Opinion
01-CV-6261 CJS
March 3, 2003
Jeffrey J. Calabrese, Esq., Harter, Secrest Emery LLP Rochester, New York, for plaintiff.
Michael A. Battle, Esq., United States Attorney for the Western District of New York, Christopher V. Taffe, Esq. Assistant United States Attorney, Rochester, New York, for defendant.
Rachel H. Park, Esq., Assistant Regional Counsel Department of Health and Human Services, Office of the General Counsel, New York, New York
DECISION AND ORDER
INTRODUCTION
This is an action brought pursuant to 42 U.S.C. § 1395oo(f), seeking review of a final determination by the defendant, denying plaintiff's request for an increase in the Medicare reimbursement rate, which it received, for providing end stage renal dialysis ("ESRD") services. The issue in this action is whether or not defendant properly found that plaintiff is not an "Isolated Essential Facility" ("IEF"), within the meaning of 42 C.F.R. § 413.170(g)(2) (1993). Now before the Court are plaintiff's motion for summary judgment, or in the alternative, for judgment on the pleadings [#12], and defendant's cross-motion seeking the same relief [#21]. For the reasons that follow, the Court will grant defendant's cross-motion for summary judgment, and correspondingly, will deny the relief sought by plaintiff.
The Code of Federal Regulations ("C.F.R.") has been amended since the events at issue in this action. References in this decision are to the October 1, 1993 edition of the C.F.R.
BACKGROUND
The Medicare Act, 42 U.S.C. § 1395 et seq., provides, inter alia, medical coverage for dialysis treatments to eligible individuals enrolled in the Medicare program. Facilities that choose to become providers under the Medicare program must agree to receive reimbursement for their services based on rates set prospectively by the Health Care Financing Administration ("HCFA"). The HCFA is required to set these prospective payment rates using a methodology that, inter alia, "[e]ffectively encourages efficient delivery of dialysis services," and "[p]rovides incentives for increasing the use of home dialysis." 42 C.F.R. § 413.170(c)(ii) (iii).
The HCFA is now known as the Centers for Medicare and Medicaid Services ("CMS").
At the time of the events described herein, providers could request an exception to the reimbursement rate set by the HCFA by demonstrating, with convincing evidence, that their reasonable cost per treatment was going to be higher than the prospective rate, and that the increased cost was "directly attributable" to one of the criteria set forth in 42 C.F.R. § 413.170(g). The criteria which is relevant to the instant action is 42 C.F.R. § 413.170(g)(2), which provided:
Isolated Essential Facility. The facility is the only supplier of dialysis in its geographical area, its patients cannot obtain dialysis services elsewhere without substantial additional hardship, and its excess costs are justifiable. HCFA will consider local permanent residential population density, typical local commuting distances for medical services, volume of treatments, and dialysis facility usage by area residents other than the applying facility's patients, in determining whether an exception requested on this basis is approvable.
The Provider Reimbursement Manual ("PRM"), prepared by the HCFA and distributed to providers, reiterated that, to obtain an Isolated Essential Facility ("IEF") exception, the facility was required to demonstrate and document three elements: 1) "The facility is isolated;" 2) "It is essential for access to care for ESRD beneficiaries; and" 3) "Its costs in excess of the composite rate are justifiable and attributable to the elements listed above." PRM § 2725.3. The term "isolated"
refers to the geographical location of the ESRD facility requesting the rate increase in relation to other ESRD facilities. Generally, to be considered isolated, the facility must be located outside an established metropolitan statistical area (MSA) and must provide dialysis to a permanent population, as opposed to a transient patient population.
PRM § 2725.3(B). The term "essential"
refers to access to care for ESRD beneficiaries. To document that it is essential, the facility must establish that a substantial number of its patients cannot obtain dialysis services elsewhere without additional hardship. Generally, the additional hardship incurred by ESRD patients are travel, time, and costs. However, other relevant factors may be considered in determining of a facility is essential. The ESRD facility must document the additional hardship its patients will incur.
