Opinion
No. 95 C 1620.
July 25, 1996
MEMORANDUM OPINION AND ORDER
Plaintiff Paramount Health Systems, Inc. ("Paramount") has brought this putative class action against defendants Robert W. Wright ("Wright"), Director of the Illinois Department of Public Aid ("IDPA"), and Donna Shalala, Secretary of the United States Department of Health and Human Services (the "Secretary"), challenging the legality of certain aspects of Illinois's medical assistance program established pursuant to Title XIX of the Social Security Act, 42 U.S.C. § 1396, et seq. (the "Medicaid Act"). The Metropolitan Ambulance Association (the "MAA") has moved for and received leave to intervene as a plaintiff. Plaintiffs essentially allege that the Illinois medical assistance program, as approved by the Secretary and administered by Wright, violates Title XVIII of the Social Security Act, 42 U.S.C. § 1395, et seq. (the "Medicare Act") as well as the Medicaid Act. Plaintiff Paramount has moved for summary judgment, the MAA has filed a brief in support of that motion, Wright has responded to the motion, and the Secretary has filed a cross-motion for summary judgment. For the reasons set forth below, plaintiff's motion for summary judgment is granted, and the Secretary's cross-motion for summary judgment is denied.
DISCUSSION
A brief discussion of the Medicare Act, the Medicaid Act and, in particular, the provisions relating to Qualified Medicare beneficiaries ("QMBs") can be found in the court's previous opinion in this case, Paramount Health Systems, Inc. v. Wright, 907 F. Supp. 1212 (N.D. Ill. 1995).
Paramount furnishes enteral-feeding supplies to, among others, QMBs in Illinois. Wright, as Director of IDPA, administers the Illinois medical assistance program that was established pursuant to the Medicaid Act. The Secretary administers the Medicaid and Medicare Acts, and is responsible for reviewing state plans for medical assistance and approving those plans that comply with the requirements of Medicare and Medicaid.
Paramount argues that as a Medicare Part B provider it is entitled to receive 100% of the lesser of the provider's customary charge or the reasonable costs and charges as determined by the Secretary. 42 U.S.C. §§ 13951, 1395CC(a)(2)(A). The federal government (through Medicare) pays 80% of those reasonable charges. For QMB's, the state is responsible for the remaining 20% co-payment. The main issue in this case is whether the state can reduce or eliminate its portion of the payment by subjecting it to its Medicaid rate limits.
IDPA pays providers of enteral-feeding supplies (including Paramount) to QMBs not residing in nursing facilities the full Medicare Part B rate. If the QMB resides in a nursing facility, however, IDPA does not reimburse the providers directly. Rather, under the Illinois medical assistance plan, the nursing home is considered the provider of the equipment to Medicaid recipients, and nursing facilities are reimbursed the costs incurred in providing feeding equipment to Medicaid recipients according to IDPA's nursing facility rate. Feeding equipment, under the State Medicaid plan, is classified as a supply cost for reimbursement purposes. Supply costs are "bundled" together with other costs and paid on a per diem basis subject to IDPA's nursing facility rate. The IDPA provider handbook mandates that payments for durable medical equipment such as the feeding supplies at issue be made directly to the nursing facilities which, in turn, pay providers such as Paramount. Such providers are required to enter into "provider agreements" with IDPA which require the providers to seek payment from the nursing facilities. Therefore, defendant Wright has asserted, and continues to assert, that Paramount has contracted away any claim for payment greater than that provided by the Medicaid rate.
In contrast to Paramount, the MAA, which is an association of private for-profit entities engaged in the business of providing fee for service ambulance transportation, provides its services directly to QMBs rather than through nursing homes. Therefore, it is undisputed that the MAA members are direct Medicare Part B providers; they bill and receive payment directly from the federal government (except for the state's co-payment) and any contract-related arguments presented by Wright are inapplicable to them.
Despite Wright's attempts to argue otherwise, this court agrees with the Secretary's assessment that the issue presented by this case is one of statutory interpretation. More particularly, the court is faced with the issue of whether the Medicare and Medicaid Acts permit states to choose to limit payment of the Medicare Part B deductibles and 20% co-payment due for QMBs to the amount by which the Medicaid rate for the same goods or services provided exceeds what Medicare Part B has paid.
The court rejects the state's argument that a derivative suit pending in state court against Paramount somehow creates an issue of fact as to Paramount's ability to maintain the instant action. Even if the state court orders Paramount's dissolution, it would still have the authority and ability to bring this action. 805 ILCS 5/12.80.
This issue has been decided in the negative by all four circuit courts of appeal that have addressed it. Pennsylvania Medical Society v. Snider, 29 F.3d 886 (3rd Cir. 1994); Rehabilitation Association of Virginia, Inc. v. Kozlowski, 42 F.3d 1444 (4th Cir. 1994); Haynes Ambulance Service, Inc. v. Alabama, 36 F.3d 1074 (8th Cir. 1994); and New York City Health and Hospitals Corp. v. Perales, 954 F.2d 854 (2nd Cir. 1992). This court has reviewed those circuit court decisions, as well as the dissents in several of those cases and the underlying district court opinions, and agrees with the majority circuit court opinions that the Medicare and Medicaid Acts clearly and unequivocally require states to pay the entire amount of Part B cost sharing on behalf of all QMBs. In particular, the court agrees with the reasoning and result reached by the Third Circuit in Snider that QMB payments are part of Medicare and not Medicaid, and that Medicare provides for payment to providers of 100% of their reasonable charges. See also Kozlowski, 42 F.3d at 1459 ("We thus join both of the other circuits that have passed on this question in holding that there can be no doubt but that the QMB is a Medicare enrollee and that payment on her behalf must be made at the Medicare rate.").
