Y. MEDICARE LITIGATION UPDATE Robert Balderston, Esq. Kenneth R. Marcus, Esq. Table of Contents

Transcription

1 Y. MEDICARE LITIGATION UPDATE Robert Balderston, Esq. Kenneth R. Marcus, Esq. Table of Contents I. Supreme Court Decisions Impacting Medicare/Medicaid...1 A. National Federal Of Independent Business et al. v Sebelius, 132 S.Ct. 256 (2012)...1 B. Sebelius v. Auburn, 133 S.Ct. 817 (2013)...5 II. Outlier...8 Banner Health et al. v. Sebelius, 2012 WL (D.D.C. 2012) III. Recovery Audit Contractor Challenges (RAC)...8 A. Palomar Medical Center v. Sebelius, (9 th Cir.) (9/11/2012), rehearing denied 1/29/ B. Emerging Issue: AHA et al. v Sebelius, , (D.D.C.)...8 IV. Bad Debt...8 A. The Must Bill Policy Cove Associates Joint Venture v. Sebelius, 848 F.Supp.3d 13 (D.D.C. 2012) Grossmont Hospital Corp. v. Sebelius, 2012 WL (D.D.C. 2012) Maine Medical Center (Portland, ME) v. BlueCross BlueShiel Association/ National Government, PRRB Hearing, Dec. No D3, November 29, 2012 (Medicare and Medicaid Guide (CCH) 82,827)...9 B. Indigency Determination Doctors Hospital Columbus Ohio v. BCBS CGS Administrators, PRRB Hearing Dec. No D18, Case No (cost reporting period ending 06/30/04), July 18, 2012 (Medicare and i

2 Medicaid Guide (CCH) 82,811), rev d, CMS Administrator Decision, Sept. 11, (Medicare and Medicaid Guide (CCH) 82,824) V. Disproportionate Share Hospital Adjustment: Part C Days...12 A. Allina Health Services v. Sebelius, 2012 Westlaw (D.D.C. 2012)...12 B. Alegent Health-Immanuel Medical Center v. Sebelius, 2012 WL (D.C. D.C., Dec ) C. Columbia Saint Mary s Hospital Milwaukee, Inc. v. Sebelius, 2012 WL (D.C.D.C., September 28, 2012)...13 D. Emerging Issue: Pre-Part C, Medicare HMO Days...14 Baptist Medical Center et. al. v. Sebelius, Pending D..D.C., No VI. Disproportionate Share Hospital Adjustment: Exhausted Dual Eligible Days...14 Catholic Health Initiatives - Iowa, Corp. d/b/a Mercy Medical Center - Des Moines v. Sebelius, 2012 WL (D.D.C Jan. 30, 2012); decision pending D.C. Circuit, Case No Metropolitan Hospital, Inc. v. U.S. Dept. HHS, 702 F.Supp.2d 808 (W.D. Michigan 2011); decision pending 6 th Cir. Case No / VII. Disproportionate Share Hospital Adjustment; Indigent Care Days...14 A. Judicial Decisions Nazareth Hospital v. Sebelius, E.D. Penn., Baptist Memorial Hospital v. Sebelius, 2012 WL (D.C. Cir.) Pending: University of Kansas et al. v Sebelius, D.D.C., )...15 B. Administrative Decisions...15 VIII. Disproportionate Share: Other...16 A. Challenge To Remand Under CMS Ruling 1498-R...16 Catholic Health Initiatives v. Sebelius, No B. Dual Eligible Medicare/Medicaid Patient Days...16 ii

