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Breckinridge Health Inc. v. Price

United States Court of Appeals, Sixth Circuit

August 23, 2017

Breckinridge Health, Inc., et al. Plaintiffs-Appellants,
v.
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

         Appeal 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.

         ARGUED:

          David M. Dirr, DRESSMAN BENZINGER LAVELLE PS, Crestview Hills, Kentucky, for Appellants.

          Carleen M. Zubrzycki, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.

         ON BRIEF:

          David M. Dirr, Mathew R. Klein, Richard G. Meyer, DRESSMAN BENZINGER LAVELLE PS, Crestview Hills, Kentucky, for Appellants.

          Carleen M. Zubrzycki, Michael S. Raab, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.

          Before: GUY, SILER, and DONALD, Circuit Judges.

          AMENDED OPINION

          BERNICE BOUIE DONALD, CIRCUIT JUDGE.

         Various 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.

         I.

         Appellants 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.

         Appellants 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 ...


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