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Centers for Medicare and Medicaid Services Enters National Settlement of Rural Floor Budget Neutrality Issue

May 7, 2012
Health Care Alert

In early 2011, the United States Court of Appeals for the District of Columbia decided in favor of the appellant hospitals regarding the rural floor budget neutrality issue (BNA Issue) in Cape Cod Hospital et al v Sebelius, 630 F.3d 203 (D.C. Cir. 2011). Quite recently, the Centers for Medicare and Medicaid Services (CMS) entered into a nationwide settlement with the hospitals that to date have appealed the BNA Issue.

The BNA Issue

The Balanced Budget Act of 1997 required that each hospital wage index in a state could not be lower than the statewide rural wage index. CMS was required to implement this provision in a budget neutral fashion so that total wage index payments nationwide before and after implementation remained the same. It was necessary for CMS to increase the wage index for all affected urban hospitals, and to compute a rural floor budget neutrality adjustment to reduce other wage indexes to maintain the payment level. In the wake of Cape Cod, CMS has acknowledged that it erroneously calculated the rural floor budget neutrality adjustment. As a result of this error, the BNA Issue reduced hospital payment during the 1998-2011 federal fiscal years.

Appeal Rights; Opportunity for Recovery

Hundreds of hospitals have appealed the BNA Issue in Cape Cod and other cases, and the settlement applies only to the hospitals that have appealed. Many hospitals that have not appealed the BNA Issue, however, may have the opportunity to recover potentially significant payment for later years. For hospitals that take prompt and effective action to appeal the BNA Issue, therefore, there is the potential for substantial payment recovery. What years are subject to appeal and potential settlement depends on a hospital’s specific circumstances. The BNA Issue having been resolved, hospitals are well advised to be wary of proposals involving a contingent or premium fee. Unless a hospital is a member of a “common issue related party group” that includes one or more other related hospitals appealing this issue, it is not necessary for a hospital to join a group appeal to assert and preserve its appeal rights regarding the BNA Issue. Settlement of an individual appeal often can be achieved in a streamline fashion in comparison to settlement of large groups which invariably become ensnared in jurisdictional issues.

Appeal Assistance

We are poised to assist hospitals in a cost-effective manner with filing appeals and seeking recovery of the payment to which they are entitled. To discuss the BNA Issue or your hospital’s specific circumstances, please contact Ken Marcus at
313-465-7470 or kmarcus@honigman.com.