Breckinridge Health, Inc., et al. Plaintiffs-Appellants,
Thomas E. Price, in his official capacity as Secretary of the United States Department of Health and Human Services, Defendant-Appellee.
Argued: April 27, 2017
from the United States District Court for the Western
District of Kentucky at Louisville. No. 3:15-cv-00251-Joseph
H. McKinley Jr., Chief District Judge.
M. Dirr, DRESSMAN BENZINGER LAVELLE PS, Crestview Hills,
Kentucky, for Appellants.
Carleen M. Zubrzycki, UNITED STATES DEPARTMENT OF JUSTICE,
Washington, D.C., for Appellee.
M. Dirr, Mathew R. Klein, Richard G. Meyer, DRESSMAN
BENZINGER LAVELLE PS, Crestview Hills, Kentucky, for
Carleen M. Zubrzycki, Michael S. Raab, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.
Before: GUY, SILER, and DONALD, Circuit Judges.
BERNICE BOUIE DONALD, CIRCUIT JUDGE.
Kentucky hospitals (collectively, "Appellants")
sought Medicare reimbursement for certain state taxes they
paid on their gross revenue. The United States Department of
Health and Human Services ("HHS") offset the amount
of Appellants' Medicare reimbursement by the Medicaid
Disproportionate Share Hospital ("DSH") payments
Appellants received, reasoning that those payments
effectively refunded the taxes paid. The district court
affirmed this decision. Because the net effect of the
Medicaid DSH payment was to reimburse Appellants for the tax,
HHS's decision was not arbitrary, capricious, or
manifestly contrary to the Medicare statute. Accordingly, we
AFFIRM the district court's judgment.
are Critical Access Hospitals and are reimbursed by Medicare
for the reasonable and necessary costs of providing services
to Medicare patients. The federal Medicaid program requires
states to create a plan to provide additional payments to
hospitals, like Appellants, that serve a disproportionate
share of low-income patients. 42 U.S.C. §
1396a(a)(13)(A)(iv). In Kentucky, these DSH payments are
matched at 70% by the federal government. Kentucky's
contribution to DSH programs comes from two sources: Kentucky
Provider Tax Revenue ("KP-Tax") and payments from
state university hospitals. The KP-Tax is a 2.5% tax on the
gross revenue of various hospitals, including Appellants. Ky.
Rev. Stat. § 142.303(1). The KP-Tax revenue is deposited
into the Medical Assistance Revolving Trust
("MART"), Ky. Rev. Stat. § 205.640(2), which
in turn is used to fund the DSH payments, Ky. Rev. Stat.
§ 205.640(3)(a). The amount of DSH payments a hospital
receives is unrelated to the amount of KP-Tax it paid. Also,
during the years at issue, DSH payments covered only
approximately 45% of the costs Appellants incurred providing
care to indigent patients.
filed cost reports in 2009 and 2010 claiming their entire
KP-Tax payment as a reasonable cost for reimbursement under
the Medicare Act. Up until that point, they had received full
reimbursement under the reasonable cost statute. However, for
2009 and 2010, the Medicare Administrative Contractor denied
full reimbursement, offsetting the KP-Tax cost by the amount
of Medicaid DSH payments Appellants received. The Provider
Reimbursement Review Board ("PRRB") upheld the
offsets, concluding that when Appellants received a Kentucky
Medicaid DSH payment, they were actually receiving a refund
of some or all of the KP-Tax they paid. So it concluded ...