Judge Grants Summary Judgment in Favor of Hospital in Medicare Reimbursement Case

On Monday, Judge Margaret B. Seymour of the District of South Carolina granted summary judgment to Charleston’s Medical University Hospital Authority (MUHA) in a suit attempting to recover costs incurred through a medical education program that the plaintiff claimed it was owed under Medicare after a determination by the Provider Reimbursement Review Board judgment argued that MUHA was not entitled to reimbursement for two fiscal years.

In its complaint, MUHA disputed a Medicare administrative contractor (MAC)’s determination that in the fiscal years ending in June of both 2007 and 2008, MUHA was not entitled to Medicare reimbursement for a pharmacy program it operates collaboratively with the Medical University of South Carolina (MUSC) College of Pharmacy. MUHA appealed the determination to the board, which upheld the MAC’s judgment, saying that MUHA did not “directly incur” the costs of the pharmacy program and that MUHA did not control the program’s administration, which are both eligibility criteria for Medicare reimbursement.

MUHA then filed suit in June 2019 against then-Secretary of the United States Department of Health and Human Services (HHS) Alex M. Azar, hoping to recover the costs it allegedly was owed. It moved for summary judgment June 15, 2020, which prompted a cross-motion by HHS, an amicus brief supporting MUHA, and a couple of additional back-and-forth responses between parties.

The court ultimately sided with MUHA, agreeing that an entity “directly incurs” an expense “if its liability for that cost inevitably and necessarily follows from the expenditure,” the court explained. An affiliation agreement between MUHA and MUSC noted that MUHA is liable for all costs of the pharmacy program, including reimbursing MUSC for any costs, which MUHA argued renders the costs directly incurred. According to the court, the board’s determination construed the meaning of “directly incurred” too narrowly and resulted in an “arbitrary and capricious” judgment “not supported by substantial evidence.”

On the question of whether MUHA was an operator and had administrative control over the pharmacy program, the court said the board’s decision similarly applied too narrow a meaning of administrative control, and thus facilitating daily operations of the program fits into the definition of “operator” in the court’s eyes.

With the plaintiff’s summary judgment, the court ordered HHS to reimburse MUHA for the costs it is owed for fiscal years 2007-08, plus interest, associated with operating the pharmacy program.

MUHA is represented by King & Spalding LLP and Barnwell Whaley Patterson and Helms LLC. HHS is represented by government counsel.