Background

Since 1982, Medicare Part A has included a hospice benefit for terminally ill patients. Currently, qualified patients are entitled to unlimited hospice benefits (provided that a physician certifies qualification every 60 days). However, reimbursement to providers for hospice care is subject to a “cap” that is calculated by multiplying a per-beneficiary rate (adjusted annually for inflation) by the “number of Medicare beneficiaries.” As the average length of hospice admission has grown and as more hospice patients’ stays have extended across multiple fiscal years, providers have begun to be adversely impacted by the method of calculating the “number of Medicare beneficiaries” demanded by a regulation promulgated by the Department of Health and Human Services (HHS).

The “number of Medicare beneficiaries” is statutorily defined:  

[T]he “number of [M]edicare beneficiaries” in a hospice program in an accounting year is equal to the number of individuals who have made an election [to receive hospice care] and have been provided hospice care by […] the hospice program under this part in the accounting year, such number reduced to reflect the proportion of hospice care that each such individual was provided in a previous or subsequent accounting year or under a plan of care established by another hospice program.

42 U.S.C. § 1395f(i)(2)(C) (emphasis added)

Although the statute specifically requires that the “number of Medicare beneficiaries […] reflect the proportion of hospice care that each such individual was provided in a previous or subsequent accounting year,” HHS adopted a regulation that allocates all care provided to a beneficiary to a single year, even if the care stretched over two or more years. The regulation defines the “number of Medicare beneficiaries” as follows:

(1) Those Medicare beneficiaries who have not previously been included in the calculation of any hospice cap and who have filed an election to receive hospice care […] from the hospice during the period beginning on September 28 (35 days before the beginning of the cap period) and ending on September 27 (35 days before the end of the cap period).

42 C.F.R. § 418.309(b)(1)

In promulgating the regulation, HHS acknowledged that Congress mandated a proportional allocation:  

The statute specifies that the number of Medicare patients used in the calculation is to be adjusted to reflect the portion of care provided in a previous or subsequent reporting year or in another hospice.  

48 Fed. Reg. 38146, 38158 (Aug. 22, 1983)  

At the same time, however, HHS also admitted that it was not going to adopt a regulation consistent with Congress’s express mandate, instead choosing to give providers credit for an individual beneficiary’s cap allowance only in the initial year of service, regardless of whether the beneficiary remained on service in a subsequent year:

With respect to the adjustment necessary to account for situations in which a beneficiary’s election overlaps two accounting periods, we are proposing to count each beneficiary only in the reporting year in which the preponderance of the hospice care would be expected to be furnished rather than attempt to perform a proportional adjustment.

Id. (emphasis added)

Over the past three years, United States district courts across the country have unanimously held that the regulation is invalid because it is contrary to the express direction in the statute to allocate a patient’s stay across multiple fiscal years “to reflect the proportion of hospice care that each such individual was provided in a previous or subsequent accounting year” (42 U.S.C. § 1395f(i)(2)(C)). The Fifth and Ninth U.S. Circuit Courts of Appeals recently have affirmed two of these district court decisions:

  • Lion Health Services Inc. v. Sebelius, No. 10-10414 at 16 (5th Cir. Mar. 11, 2011) “We join a unanimous group of district courts around the country in finding that 42 C.F.R. § 418.309(b) is invalid, because it directly contradicts Congress’s unambiguously expressed intent.”  
  • Los Angeles Haven Hospice Inc. v. Sebelius, No. 09-56391 at 23, n.8 (9th Cir. Mar. 15, 2011) “This is an issue of first impression in the United States Courts of Appeals. The issue has been previously considered in numerous published decisions from the federal district courts, all of which to date have rejected the Secretary’s position.”

Standing

Both courts found that the providers had established standing. The Fifth Circuit found that by calculating the net benefit of applying the statutory method of calculating the “number of Medicare beneficiaries” versus the regulatory method, Lion Health “established standing by demonstrating that it has suffered an actual and concrete financial injury due to the Secretary’s use of the Regulation, and that setting aside the Regulation and using a proportional method will redress its injury” (Lion Health, at 8). The Fifth Circuit, therefore, did not consider “whether a hypothetical plaintiff who alleges that the Regulation is invalid but cannot show financial harm would have standing” (Id.). The Ninth Circuit found that “[r]egardless of the precise extent to which invalidation of the challenged regulation might ultimately affect its repayment obligation, the fact that the allegedly unlawful regulation was directly applied to Haven Hospice and exposed it to individual liability for the claimed overpayments, is sufficient to support its claim of Article III standing to pursue the declaratory and injunctive relief sought in the complaint” (Los Angeles Haven Hospice, at 15). Thus, the Ninth Circuit did not require a hypothetical calculation using the statutory method to establish standing.

