backD.C. District Court Invalidates CMS’s “Protest” Requirement – On August 19, 2016, the United States District Court for the District of Columbia granted a group of hospitals’ motion for summary judgment against HHS in a challenge of the Provider Reimbursement Review Board’s (PRRB) denial of jurisdiction based on an application of CMS’s “self-disallowance” regulation, whereby providers must protest each unallowable cost on their cost reports to prove “dissatisfaction” with that item for purposes of PRRB jurisdiction. The court held that the so-called “protest” requirement was foreclosed by the Supreme Court’s decision in Bethesda Hosp. Ass’n v. Bowen, 485 U.S. 399 (1988). The case is Banner Heart Hospital, et al. v. Burwell, case no. 14-cv-01195 (APM) (D.D.C. August 19, 2016). A copy of the district court’s opinion can be found here.
Plaintiffs are a group of non-profit acute care hospitals that participate in the Medicare program. Plaintiffs brought their action to challenge the PRRB’s decision that it did not have jurisdiction to review plaintiffs’ appeal of Medicare regulations that govern the amount of “outlier” payments owed to plaintiffs for the treatment of extraordinarily expensive patient cases because plaintiffs had not complied with the “self-disallowance” regulation under 42 C.F.R. § 405.1835(a)(1)(ii) (2008). That regulation requires that a provider report to the Medicare Administrative Contractor (MAC) a cost sought that it believes should be reimbursable but nonetheless knows will not be paid because of Medicare regulations or policies that it ultimately seeks to challenge. The provider cannot specifically seek payment for that cost since payment is prohibited, but it must nonetheless “self-disallow” that item under protest with the filing of its Medicare cost report.
The district court noted that plaintiffs submitted their respective cost reports to the MAC in 2009 but did not challenge or self-disallow amounts associated with outlier regulations on their as-filed cost reports. In 2013, plaintiffs filed an appeal to the PRRB requesting expedited judicial review of their challenges to the outlier regulations. The PRRB denied the request, finding that it had no jurisdiction because of the failure of the providers to protest the issue on their as-filed cost reports. The providers appealed that decision to the D.C. District Court.
The district court found that the Supreme Court in Bethesda Hosp. Ass’n v. Bowen, 485 U.S. 399 (1988) had already considered the same section of the Medicare statute at issue (42 U.S.C. § 1395oo) and held that the plain language of section 1395oo did not require a provider to first raise with the MAC legal challenges to Medicare regulations in order to preserve its right to an appeal of those regulations. The district court rejected the Secretary’s argument that Bethesda was distinguishable because the Secretary had issued the self-disallowance regulation after the Bethesda decision, imposing an exhaustion requirement on providers before they could bring appeals on these issues. The district court agreed with plaintiffs that Bethesda held that exhaustion requirements are not permissible, even if imposed by regulation, for pure legal challenges to Medicare regulations. The district court reasoned that the Supreme Court interpreted the plain language of the statute, which simply requires that a hospital be dissatisfied with its amount of reimbursement in order to file an appeal of a particular issue.
The court held that under Bethesda, the Secretary’s self-disallowance regulation, as applied to plaintiffs’ specific regulatory challenge, conflicted with the plain text of section 1395oo. Therefore, the court concluded that the PRRB erred in ruling that it lacked jurisdiction to hear plaintiffs’ challenge to the outlier regulations. The district court remanded the case to the PRRB for further action consistent with the correct legal standards. The Secretary can appeal this decision to the D.C. Circuit Court. Since all hospitals in the nation can bring suit in the D.C. Circuit for Medicare reimbursement, a favorable decision there would effectively set national policy.
Reporter, John Whittaker, Sacramento, +1 916 321 4808, jwhittaker@kslaw.com.
HHS Wins Summary Judgment Against Hospitals Disputing CMS’s Treatment of Part C Days as Days “Entitled to Part A” for Purposes of Medicare DSH Payments – On August 17, 2016 the United States District Court for the District of Columbia granted summary judgment in favor of HHS in a dispute over whether Part C days can be treated as “days entitled to benefits under Part A” for purposes of Medicare disproportionate share hospital (DSH) payments. The plaintiffs, a group of nine hospitals, sued HHS challenging its 2012 DSH payment calculation as procedurally and substantively invalid in an attempt to build upon the D.C. Circuit’s previous invalidation of CMS’s regulation adopting the same policy. (That previous case was remanded to the agency and is currently pending before the D.C. district court.)
DSH payments are funds that Medicare provides to hospitals that serve a disproportionate share of low-income and uninsured patients. The amount that a hospital receives is based on a formula that takes into account the number of patients entitled to benefits under Medicare Part A who are also eligible for supplemental security income (SSI) benefits. The main issue of contention is whether patients who have enrolled in a managed care plan under Medicare Part C are considered “entitled to benefits under Part A.” If Part C patients are still entitled to benefits under Part A then they should be included in the DSH formula. This seemingly minor detail has a financial impact on hospitals measuring in the hundreds of millions of dollars of DSH funds.
The plaintiff hospitals challenged the 2012 DSH calculation, in which HHS included the Part C patients. The court, considering cross motions for summary judgment, rejected plaintiffs’ arguments that the 2012 calculation was administratively deficient and granted summary judgment in favor of HHS. First, the court found that HHS did not base the 2012 calculation on a 2004 rulemaking that was previously overturned. Second, the court held that HHS was not required to make the interpretation through notice and comment rulemaking because the Medicare statute provides an adequate legislative basis to include Part C patients. Finally, the court held that HHS’s decision to include Part C patients was not arbitrary and capricious.
The case is Allina Health Servs. v. Burwell, No. 14-cv-1415 (D.D.C. Aug. 17, 2016). Please click here for a copy of the opinion.
