backCMS Issues Retroactive Final Rule Keeping Part C Days in the Medicare Fraction of the DSH Calculation—On June 7, 2023, CMS issued a final rule retroactively re-adopting its policy requiring patient days attributable to Medicare Part C beneficiaries (Part C days) to be counted in the Medicare fraction of the disproportionate share hospital (DSH) payment formula for cost reporting periods beginning before October 1, 2013. This rule reinstates the same policy regarding Part C days that was invalidated under the Supreme Court decision in Azar v. Allina because of lack of appropriate notice and comment rulemaking. In its final rule, CMS contends that patients enrolled under Part C are nonetheless “entitled to benefits under Part A.” Patients that are “entitled to benefits under Part A” are included in the Medicare fraction and categorically excluded from the Medicaid fraction, even if Medicaid ultimately pays for their care.
Background on Part C Days in Medicare DSH
In the inpatient prospective payment system (IPPS) proposed rule for FY 2004, CMS proposed to “clarify” its practice of excluding Part C days from the Medicare fraction of the DSH calculation. In the 2005 IPPS final rule, however, CMS reversed course and adopted a policy to treat Part C days as being days entitled to benefits under Part A and include them in the Medicare fraction. The D.C. Circuit stated that CMS’s “surprise switcheroo” violated notice-and-comment rulemaking and was not a logical outgrowth of its proposed rule. See Allina Health Services v. Sebelius, 746 F.3d 1102, 1106 (D.C. Cir. 2014) (Allina I). The D.C. Circuit left open, however, the question of whether CMS was required to undertake notice and comment rulemaking to adopt its policy of treating Part C days as being “entitled to benefits under Part A.”
In 2017, the D.C. Circuit answered that question in the affirmative stating that the Medicare statute required CMS to undertake notice and comment rulemaking before adopting a policy including Part C days in the Medicare fraction. See Allina Health Services v. Price, 863 F.3d 937 (D.C. Cir. 2017) (Allina II). The Supreme Court upheld the D.C. Circuit’s decision. Azar v. Allina Health Servs., 139 S. Ct. 1804 (2019).
In response, CMS issued a proposed rule proposing to adopt the same policy of including Part C in the Medicare fraction (and excluding them from the Medicaid fraction) retroactively to all periods prior to October 1, 2013 (CMS had separately adopted a prospective policy, effective October 1, 2013, of including Part C days in the Medicare fraction).
Since the publication of CMS’s proposed rule in August 2020, the Supreme Court decided Becerra v. Empire Health Foundation, 142 S. Ct. 2354, 1368 (2022) (Empire). While Empire addressed beneficiaries who had exhausted their Medicare Part A hospital coverage—and did not address Part C days specifically—the litigation revolved around the meaning of “entitled to benefits under part A of [Medicare].” In Empire, the Supreme Court held that the Secretary was correct in interpreting that phrase as denoting a legal status of meeting Medicare’s eligibility requirements and does not turn on whether Medicare pays for any particular hospital day. In light of that decision, CMS believes that the Medicare statute requires the Secretary to count Part C days in the Medicare fraction because Medicare beneficiaries remain “entitled to [Medicare Part A]” regardless of whether they enroll in Part C.
Retroactive Rulemaking
It appears that all or nearly all commenters opposed CMS’s policy. Now that CMS has nonetheless finalized its proposal, future litigation is likely to turn on the appropriateness of engaging in retroactive rulemaking in such circumstances. The Medicare statute prohibits retroactive rulemaking generally, but it contains two limited exceptions if: “(i) such retroactive application is necessary to comply with statutory requirements; or (ii) failure to apply the change retroactively would be contrary to the public interest.” Hospitals will contend that these narrow criteria have not been met.
In its final rule, CMS attempts to buffer itself somewhat from this line of argument claiming that retroactive rulemaking was not strictly necessary because, according to CMS, the Supreme Court held in Empire that the only reasonable interpretation of the statute was to treat patients who had met Medicare’s eligibility criteria as being “entitled to benefits under Part A,” thereby rendering notice and comment rulemaking unnecessary. Such a position is odd for several reasons, including the fact that the Supreme Court in Allina had specifically found that notice and comment rulemaking was necessary before CMS could change its treatment of Part C days.