PRM § 2725.3(C). With regard to cost, the PRM states, in relevant part, that
[o]ne factor which may contribute to an IEF higher cost per treatment is a low number of treatments. A facility must address this issue in its exception request by providing a computation of its utilization . . . and justification for any unused capacity. In its justification, the ESRD facility explains how patient fluctuation affects its cost per treatment.
PRM § 2725.3(D).
The provider has the burden of proof of establishing all three of the IEF elements: The facility is responsible for demonstrating to HCFA's satisfaction that the requirements of this section, including the criteria in paragraph(g) of this section, are met in full. That is, the burden of proof is on the facility to show that . . . the criteria are met, and that the excessive costs are justifiable under the reasonable cost principles set forth in this part. The burden of proof is not on HCFA to show that the criteria are not met, and that the facility's costs are not allowable.42 C.F.R. § 413.170(f)(5). The HCFA may not approve an exception request unless the facility "demonstrates with convincing evidence" that it satisfies the foregoing requirements. PRM § 2720.1; See also, 42 C.F.R. § 413.170(f)(5).
Facilities seeking an exception were required to submit an exception request within 180 days after being notified of a new prospective payment rate. 42 C.F.R. § 413.170(f)(4); PRM § 2720.2. These 180-day periods are referred to herein as "windows" or "window periods." Once an exception request was submitted, the HCFA had 60 days in which to disapprove the request, otherwise it was deemed approved. PRM § 2720. To ensure that requests were reviewed within 60 days, the PRM indicated that requests were to be sent to private insurance companies, working as HCFA's "fiscal intermediaries," who then had to review and process the requests within 15 working days. Id. The intermediaries would then forward "a preliminary recommendation, including appropriate workpapers and the reason for the decision, and the cost report and supportive documentation," to HCFA. PRM § 2723.3(F). The HCFA then had 45 working days to "review all the information submitted," and make a determination "based on the documentation submitted." PRM § 2720; PRM § 2724.
If a request was denied, the facility could appeal the HCFA's determination to the Provider Reimbursement Review Board ("PRRB"), which had the "authority to determine whether the HCFA action under review conformed to the provisions of [ 42 C.F.R. § 413.170] paragraph (f)." 42 C.F.R. § 413.170(h)(2); see also, PRM § 2726. Facilities were not, however, permitted to "submit to the . . . PRRB any additional information or cost data that were not submitted . . . at the time the facility requested an exception to its prospective payment rate." 42 C.F.R. § 413.170(h)(3)(ii); see also, PRM § 2726.1. Any decision by the PRRB was further made subject to review by the HCFA Administrator. 42 C.F.R. § 413.170(h)(2). A claimant whose application was denied by the HCFA Administrator could then seek judicial review of the agency's final determination in federal court, pursuant to 42 U.S.C. § 1395oo(f).
Plaintiff Geneva General Hospital is a participating provider in the Medicare program, providing dialysis services in the City of Geneva, New York, in the County of Ontario. On November 1, 1993, defendant opened an exception "window" period, meaning that providers had 180 days, until April 29, 1994, to submit exception requests. On April 20, 1994, Geneva General submitted an exception request to HCFA's intermediary, Blue Cross Blue Shield of the Rochester Area, on the grounds that it was an Isolated Essential Facility, as defined above in 42 C.F.R. § 413.170(g)(2). Plaintiff was then receiving $127.75 per treatment, but was seeking an increase of $50 per treatment. As for being isolated, plaintiff claimed that: 1) it is located on the border of the Rochester Metropolitan Statistical Area ("MSA"), and is rural; 2) it is located 38 miles from the next-nearest facility, and an average of 50 miles from other facilities; 3) the road between Geneva and the next-nearest facility, in Ithaca, is a two-lane road which, in winter, is difficult to travel because of blowing and drifting snow; and 4) if plaintiff's facility did not exist, 42% of current patients would have to travel over 25 miles to receive treatment. As for being essential, plaintiff stated that: 1) it had 61 hemodialyis patients, who ranged in age from 20 to 93; 2) 40% of those patients are diabetic, and 65% are over the age of 60; 3) patients traveled an average of 15 miles to reach plaintiff's facility, but would have to travel an average of 21.9 miles further to reach another facility, resulting in increased travel time and expense; 4) the twelve facilities closest to plaintiff's facility had openings for only 7 patients, which would leave 54 of plaintiff's patients without openings. Plaintiff further indicated that it incurred
higher costs as a result of being an isolated essential facility. These costs are primarily additional labor expenses due to scheduling inefficiency to accommodate patients from outlying areas. Additionally, higher costs are incurred as a result of having only 61 patients on average; whereas, our facility could accommodate as many as 108 patients with its existing 12 stations.