Invalidity of the Hospice Cap Regulation

Both courts found the regulation invalid under the first step of the Chevron test, which requires courts to first ask “whether Congress has directly spoken to the precise question at issue” and, if so, to “give effect to the unambiguously expressed intent of Congress. (See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984).) Both courts found that the regulation’s allocation of a patient’s hospice stay only to a single fiscal year contradicted Congress’s unambiguous mandate to allocate each hospice patient’s stay proportionally across all fiscal years in which the patient received hospice benefits (Lion Health at 11: “Therefore, we agree with the district court that the statute unambiguously requires the Secretary to use a strict proportional method of calculation, and the Regulation therefore contradicts Congress’s expressed intent;” and Los Angeles Haven Hospice at 25: “In sum, we conclude that Congress’s language and intent when it drafted § 1395f(i)(2)(C) were clear and unambiguous, and the district court did not err in finding that the hospice cap regulation, 42 C.F.R. § 418.309(b)(1), is inconsistent with the statute. By choosing to count beneficiaries only in the year in which HHS ‘anticipated’ that the majority of hospice care would be furnished, it ignored Congress’s clear statutory mandate. Thus, the regulation under which the Secretary adopted that methodology was contrary to law, and was properly declared invalid at step one of the Chevron inquiry.”). These Circuit Courts joined every district court to have addressed the issue in ruling that the hospice cap regulation is invalid.

Remedy

In Lion Health, the district court issued an injunction enjoining the Secretary from enforcing against Lion Health any overpayment demands based on the invalidated regulation and further enjoined the Secretary from using the invalidated regulation to calculate any future hospice cap obligation of Lion Health. The district court also ordered a refund to Lion Health of the payments made pursuant to the invalid repayment demands for the cost reporting years at issue. In Los Angeles Haven Hospice, the district court issued a nationwide injunction enjoining the Secretary from using the hospice cap regulation to calculate hospice cap liability for any hospice provider.

Both courts agreed that the district courts properly enjoined the Secretary’s use of the invalidated hospice cap regulation as to the providers who were parties to the action for judicial review, including for future fiscal years (Lion Health at 14: “[T]he district court had the authority under § 706 of the APA to enjoin the Secretary from using the Regulation to calculate Lion’s aggregate cap amount for any past, present, and future year;” and Los Angeles Haven Hospice at 30: “As there is no statutory or case law bar to declaratory or injunctive relief in such an action, we conclude that the district court had the authority and acted within its discretion to enjoin further application of the hospice cap regulation against Haven Hospice.”). However, the Fifth Circuit held that the Lion Health district court erred in ordering a full refund of the payments made pursuant to the invalidated regulation:

Even using Lion’s proportional calculation method, it still owes a substantial amount of refund to the Secretary for FY06 and FY07. Additionally, the determination of the amount of refund owed to Lion is a matter properly within HHS’s authority. Therefore, the district court’s decision to order a full refund rather than remanding for recalculation of the refund amount was an abuse of discretion.

Lion Health at 16

The Ninth Circuit held that the nationwide injunction issued by the Los Angeles Haven Hospice court was too broad and remanded “to the district court for entry of an injunction that is no broader, and no more burdensome to the defendant, than necessary to provide complete relief to Haven Hospice” (Los Angeles Haven Hospice at 32).

Conclusion

These recent Circuit Court of Appeals decisions add significant weight to the numerous and unanimous district court decisions across the country declaring the hospice cap regulation invalid and enjoining use of the regulation as to hospice providers filing suit. However, it remains to be seen whether these Circuit Court decisions will prompt HHS to promulgate a regulation that complies with the statute.

For a copy of the Fifth Circuit Lion Health opinion, please click here.1 For a copy of the Ninth Circuit Los Angeles Haven Hospice opinion, please click here.2