In any event, there will almost certainly be further litigation regarding the procedural and substantive validity of the agency’s latest move in this nearly-two-decade-long chess match on the Part C days issue in the Medicare DSH calculation.
A copy of the final rule is available here.
Reporters Daniel J. Hettich, Washington, D.C., +1 202 626 9128, dhettich@kslaw.com, and Michael L. LaBattaglia, Washington, D.C., +1 202 626 5579, mlabattaglia@kslaw.com.
The Supreme Court Permits Private Lawsuits Against Publicly Owned Nursing Homes for Violations of the Federal Nursing Home Reform Act— On June 8, 2023, the U.S. Supreme Court held that private individuals may sue publicly owned nursing homes for violations of the Federal Nursing Home Reform Act of 1987 (FNHRA). Plaintiff Gorgi Talevski and his wife brought a lawsuit against a county-owned nursing home and its agents, Health and Hospital Corporation of Marion County (HHC), claiming that HHC’s treatment of Mr. Talevski violated his rights guaranteed under the FNHRA. Mr. Talevski sought damages against HHC for the violation of his FNHRA rights pursuant to the Civil Rights Act of 1971, codified at 42 U.S.C. § 1983 (Section 1983). The Supreme Court held, in a 7-2 opinion, that individuals may privately enforce the provisions of FNHRA and seek damages from state-owned nursing homes pursuant to Section 1983.
At issue in Health & Hospital Corporation of Marion County v. Talevski, was the question of whether there was a “private right of action” whereby private individuals may sue state-owned nursing homes for damages if the nursing homes violate the health, safety, and dignity rights protected by FNHRA. FNHRA ensures that nursing homes that receive Medicaid funding respect and protect their residents’ rights to be free from, among other things, unnecessary physical or chemical restraints, and to be discharged or transferred only when certain preconditions are satisfied. Mr. Talevski was a resident at a nursing home owned by HHC, a county-owned entity that received Medicaid funding. He and his wife alleged that HHC improperly and unnecessarily restrained Mr. Talevski through the use of chemical restraints, namely by giving him six strong psychotropic medications that allegedly caused him to be unable to feed himself and unable to communicate in English. Mr. Talevski and his wife further alleged that HHC violated his FNRHA-protected rights by forcibly transferring him to an in-patient psychiatric facility on multiple occasions without providing him or his family notice of the transfers.
Although FNHRA has its own enforcement mechanisms, including state and federal oversight of Medicaid-participating nursing homes, Section 1983 of the Civil Rights Act of 1871 permits any person within the jurisdiction of the United States to sue any other person or entity acting “under color of” state law if that other person or entity has deprived them of “any rights, privileges, or immunities secured by the Constitution and laws” of the United States. Mr. Talevski and his wife argued that Section 1983 permitted them to sue HHC, a county-owned nursing home acting “under color of” state law, for depriving Mr. Talevski of his rights secured by FNHRA, a law of the United States. HHC argued that Section 1983 contains an implicit carveout for laws that Congress enacts via its Spending Power—meaning that Section 1983 could not be used to enforce any rights guaranteed by FNHRA. HHC contended that state and federal oversight of Medicaid-participating nursing homes is sufficient to enforce FNHRA because the government can sanction and even terminate funding if it finds nursing homes violate FNHRA. HHC further argued that, even if Section 1983 applied to laws enacted pursuant to the Spending Power, FNHRA does not create rights that nursing home residents can enforce via Section 1983.
The Supreme Court rejected all of HHC’s arguments. First, it rejected HHC’s argument that Section 1983 does not create enforceable rights for laws passed by Congress pursuant to its Spending Power, finding that the plain language of Section 1983 can broadly apply to all federal laws, not just laws that do not rest on the Spending Power.
Second, the Supreme Court held that Section 1983 can presumptively be used to enforce “unambiguously conferred federal individual rights,” unless a private right of action under Section 1983 would thwart any enforcement mechanism that the statute already contains for protection of the rights it created. The Supreme Court held that the two FNHRA provisions at issue here—the right to be free from unnecessary physical or chemical restrains and the right to be discharged or transferred from a nursing home only when certain preconditions are satisfied—unambiguously create rights enforceable by Section 1983. The Court further held that there is no incompatibility between private enforcement under Section 1983 and FNHRA’s separate enforcement mechanism.
