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Rush University Medical Center v. Burwell

United States Court of Appeals, Seventh Circuit

August 18, 2014

SYLVIA MATHEWS BURWELL, Secretary of Health and Human Services, Defendant-Appellant

Argued April 14, 2014

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. Nos. 12 C 4672 & 12 C 4673 . Joan H. Lefkow, Judge.

For Rush University Medical Center, Plaintiff - Appellee: James F. Flynn, Attorney, Bricker & Eckl, Columbus, OH.

SYLVIA MATHEWS BURWELL, Secretary of Health and Human Servicesk, Defendant - Appellant: Robert D. Kamenshine, Attorney, Department of Justice, Civil Division, Appellate Staff, Washington, DC.

Before WOOD, Chief Judge, and POSNER and FLAUM, Circuit Judges.


Page 755

Wood, Chief Judge

Teaching hospitals provide a valuable service to the public by training the next generation of doctors and medical professionals, but that benefit comes at a price: such hospitals experience significantly higher perpatient care costs than their non-teaching counterparts. To compensate them for taking on this extra financial burden, the federal Medicare program provides additional reimbursement for expenses beyond the immediate costs of patient care. One such adjustment is for " indirect medical education" (IME) costs. It is designed to account for the time medical interns and residents (collectively " residents" ) spend in ways that enhance their ability to provide patient care but that are not connected to the treatment of any particular patient. The question before us is whether residents' time spent in research activities wholly unrelated to the diagnosis or treatment of patients may be

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counted as part of this indirect-education time. (We refer to that as " pure research" time.) Rush University Medical Center, the plaintiff in this case, asserts that the answer is yes, and it seeks Medicare reimbursements for these activities between the years 1983 and 2001.

Importantly, we do not write on a blank slate. The Secretary of Health and Human Services (Secretary) has interpreted the Medicare Act consistently since 1983 to exclude pure research activities from compensable IME costs. Congress codified this exclusion for Fiscal Years 2001 onward in the Patient Protection and Affordable Care Act of 2010 (the Affordable Care Act or ACA), but it explicitly declined to lay down a rule for the years 1983 to 2001. The Secretary has now promulgated a regulation excluding pure research from the IME cost calculation for all years since 1983. Before that regulation was on the books but after the passage of the ACA, the question whether pure research was compensable reached our court. We held that the relevant portion of the statute should be interpreted to include pure research in compensable IME costs for the 1983 to 2001 period. See Univ. of Chi. Med. Ctr. v. Sebelius, 618 F.3d 739 (7th Cir. 2010).

Rush operates a teaching hospital in Chicago. It sought to include its residents' pure research time in its IME cost calculation for Fiscal Years 1993, 1994, and 1996. The fiscal intermediary charged with administering Rush's Medicare reimbursements denied its request because of the regulation, and that denial was affirmed on administrative appeal. Rush then filed suit challenging that decision in the district court, and the court held that our University of Chicago decision compelled reimbursement of residents' time spent in pure research during the years at issue. It thus granted summary judgment in Rush's favor. We must now decide whether University of Chicago continues to control in light of the changed regulatory landscape.


In 1983 the Medicare program shifted from using a reimbursement system to a prospective payment system, under which hospitals are paid for patient care based on specified rates and formulae for activities and procedures, regardless of the actual dollars and cents involved in the care. IME costs are calculated pursuant to a formula, under which one important input is the number of " full-time equivalent interns and residents" at the hospital. 42 U.S.C. § 1395ww(d)(5)(B)(ii). The latter figure is computed based on the number of hours residents spend conducting both " patient care activities" and qualifying " non-patient care activities." Id. § 1395ww(d)(5)(B)(iv), (d)(5)(B)(x).

The IME regulation in place when the switch in reimbursement methodologies occurred was silent about whether pure research time was included within the definition of " non-patient care activities." Before any statute or regulation spoke directly to the issue, the Secretary interpreted the statute in administrative adjudication to exclude pure research time from the IME formula. See R.I. Hosp. v. Leavitt, 548 F.3d 29, 34, 38 (1st Cir. 2008) (upholding that interpretation).

In 2001 the Department of Health and Human Services amended the relevant regulation. In its new form, the regulation provided that " [t]he time spent by a resident in research that is not associated with the treatment or diagnosis of a particular patient is not countable." 42 C.F.R. § 412.105(f)(1)(iii)(B) (2001). The regulation was further amended in 2006 to clarify that " [i]n order to be counted, a resident must be spending time in patient care

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activities . . . ." 42 C.F.R. ยง 412.105(f)(1)(iii)(C) (2006). A separate regulation defined " patient care activities" as " the care and treatment of particular patients, including services for which a physician or other practitioner may ...

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