(R. 571). Plaintiff projected that it would perform 8,020 treatments in the 1994 fiscal year. (R. 571).
After receiving plaintiff's application, on May 12, 1994, the fiscal intermediary recommended that the HCFA grant plaintiff's request and increase plaintiff's per-treatment payment by $45. However, on July 6, 1994, the HCFA rejected the intermediary's recommendation, and determined that plaintiff was not an IEF. In its decision, the HCFA noted, inter alia, that there were twelve facilities within 70 miles of plaintiff. The HCFA also stated that, although the plaintiff claimed that the road between Geneva and Ithaca was treacherous in winter, it had not provided evidence regarding "the average amount of snowfall, the number of days that the highways were closed due to weather, or the number of patients that missed dialysis due to the weather." HCFA indicated that the patients were not far from Interstate 90, which they could use to get to either Rochester or Syracuse.
Plaintiff appealed the HCFA's determination to the Provider Reimbursement Review Board ("PRRB"), pursuant to 42 C.F.R. § 413.174(h)(1). The PRRB conducted a two-day hearing, on January 11, 2000 and June 14, 2000. Plaintiff's first witness was Mr. Lawrence Farnand, the Senior Vice President and CFO at Geneva General. Mr. Farnand testified that before plaintiff opened its dialysis facility, its patients were commuting to Rochester for dialysis "on a routine basis." (R. 198). Farnand testified that Geneva is connected to major highways by two-lane roads, and that in winter, wind and drifting snow causes "primarily the elderly" to be "very reluctant to travel." (R. 198).
However, Farnand stated that it was less than ten miles from Geneva to the New York Thruway, Route 90, and he agreed that once patients got to Route 90, "they shouldn't have a problem getting to either Syracuse or Rochester." (R. 220). Plaintiff's second witness, Mr. Ron Rybar, a consultant, testified that he was not sure how many of the plaintiff's patients were only seasonal, or how many came to Geneva only when they could not obtain treatment in Rochester. (R. 243). The intermediary's sole witness at the first day of the hearing was Joseph Logue, an accountant and HCFA employee experienced in reviewing ESRD exception requests. (R. 254). Logue described various factors which the HCFA used to review exception requests based on IEF status. For example, he stated that, pursuant to the PRM, a provider located within an MSA would almost always be denied an IEF exception. (R. 263). He also stated that if a facility provided more than 4,000 treatments annually, an IEF request would be denied. (R. 267). He stated that the HCFA had used this 4000-treatment standard for years, and that HCFA had developed it based on an agency audit of national data and general program statistics. (R. 267, 301). He said that based on the audit, the HCFA determined that rural providers averaged around 4000 treatments per year. (R. 267). On January 11, 2001, the PRRB issued a decision, reversing HCFA's determination, and finding that plaintiff was an IEF.
However, on March 19, 2001, the HCFA Administrator reversed the PRRB's decision, and found that HCFA had properly denied plaintiff's exception request. The Administrator's decision thus became the final determination of the defendant. On May 23, 2001, plaintiff commenced the subject action, seeking judicial review of that determination. On February 21, 2003, counsel for the parties appeared before the undersigned for oral argument of the motions. The Court has thoroughly considered the parties' submissions, including the entire administrative record, as well as the arguments of counsel.