Accordingly, the Supreme Court held that Mr. Talevski’s case can proceed in court, and he and his wife are permitted to sue HHC to seek damages under Section 1983 for the alleged violation of his FNHRA-protected rights. The Supreme Court recognized, however, that because private entities own most nursing homes, most nursing homes will not be subject to suit under Section 1983, as it will only apply to publicly owned facilities.
The U.S. Supreme Court’s opinion can be found here.
Reporter, Ariana Fuller, Los Angeles, +1 213 443 4342, afuller@kslaw.com.
OIG Publishes the Spring 2023 Semiannual Report to Congress—OIG released its Semiannual Report to Congress (the Report) which summarizes the agency’s activities from October 1, 2022, through March 31, 2023 (the Reporting Period). Among other accomplishments, the Report highlights $892.3 million in expected recoveries as a result of HHS-OIG audits and investigations. In the Report, OIG also explains its continued focus on significant and high-risk issues in healthcare, including the COVID-19 pandemic, nursing homes, Medicare and Medicaid integrity, cybersecurity, and prescription drug issues.
In the six-month Reporting Period, OIG reported 345 criminal enforcement actions against individuals and/or entities that engaged in crimes impacting HHS programs. As part of this work, in partnership with federal and state law enforcement partners, OIG pursued individuals exploiting the COVID-19 public health emergency, individuals perpetrating Medicare fraud, and individuals involved with improper prescriptions and distributions, among other areas.
In addition, OIG also reported 324 civil actions, including false claims matters, civil monetary penalty settlements, as well as recoveries in connection with provider self-disclosures. OIG also excluded 1,356 individuals and entities from participation in federal healthcare programs during the Reporting Period.
OIG further noted that it issued 62 new audit reports, made 213 new audit and evaluation recommendations, and HHS operating divisions implemented 253 prior OIG recommendations during the Reporting Period.
The agency explained that it continues to focus on significant and high-risk issues in healthcare. The Report summarized key OIG focus areas including responding to the COVID-19 pandemic and other emergencies, oversight of nursing homes (where OIG has 26 ongoing audits), promoting integrity in traditional Medicare and managed care, preventing prescription drug misuse and strengthening substance abuse care, ensuring HHS programs are administered efficiently, safeguarding Medicaid program integrity, reducing prescription drug spending, ensuring health and safety of vulnerable populations, and cybersecurity protection. OIG also highlighted its coordination with other agency partners, including highlighting a multi-State, coordinated law enforcement action to apprehend individuals engaged in a scheme to sell more than 7,600 false and fraudulent nursing degree diplomas and transcripts.
In a letter included with the Report, Inspector General Christi Grimm also noted that OIG turns down 300 to 400 viable criminal and civil health care fraud cases each year due to lack of resources, and states that additional resources would help OIG keep pace with threats to HHS programs.
The Report is available here, and the OIG website is available here.
Reporter, Lauren S. Gennett, Atlanta, + 1 404 572 3592, lgennett@kslaw.com.
UPCOMING EVENTS
King & Spalding Roundtable: New Developments in Regulatory Review of Private Equity (PE)-sponsored and Other Healthcare M&A Transactions
June 20, 2023 from 1:00 – 2:00 PM ET
Healthcare M&A deals have come under increasing scrutiny in recent years. A number of state legislatures have proposed or enacted new laws to require parties to transactions involving acquisitions and other investments in healthcare providers to submit transactions to regulators for review prior to closing. The FTC and state antitrust regulators have also stepped up their efforts to review healthcare M&A deals. Regulatory reviews can significantly impact the closing timeline for transactions and can also create uncertainty regarding the ability to close in states where regulators are given discretion to block transactions.
The panel will explore:
- Newly-passed legislation requiring regulatory review of healthcare transactions
- Other efforts to impose regulatory review requirements for healthcare deals
- Potential impact on healthcare M&A trends
- Strategies for navigating licensure and change of ownership (CHOW) requirements