The opinion of the court was delivered by: Gary L. Sharpe District Court Judge
MEMORANDUM-DECISION AND ORDER
Plaintiffs Kingston and Benedictine Hospitals commenced this action
against defendants Kathleen Sebelius, in her official capacity as
Secretary of Health and Human Services ("Secretary"), and National
Government Services Blue Cross/Blue Shield Association ("NGS"),
pursuant to 42 U.S.C. § 1395oo, seeking judicial review of the
Secretary's denial of reimbursements for costs associated with offsite
training of residents during fiscal years 2000 and 2001.*fn1
(Compl., Dkt. No. 1; Compl., Dkt. No. 1,
1:10-cv-868.*fn2 ) Pending are plaintiffs' motion for
summary judgment and defendants' cross-motion for summary judgment.
(Dkt. Nos. 24, 27.) For the reasons that follow, defendants' motion is
granted in part and denied in part, and plaintiffs' motion is
A. Regulatory Framework and Appeals Process
The Department of Health and Human Services ("HHS") is charged with administering the Medicare program, which was established to provide health insurance to the aged and disabled. (Dkt. No. 1, Attach. 1 at 4.) Under the Medicare program, private insurance companies known as fiscal intermediaries ("intermediaries") are contracted to perform payment and audit functions. (Id.)
To receive reimbursement under Medicare, health service providers ("providers") must submit to their assigned intermediary a report at the close of each fiscal year detailing costs incurred and the portion of those costs to be allocated to Medicare. (Id. citing 42 C.F.R. § 413.20.) The intermediary determines the amount of Medicare reimbursement to which the provider is entitled, and issues a Notice of Program Reimbursement ("NPR"). (Id.) Providers may appeal adverse NPR determinations to the Provider Reimbursement Review Board ("Review Board") within 180 days of the issuance of the NPR. (Id.) Absent further action by the Secretary within 60 days, the Review Board's decision is final. 42 C.F.R. §§ 405.1871(b), 405.1875(a). A provider may obtain judicial review of a final decision by means of a civil action brought within 60 days of notification of such decision. 42 U.S.C. § 1395oo(f)(1).
B. Medicare Payment for Costs of Medical Education
Medicare reimburses providers for the direct and indirect costs of graduate medical education. (Dkt. No. 1, Attach. 1 at 4.) The Medicare statute in place during the relevant period provided for reimbursement for time spent by residents in non-hospital settings where the resident was engaged in patient care activities and "the hospital incur[red] all, or substantially all, of the costs for the training program in that setting." 42 U.S.C. §§ 1395ww(d)(5)(B)(iv), (h)(4)(E) (2000). In promulgating regulations to facilitate the implementation of this statute, the Secretary further required a written agreement between providers and non-hospital sites indicating that the provider bore responsibility for incurring the cost of residents' salaries and fringe benefits as well as compensation for supervisory teaching activities. 42 C.F.R. §§ 413.86(f)(4), 412.105(f) (2000 & 2001).
In 1983, plaintiffs Kingston and Benedictine-both hospitals in Kingston, New York-jointly established the Mid-Hudson Family Health Services Institute ("Institute"). (Dkt. No. 27, Attach. 4 ¶ 7.) The Institute operated a diagnostic and treatment center as well as an accredited residency program. (Id. ¶ 8.) Between 1983 and 2001, Kingston and Benedictine executed three agreements by which they agreed to, inter alia, cover the Institute's deficits and provide the Institute with adequate cash flow. (Dkt. No. 1, Attach. 1 at 6.) During 2000 and 2001, the residency program was comprised of approximately 20 residents who divided their time between Kingston, Benedictine and non-hospital locations. (Dkt. No. 24, Attach. 2 at 7.)
On June 8, 2004 and July 8, 2005, NGS, Kingston's intermediary,*fn4 issued its NPR for fiscal years 2000 and 2001, respectively. (Id.) In both NPRs, NGS found that the time spent by Kingston residents in non-hospital settings throughout 2000 and 2001 should not be counted for Medicare reimbursement, resulting in a disallowance of over $1 million. (Id. at 7-8.) On June 18, 2004, NGS issued a substantially identical NPR in relation to Benedictine's reimbursement for fiscal year 2000, resulting in a disallowance of over $550,000. (Id. at 8.)
Kingston timely appealed both its 2000 and 2001 NPRs to the Review Board. (Id. at 9.) In light of the similarities between the respective appeals, the Review Board considered both NPRs in a consolidated October 17, 2008 hearing. (Id.) In a September 23, 2009 decision, the Review Board affirmed NGS' disallowance of reimbursement for time spent by Kingston residents in non-hospital settings during fiscal years 2000 and 2001. (Dkt. No. 1, Attach. 1 at 13.) Specifically, the Review Board found that: the written agreement requirement promulgated by the Secretary was properly prescribed; plaintiffs did not qualify for relief under Section 713 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, Pub.L. No. 108-173; and the covenants entered into by plaintiffs between 1983 and 2001 failed to satisfy the written agreement requirement of 42 C.F.R. § 413.86(f)(4). (Dkt. No. 1, Attach. 1 at 11-12.) The Review Board subsequently affirmed Benedictine's 2000 NPR as well.*fn5 (Id.) ...