ANALYSIS
Before the Court are the parties' cross-motions for summary judgment. A court may grant summary judgment if "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." FED. R. CIV. P. 56(c). In the instant case, the Court finds that there are no issues of material fact, and that judgment as a matter of law is appropriate.
In support of its motion, plaintiff has submitted a statement of undisputed facts. Plaintiff contends that, pursuant to Rule 56 of the Local Rules of Civil Procedure, the Court must base its decision on the facts as set forth in that statement, since defendant did not file a counter-statement of facts. See, Plaintiff's Reply Brief, p. 2; see also, Local R.Civ.P. 56 ("All material facts set forth in the statement . . . by the moving party will be deemed admitted unless controverted by the statement required to be served by the opposing party."). However, the Court disagrees, inasmuch as this is an appeal, in which the Court must determine, based on the administrative record, whether or not the Administrator's determination was arbitrary and capricious. See, Miller v. United Welfare Fund, 72 F.3d 1066, 1071 (2d Cir. 1995) ("[A] a district court's review under the arbitrary and capricious standard is limited to the administrative record.") (ERISA action).
At the outset, the Court notes that there is no dispute over the standard of review which the Court must apply. It is well settled that
[t]he Administrative Procedure Act, 5 U.S.C. § 551 et seq. ("the APA"), which is incorporated by the Social Security Act, 42 U.S.C. § 1395oo(f)(1), "commands reviewing courts to `hold unlawful and set aside' agency action that is `arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.'" Thomas Jefferson University v. Shalala, 512 U.S. 504, 512, 114 S.Ct. 2381, 129 L.Ed.2d 405 (1994) (quoting 5 U.S.C. § 706(2)(A)). An agency decision "may be deemed arbitrary, capricious or an abuse of discretion `if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.'" Henley v. Food and Drug Administration, 77 F.3d 616, 620 (2d Cir. 1996) (quoting Motor Vehicle Mfrs. Assoc. of the United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983)).
* * *
Federal courts are . . . required to "give substantial deference to an agency's interpretation of its own regulations," unless an alternative reading is compelled by the plain language of, or some other indication of the Secretary's intent in promulgating, the regulations. Thomas Jefferson University, supra, at 512, 114 S.Ct. 2381 (citing cases). Such "broad deference" is especially warranted in actions where the subject regulations concern a "highly technical" and "complex" regulatory program. Thomas Jefferson University, supra. (considering Medicare reimbursement regulations as "highly technical" and "complex").
Children's Hospital of Buffalo v. Apfel, 110 F. Supp.2d 158, 163-64 (W.D.N.Y. 2000), affirmed, 2 Fed.Appx. 141, 2001 WL 55785 (2d Cir. Jan. 24, 2001). Additionally, an agency's interpretive rules, while they do not have the force and effect of law, are entitled to deference. St. Mary's Hospital of Troy v. Blue Cross and Blue Shield Ass'n/Blue Cross and Blue Shield of Greater New York, 788 F.2d 888, 890 (2d Cir. 1986) ("While such interpretive guides are without the force of law, they are entitled to be given weight," referring to the Medicare Provider Reimbursement Manual (PRM)) (citation omitted); see also, Children's Hospital of Buffalo v. Apfel, 110 F. Supp.2d at 164 (Noting that "[t]he interpretive rules contained in the PRM are `prototypical' interpretive rules.")
In the instant action, plaintiff contends that the Administrator erred in his analysis of all three elements relating to the IEF exception. That is, plaintiff contends that the Administrator erroneously found that: 1) plaintiff's facility is not isolated; 2) plaintiff's facility is not essential; and 3) plaintiff's costs are not attributable to it being an isolated essential facility.
