuals described were not eligible for assistance under Soc. Sec. Act §1905(b). Therefore, the decision of the district court upholding the CMS Administrator’s reversal of the Provider Reimbursement Review Board’s ruling was affirmed.

Stormont-Vail Regional Medical Center v. Sebelius, U.S. Court of Appeals, Tenth Circuit, No. 10-3123, June 20, 2011. A hospital seeking to appeal the CMS Administrator’s ruling that the Provider Reimbursement Review Board (PRRB) had no jurisdiction over an issue could not present the issue to the Court of Appeals because it failed to preserve the issue for appeal. The hospital initially appealed a 1994 Notice of Program Reimbursement (NPR) claiming, among other issues, that patient days attributable to individuals eligible for, but not paid by, Medicaid (“eligible but unpaid days,” or EBUD), were improperly excluded from the numerator of the Medicaid fraction used to calculate disproportionate share hospital adjustments.

After HCFA issued a ruling that EBUD were to be included, the intermediary offered a partial resolution and added 14,959 EBUD to the Medicaid fraction. Two years later, the hospital sought to add to the appeal more EBUD and patient days from individuals whose care was paid for by the state-only general assistance program. The PRRB had granted relief, but the Administrator ruled that the PRRB lacked jurisdiction over the additional EBUD; because that issue was resolved when the hospital received the relief it requested, specifically, the addition of the claimed EBUDs to the Medicaid fraction. As a result, the hospital did not meet the jurisdictional requirement of dissatisfaction with the NPR.

The district court’s ruling upholding the Administrator was correct. Because the hospital failed to raise the issue before the district court any argument that the settlement did not exclude the possibility of adding more EBUDs, the issue was waived and, therefore, beyond the scope of this appeal.

Auburn Regional Medical Center v. Sebelius, U.S. Court of Appeals, District of Columbia Circuit, No. 10-5115, 642 F.3d 1145. June 24, 2011. The district court erred in ruling that it had no jurisdiction to apply equitable tolling of the statute of limitations to a claim that CMS knowingly and unlawfully withheld funds from providers. In a lawsuit filed in 2006, the providers alleged that from 1987 through 1994, CMS had incorrectly computed the SSI/Medicare fraction used to calculate providers’ disproportionate share hospital (DSH) adjustment and that the agency failed to disclose or to correct the underpayments. The PRRB ruled that it had no jurisdiction because the claims were untimely; this ruling was a final order for purposes of judicial review. The court may apply equitable tolling to the 180-day deadline imposed by Soc. Sec. Act §1878(a) as it would in other cases

Appeals Process

Kaiser Foundation Hospitals v. Sebelius, U.S. Court of Appeals, Ninth Circuit, Doc. 09-560200, June 15, 2011. The Provider Reimbursement Review Board’s (PRRB) requirement that a hospital submit preliminary position papers does not violate the Medicare Act. The PRRB has the authority to establish rules and procedures to administer its substantial case load under Soc. Sec. Act §1878(a). The hospital had missed the deadline for filing its preliminary position papers and its motion for reinstatement was of its appeal was denied by the district court. Accordingly, the grant of summary judgment in favor of the HHS Secretary is affirmed.


Ramos-Cruz v. Centro Médico Del Turabo, U.S. Court of Appeals, First Circuit, Doc. 10-1203, April 8, 2011. A hospital did not violate the Emergency Medical Treatment and Active Labor Act (EMTALA) because the evidence shows the emergency room physician properly signed a certification at the time of transfer and explained the need to transfer the patient by writing “Gastroenterologist” in the appropriate part of the certification. The one word notation was the physician’s explicit explanation that the patient needed a gastroenterologist.

The hospital the patient was initially seen at did not have a gastroenterologist and so the patient’s transfer was appropriate because the benefits of his being cared for by a gastroenterologist outweighed the danger of transporting him to another hospital. Moreover, the evidence shows the hospital provided appropriate treatment to the patient prior to the his transfer. The hospital had produced sufficient evidence at trial that the patient was stabilized prior to his transfer under Soc. Sec. Act §1867 and therefore there was no EMTALA violation. Accordingly, the district court’s grant of summary judgment in favor of the hospital is affirmed.

Guzman v. Memorial Hermann Hospital, U.S. Court of Appeals, Fifth Circuit, Doc. 09-20780, February 1, 2011. A hospital fulfilled its obligations under the Emergency Medical Treatment and Active Labor Act (EMTALA) to screen a young child for an emergency medical condition because he was seen by a doctor within 20 minutes of arriving at the emergency room (ER).

Under EMTALA hospitals are prevented from “patient dumping” which is the practice of refusing to treat patients who are unable to pay. When a patient goes to an emergency room a hospital is required to: (1) give an appropriate medical screening; (2) stabilize a known emergency condition; and (3) restrict transfer of an unstabilized individual to another medical facility, as required by Soc. Sec. Act §1867.

In this case, the family failed to raise a genuine issue of material fact as to whether the hospital failed to follow it guidelines for screening the child when he arrived at the ER. The hospital’s screening guidelines are intended to allow a nurse to initiate testing before a physician’s examination but they do not apply when a patient promptly sees a doctor as was the case here. The family did not present evidence that the child was screened differently from other patients based on the doctor’s failure to read the differential test results before he discharged the child. There is no evidence the hospital’s policy required that the doctor could not discharge patients like the child until after all the test results were read and so there is no basis for the claim the hospital provided disparate treatment.

Further, there is no evidence to show that if a urinalysis was performed it would have enabled the doctor to correctly diagnose the child the first time or that it would have prevented the child’s condition from worsening. The district court was correct when it stated that the taking of vital signs can be an EMTALA violation when there is a substantial deviation from the hospital’s screening policy. The family, however, did not provide evidence that the child’s vital signs may have changed in the hour and a half after the child’s vital signs were first taken in the ER. Accordingly, there is no evidence to support an EMTALA violation and the district court’s grant of summary judgment on behalf of the hospital is affirmed.


Jeanes Hospital v. HHS, U.S. Court of Appeals, Third Circuit, No. 10-4088, October 17, 2011. The district court correctly determined a merger was not a bona fide sale because reasonable consideration not was exchanged. Although the administrator improperly determined the merger was not an arm’s-length transaction, this court will defer to his conclusion that the merger was not bona fide.

A sale results in an exchange of reasonable consideration if the price reflects the fair market value of the assets conveyed, however, if there is a large disparity between the two values, that would indicate the lack of a bona fide sale. The evidence shows there was a gross disparity between the assets valued at $103.4 million and the price paid by the buyer, $69.2 million. Accordingly, the district court properly denied the hospital’s claim for reimbursement based on depreciation losses as a result of a statutory merger.

Forsyth Memorial Hospital v. Sebelius, U.S. Court of Appeals, District of Columbia Circuit, No. 09-5448, 639 F.3d 534. April 26, 2011. The district court properly upheld the CMS Administrator’s denial of a hospital corporation’s reimbursement claims arising from the merger of two hospital corporations. The hospital group argued unsuccessfully that the denial of their claims was arbitrary and capricious, an abuse of discretion, contrary to law, or unsupported by substantial evidence. The CMS Administrator, relying in part upon Program Memorandum (PM) A-00-76’s interpretation of the regulations found that the merger was not a bona fide transaction because of the great disparity between the consideration received in the merger and the fair market value of the hospital assets. The district court upheld the Administrator’s decision, which in turn was affirmed by this court.