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Recent significant developments in Medicare Part A appeals

CMS nets three victories in recent DC district court decisions

December 17, 2013

While favorable judicial decisions have yielded recovery of substantial Medicare payments for providers over the years, three recent decisions of the U.S. District Court for the District of Columbia—involving payments for bad debt and medical education, and regarding issue preclusion—serve as a reminder of the challenge providers face in litigation against the Centers for Medicare & Medicaid Services (CMS).

The CMS outside collection agency policy regarding bad debt: Lakeland Regional Health System v. Sebelius, 2013 WL 3776254 (D.D.C. 7/16/2013)

At issue in Lakeland Regional Health System was the validity of disallowance of Medicare bad debt at an outside collection agency (OCA) during the fiscal year in which it was claimed. Two previous decisions of that court held that the CMS OCA policy violated the bad-debt moratorium (Moratorium), codified as 42 U.S.C. Section 1395f note. 1 CMS did not appeal either of these prior decisions, suggesting a tacit acquiescence. Surprisingly, however, the court in Lakeland Regional Health System did not follow these prior decisions. Instead, its holding was on the basis that it was unnecessary for the CMS OCA policy to be "explicitly set forth in a pre-Moratorium writing." Specifically, the court stated as follows: "The interpretive guidance in place on August 1, 1987 'did not purport to be comprehensive review of all conditions that might be placed on reimbursement of' Medicare bad debt's . . . ." 2   Lakeland Regional Health System did not depart from the holdings in Foothill and District Hospital Partners that the Moratorium applies equally to the provider and to the agency. Rather, the court's holding was based on the premise that the HHS Secretary was not required to "explicitly set forth in a pre-Moratorium writing" her bad-debt policy regarding the use of an OCA. If such a premise is true, query if there are any limits on the authority of CMS to implement Medicare payment policy in light of fundamental administrative law principles prohibiting arbitrary and capricious agency action. 3   Lakeland Regional Health System has appealed to the U.S. Court of Appeals for the District of Columbia, which has been assigned Case No. 13-5282.

Medicare payment for residents training in the nonprovider setting: Borgess Medical Center v. Sebelius, 2013 WL 4758194 (D.D.C. 9/4/2013)

The hospitals in Borgess Regional Medical Center appealed the disallowance of full-time equivalent (FTE) residents for purposes of direct graduate medical education payment and the indirect medical education adjustment training in an off-site clinic jointly supported by the hospitals, referred to in Medicare parlance as the "nonprovider setting." At issue was application of a CMS principle referenced as the "Single Hospital Requirement," which requires that a nonprovider setting be funded by a single hospital. Here, two hospitals funded the nonprovider setting. Although the Single Hospital Requirement was not promulgated with notice and comment rulemaking until 2007, the court held that it applied to the 2002-2004 fiscal years in dispute. The court held, therefore, that the hospitals failed to satisfy the requirements for claiming the FTEs in dispute. Note that the only other court to decide this issue found in favor of the plaintiff hospitals. 4   Borgess Medical Center has appealed to the U.S. Court of Appeals for the District of Columbia, which has been assigned Case No 13-5330.

Issue preclusion: Canonsburg General Hospital v. Sebelius, 2013 WL 5658757 (D.D.C. 10/17/2013)

The plaintiff in Canonsburg General Hospital challenged Provider Reimbursement Manual (PRM) Section 2534.5, which provides that for purposes of establishing an exception to the routine cost limit (RCL) for a hospital-based skilled nursing facility, costs must exceed 112% of the peer group mean. As a result, the plaintiff was precluded from being reimbursed for costs incurred for the provision of atypical services in excess of the RCL but less than 112% of the peer group mean per-diem threshold. Notably, the D.C. District Court previously held that PRM Section 2534.5 failed to satisfy notice and comment rulemaking requirements. 5   Although CMS appealed Montefiore Medical Center, the case was settled. Moreover, CMS has settled other cases challenging PRM Section 2534.5. Finally, decisions of the PRRB regarding this issue in recent years are unanimously in favor of providers. In Canonsburg General Hospital , however, the court found that the claim was barred by issue preclusion because the plaintiff had previously litigated the issue unsuccessfully in another jurisdiction. Issue preclusion, previously referred to as "collateral estoppel," bars relitigation of the same claim by the same parties where the claim was previously decided by a court of competent jurisdiction in the prior case and preclusion does not work a basic unfairness. In Canonsburg General Hospital it was not disputed that the plaintiff's challenge to PRM Section 2534.5 had previously been litigated and decided. At issue was whether issue preclusion worked a basic unfairness. The court rejected the plaintiff's several arguments regarding that point, and held that the claim was subject to issue preclusion. As of the date of this email alert, Canonsburg General Hospital has not filed a notice of appeal.

PRRB announces first ever publication of jurisdiction decisions 

On December 3, 2013, the CMS issued an announcement that the PRRB will publish final jurisdictional decisions. These decisions are located here .

To date, the PRRB has published jurisdiction decisions for the months of August, September and October 2013.

This development is welcome, as previously the PRRB did not issue more than a few jurisdiction issues, handicapping providers and their representatives in litigating procedural and jurisdictional determinations upon appeal to the federal courts.

The Medicare appeals process, while challenging, continues to provide a realistic opportunity for hospitals to enhance their Medicare payment. For assistance with these or any other health care issues, please contact any of the attorneys in Honigman’s Health Care Practice Group.

1 See Foothill Hospital-Morris L. Johnston Memorial v. Leavitt , 2008 US Dist. Lexis 41816 (May 30, 2008); District Hospital Partners v. Sebelius , 2013 WL 1209956 (March 26, 2013).
2 Id.
3 See 5 USC §§ 551 et seq.
4 See MedCenter One Health Systems and St. Alexius Medical Center v. Leavitt , 666 F.Supp.2d 1043 (D.N.D.) 2009, rev'd on other grounds, 635 F.3d. 348 (8th Cir. 2011).
5 See Montefiore Medical Center v. Leavitt , 578 F.Supp. 2d 129 (D.D.C. 2008).