Taking the first of these elements, plaintiff insists that it is isolated, since it is located at the very edge of the Rochester MSA, is located 38 to 45 miles from other facilities, and has a permanent population of patients. The Administrator found, however, that pursuant to the PRM, "it is only in exceptional cases that a facility located in an MSA can qualify for isolated status." (R. 15). The Administrator explained that facilities located within an MSA are generally not considered isolated, since MSAs "generally have better roads and faster snow clearing and reflect certain commuting patterns and population densities." On the other hand, the Administrator noted that, "[g]enerally, isolated and essential facilities are located in rural areas so remote that they cannot maintain a patient population of sufficient size to justify their overhead costs." The Administrator found that plaintiff's facility was not isolated, i.e., that it was not "the only supplier of dialysis in its geographical area," since it is located within the Rochester MSA, was within 45 miles of 7 other facilities within the Rochester MSA, and was within 38 miles of a facility in Ithaca, within 55 miles of two facilities in Syracuse, within 60 miles of a facility in Elmira, and within 70 miles of a facility in Hornell. The Administrator further explained that,
the IEF exception is for granting relief to facilities that are isolated and have difficulty generating enough treatments because of sparse population to cover its minimum overhead costs. . . . [T]he record shows that the Provider projected 8,020 treatments for fiscal year 1994, a number of treatments HCFA reasonably found was sufficient to allow for the efficient operation of the facilities and was not characteristic of rural facilities suffering from a low number of treatments because of its location.
(R. 18-19) (emphasis added). Plaintiff objects to the Administrator's reliance on the number of treatments performed, since no such numeric standard is expressly set forth in the regulations or the PRM. However, the Administrator's finding is consistent with the testimony of Mr. Logue, who stated that HCFA had used the 4,000 treatment figure as a benchmark for years, and that it was developed by HCFA based on an agency audit of national data and general program statistics. (R. 267, 301). Plaintiff did not offer any contrary evidence. Accordingly, the Court is required to give "broad deference" to the Administrator's interpretation of the regulation. Thomas Jefferson University v. Shalala, 114 S.Ct. at 2386-87.
The Administrator further found that plaintiff failed to establish that the local roads and weather made plaintiff isolated, noting that plaintiff had not offered documentation, such as evidence regarding snowfall, road closings, or patients who missed dialysis due to bad weather. (R. 15-16). In that regard, the Court notes that the exception request states only that, "[t]he road between Geneva and Ithaca is a two-lane road, 96A. 96A runs along Seneca Lake and is a very hazardous road in the winter as it is subject to blowing and drifting snow." (R. 569). Plaintiff provided no support for this conclusory statement.
Finally, the Administrator found that plaintiff had failed to demonstrate that its patients were permanent, as opposed to transient, since it offered only a handwritten document as proof, the sources of which were "unstated and not evident." (R. 16).[4] As to that, the Court notes that the only information contained in the exception request which even arguably addresses the issue of permanent versus transient is the statement, "Since [1990] the permanent patient base has expanded from area residents to those patients who travel over 15 miles 3 times a week. (R. 568) (emphasis added), and comment beside one patient's name which states, "transient (1 wk)." (R. 597). Nor did the testimony of plaintiff's witnesses at the PRRB hearing clarify matters. For example, Mr. Farnand stated, "there's a seasonality to the population that's served in the community. We receive a lot more referrals for transients from the Rochester community in the Summer period of time." (R. 217). However, he did not explain how these seasonal patient's affected plaintiff's application, if at all. Similarly, during the hearing, Mr. Rybar testified that he was not sure how many of the plaintiff's patients were only seasonal, or how many came to Geneva only when they could not obtain treatment in Rochester. (R. 243).
Based on all of the foregoing, and keeping in mind the convincing standard of proof which plaintiff was required to meet, the Court finds that the Administrator's determination, finding that plaintiff is not an isolated facility, was not arbitrary or capricious, and was supported by substantial evidence in the record. Having made that determination, the Court need not discuss plaintiff's additional arguments, since plaintiff cannot prevail unless it establishes all three elements under 42 C.F.R. § 413.170(g)(2) and PRM § 2725.3.
CONCLUSION
Accordingly, plaintiff's motion for summary judgment [#12] is denied, and defendant's cross-motion seeking the same relief [#21] is granted.
SO ORDERED.