Reporter, J. Gardner Armsby, Atlanta, +1 404 572 2760, garmsby@kslaw.com.
CMS’s Interim Final Rule to Permit “Stacking” of Reclassifications Puts Pressure on Urban Hospitals to Evaluate Advantages of Geographic Reclassification to “Rural” Status for Wage Index Purposes in Advance of September 1 Deadline – Hospitals may seek redesignation to a neighboring core-based statistical area for wage index purposes under the rules that set forth the geographic reclassification process. See 42 C.F.R. § 412.230 et seq. Those rules require that applications for geographic reclassification be made 13 months in advance of the Federal fiscal year for which reclassification is being sought. The deadline for Fiscal Year 2018 reclassifications is September 1, 2016. As that date approaches, urban hospitals are evaluating the additional advantages of “stacking” reclassifications – that is, seeking first to reclassify as a rural hospital under the rules set forth in 42 C.F.R. § 412.103 and then seeking to use the more relaxed geographic reclassification requirements for rural hospitals to reclassify to a higher wage index area.
“Stacking” reclassifications in this way was prohibited until CMS reversed this policy in an Interim Final Rule published in April 2016. The Interim Final Rule, available here, has presented many urban hospitals with another geographic reclassification option. Urban hospitals are also finding that “rural” status can offer other benefits, discussed below, but these benefits may not be without risk. These hospitals are quickly working through the risks and benefits of rural reclassification in advance of the September 1 geographic reclassification deadline.
The April Interim Final Rule provides that a hospital that has reclassified as rural can retain its rural status in applying for redesignation to a neighboring area for wage index purposes. Likewise, the Interim Final Rule provides that a hospital that has already been reclassified to a neighboring area can reclassify as rural without jeopardizing its current status. CMS’s longstanding policy had been to prohibit such “stacking” of reclassifications, but CMS lifted this prohibition in the wake of decisions from the United States Courts of Appeal for the Second and Third Circuits, respectively, which held that the prohibition on stacking reclassifications was inconsistent with the plain language of the Medicare statue.
Because the Interim Final Rule allows an urban hospital to reclassify as “rural” under 42 C.F.R. § 412.103 and also allows that hospital to seek geographic reclassification, giving it a pathway to a higher wage index, hospitals are evaluating a number other advantages to being reclassified as a “rural” hospital, such as:
- Relaxed requirements to qualify for geographic reclassification to a neighboring area of choice;
- Access to the benefits afforded to rural hospitals without forfeiting an existing geographic reclassification;
- Reduced DSH thresholds to qualify for the Section 340B Drug Pricing Program (eight percent), if the hospital becomes a rural referral center;
- Upward adjustments to IME FTE caps; and
- Reduced stop-loss thresholds for hospitals participating in the Comprehensive Joint Replacement Program.
Each of these advantages may come with additional risks that require careful evaluation, which may pose difficulties for hospitals to work through in advance of the September 1 geographic reclassification deadline.
Reporters, Mark Polston, Washington, DC, +1 202 626 5540, mpolston@kslaw.com, and Alek Pivec, Washington, DC, +1 202 626 2914, apivec@kslaw.com.
ALSO IN THE NEWS
CMS Releases Medicare Outpatient Observation Notice For Public Comment – CMS announced that the public has the opportunity to comment on the Medicare Outpatient Observation Notice (MOON). The MOON is a standardized form developed by CMS to facilitate implementation of the Notice of Observation Treatment and Implication for Care Eligibility Act (Notice Act) requirements. The comment period on the MOON ends September 1, 2016. More information is available here.
OMB Reviewing Nursing Home Medicare Eligibility Rule and Gainsharing Rule – According to the Office of Management and Budget (OMB) website reginfo.gov, the White House recently started reviewing (1) CMS’s rule covering Medicare eligibility requirements for nursing homes and (2) HHS Office of Inspector General’s rule that would amend the anti-kickback statute safe harbors on gainsharing arrangements. The nursing home proposed rule, released in July 2015, has stirred contentious discussion regarding the ability of nursing home operators to use arbitration agreements with their residents. Read more regarding CMS’s nursing home eligibility proposals in the King & Spalding Health Headline available here. More information regarding the OIG’s safe harbor proposals published in 2014 is available in a prior King & Spalding Health Headline here.
Life Sciences & Healthcare Roundtable on Medical Marijuana Set for September 8 – King & Spalding’s Life Sciences and Healthcare practice groups will host a webinar on Thursday, September 8, 2016 from 1:00 p.m. to 2:00 p.m. Eastern time covering, “The Conundrum of Medicinal Marijuana: Implications for Healthcare Providers and Pharmaceutical Companies.” This webinar will, among other things, analyze the basis of the recent DEA decision to retain marijuana under Schedule 1 of the controlled substances regime, with a focus on the implications for pharmaceutical companies regarding the development of new drugs containing marijuana derivatives. Register for the webinar here.
King & Spalding Healthcare Lawyers Recognized in Best Lawyers in America’s 2017 Rankings – Best Lawyers in America recently recognized more than 100 King & Spalding lawyers in its 2017 rankings. Two Healthcare partners were identified as lawyers of the year – Jay Harris of Atlanta for Health Care Law and Stephen Goff of Sacramento for Bet-the-Company Litigation and Health Care Law. Other King & Spalding Healthcare lawyers who have been recognized in the publication include: Jim Boswell (Atlanta); Connie Dotzenrod (Atlanta); Gary Eiland (Houston); Catherine Greaves (Austin); Rob Keenan (Atlanta); Kathy Poppitt (Austin); Glen Reed (Atlanta); Kim Roeder (Atlanta); Phillip Street (Atlanta); and Sara Kay Wheeler (Atlanta). In addition to the Healthcare team, lawyers from various other firm practice groups were recognized here.