In addition to the reasoning of the circuit courts that have concluded that QMB payments are covered by Medicare rather than Medicaid, this court notes that the "M" in QMB stands for Medicare. Clearly, QMBs are Medicare enrollees, and providers of services to them are entitled to 100% of their reasonable damages.
Deciding that QMBs are Medicare enrollees and that payments on their behalf must be made at the Medicare rate resolves the issue as to the MAA. With respect to Paramount, however, the issue is a little more complicated. A little, but not much. Wright argues that because IDPA contracts with nursing facilities to care for residents covered by the Illinois medical assistance program, the nursing facilities have a contractual responsibility to provide the feeding supplies at issue (which the state plan lumps with other equipment and supplies as "durable medical equipment" ("DME")) to its residents. According to the IDPA provider handbook, the State reimburses the nursing facilities directly for all such DME, regardless of whether the equipment is provided to a QMB or a pure Medicaid recipient. The State has thus unilaterally designated the nursing facilities as the providers of equipment to the QMB. It then bundles those costs with other nursing costs and pays them on a per diem rate. It is undisputed that this method results in a payment to the nursing facility that is less than the reasonable charge for the equipment as set by the federal government under the Medicare rate. IDPA requires providers such as Paramount to enter agreements with it pursuant to which those providers agree to seek reimbursement for Medicare co-payments from the nursing facility. The State argues, therefore, that Paramount has contracted away any claim for payment above the Medicare rate, which is always less than the amount paid by the federal government.
There are numerous problems with this argument. First, it seeks to do indirectly to Paramount what this court has already determined it cannot do directly to the MAA. It applies the State Medicaid payment scheme to supplies provided under Medicare. By defining the nursing facility as the QMB "provider" it has forced Paramount to accept less than full payment at the Medicare rate. It has done so, however, by treating all providers to nursing facilities as "Medicaid" providers, without regard to whether the supplies are actually provided to QMBs. Because this court has already determined that providers to QMBs are entitled to 100% of the reasonable charges as set by the federal government, not by the State's Medicaid rate, the payment scheme is invalid.
Additionally, even under the State's contractual setup, it is still required to pay 100% of the reasonable charges for services and supplies to QMB's as set by the federal government to the nursing home, which the State has defined as the QMB provider. Those funds should then filter through to providers such as Paramount, ensuring that the actual provider receives 100% of the reasonable cost. Thus, even if the state were allowed to require indirect payment to the actual provider (which it is not), it still cannot apply its Medicaid rate to the payment. It must pay the provider 100% of the reasonable charges.
Moreover, the court does not accept the State's designation of the nursing facility as the "provider." As noted in Kozlowski, 42 F.3d at 1460:
"Just because one is required to see that service is provided does not make one the provider of the service. While the long-term care facility is required to provide certain service under the Medicaid Act, it is not, in fact, the provider of the services in question. . . . While the nursing facility may be required to provide the service under the Medicaid Act, in this instance it contracts with these third parties who provide the service."
Accordingly, the court concludes that the Illinois scheme denies Paramount its right to full and direct reimbursement of Medicare Part B cost-sharing for items and services rendered to Illinois QMBs.
Finally, the Secretary has argued that because the four circuit courts have reached the same result by differing reasoning, this court should conclude that the statutory schemes in question are ambiguous as to the question before the court, and that reasonable minds may differ on the precise interpretation. Therefore, according to the Secretary, her interpretation should be given deference under Chevron U.S.A. v. National Resources Defense Council, 467 U.S. 837 (1986).
The problem with the Secretary's argument is two-fold. BeforeChevron applies, the court must determine that the statutory scheme is ambiguous. Once that is determined, the court must give deference to the Secretary's interpretation only if that interpretation is reasonable. Smiley v. City Bank (South Dakota), N.A., 116 S. Ct. 1730, 1735 (1996).
The Secretary argues that because the four circuit courts have applied different reasoning to reach their results, the statutory scheme must be deemed ambiguous. The court disagrees. Although applying slightly different reasoning, it was abundantly clear to all four circuit courts that have reached the issue that the Medicare Act requires that QMB providers be reimbursed 100% of their reasonable charges, and that the states cannot curtail that right. Rather than being discordant in their reasoning, the courts of appeal understandably developed their rationales interpreting these lengthy and confusing statutes based upon the successive opinions on the subject. This court has reached the same conclusion, and although the statutes are difficult to parse, they are not ambiguous. Moreover, even if this court were to determine that the statutes in question are ambiguous, it could not, and would not, determine that the Secretary's interpretation is reasonable. The simple fact is that the plain wording of the statute provides that QMB providers are to receive 100% of their reasonable costs, and that the state is required to pay the QMBs' 20% share of those costs. Therefore, the court concludes thatChevron is inapplicable to the instant case.
CONCLUSION
For the reasons set forth above, plaintiff's motion for summary judgment is granted, and the Secretary's cross-motion for summary judgment is denied. Plaintiff is directed to prepare a final judgment order for declaratory and injunctive relief consistent with this opinion.
Accordingly, plaintiff's motion for summary judgment is granted and defendant's cross-motion for summary judgment is denied. Plaintiff is directed to prepare a final judgment order for declaratory and injunctive relief.