3 Memorial Hospital at Gulfport v. Sebelius, 2012 WL (5 th Cir.) IX. Medical Education...16 A. Base Year FTE Cap Determination...16 Kaiser Foundation Hospitals et al. v Sebelius, (D.C.C. 3/5/2013) B. Shared Full Time Equivalent Resident Slots Swedish American Hospital (Rockford, IL) v. Wisconsin Physicians Service- (formerly Mutual of Omaha Insurance Co.), PRRB Hearing Dec. No D24, September 6, 2012 (Medicare and Medicaid Guide (CCH) 82,819) Alegent Health Immanuel Medical Center v. Wisconsin Physician Service, PRRB Hearing Dec. No D16, June 15, 2012 (Medicare and Medicaid Guide (CCH) 82,796)...17 C. Inclusion of M+C Days In GME and IME Computation Hospital of University of Pennsylvania v. Sebelius, 847 F.Supp.2d 125 (D.D.C. 2012) See also, E.W. Sparrow Hospital Association v. Sebelius, No (D.D.C.), settled in light of Loma Linda Research Medical Center v. Wisconsin Physician Service, PRRB Hearing Dec. No D12, Case No (cost reporting period ending 12/31/01), March 9, 2012 (Medicare and Medicaid Guide (CCH) 82,789, rev d, CMS Administrator Decision, May 14, 2012 (Medicare and Medicaid Guide (CCH) 82,808)...18 D. IME Available Beds and FTE Count...20 Rush University Medical Center v. BCBS/ National Government Services Inc., CMS Administrator Decision, April 4, 2012 (Medicare and Medicaid Guide (CCH) 82,805) E. Emerging Issue: Application Of PPACA 5504 To Jurisdictionally Proper Pending Appeals...20 Covenant Medical Center, Inc. v Sebelius, No (E.D. Mich.) iii

4 X. Wage Index: Paid ( Phantom ) Hours...20 Atrium Medical Center v. Sebelius, 2013 WL (S.D. Ohio 2013) XI. Loss On Sale...21 A. Catholic Healthcare West v. Sebelius, 2013 WL (D.C. D.C., January 29, 2013) B. Memorial Hermann Hospital v. Sebelius, 882 F.Supp.2d 882 (S.D. Texas, 2012)...22 C. See, also, Pinnacle Health Hospitals v. Sebelius, 682 F.3d.424 ( D.D.C. 2012)...23 XII. Tax Assessment...23 A. Kindred Hospitals East, LLC v. Sebelius, 694 F.3d 924 (8th Cir., 2012)...23 B. Abraham Lincoln Memorial Hospital, et al. v. Sebelius, 698 F.3d 536 (7th Cir., 2012)...23 XIII. Rural and Sole Community Hospital: MS-DRG Adjustment...24 Adirondack Medical Center, et al v. Sebelius, 2012 WL (D.D.C. 2012) XIV. Other Payment Challenges...25 A. Cost Apportionment...25 B. Skilled Nursing Facility Exception Request San Joaquin Community Hospital v. BCBS/First Coast Service Options Inc., PRRB Hearing Dec. No D21, August 8, 2012 (Medicare and Medicaid Guide (CCH) 82,814) SNF RCL 112% Rule...25 C. Challenges to Medicare Payment Rate Determinations Paladin Community Mental Health Center v. Sebelius, 684 F.3d 527 (5th Cir., 2012) Michigan Department of Community Health v. Secretary of Health and Human Services, 2012 WL (6th Cir., August 23, 2012)...26 XV. PRRB Jurisdiction...27 iv

5 A. Equitable Tolling/Good Cause Exception/Jurisdiction Over PRRB Decision That PRRB Lacks Jurisdiction...27 Sebelius v. Auburn, 133 S.Ct. 817 (2013) B. Appeal From Revised NPR...27 Illinois-Masonic Medical Center v. Sebelius, 869 F.Supp.2d 137 (D.D.C. 2012) C. DSH Adjustment Not Claimed On Cost Report: Pending...27 Norwalk v. Sebelius, No , D. Conn. D. Resident Cap Redistribution...28 Bergen Regional Medical Center (Paramus, NJ) v. BlueCross BlueShield Association/Novitas Solutions Inc., Dec. No D25 v

6 AMERICAN HEALTH LAWYERS ASSOCIATION 2013 INSTITUTE ON MEDICARE AND MEDICAID PAYMENT ISSUES Y. MEDICARE LITIGATION UPDATE Robert Balderston, Esq. Kenneth R. Marcus, Esq. 1 I. Supreme Court Decisions Impacting Medicare/Medicaid A. National Federal Of Independent Business et al. v Sebelius, 132 S.Ct. 256 (2012) 2 The Individual Mandate And Medicaid Expansion 1. Background a b In 2010, Congress enacted the Patient Protection and Affordable Care Act in order to increase the number of Americans covered by health insurance and decrease the cost of health care. One key provision is the individual mandate, which requires most Americans to maintain minimum essential health insurance coverage. 26 U.S.C. 5000A. For individuals who are not exempt, and who do not receive health insurance through an employer or government program, the means of satisfying the requirement is to purchase insurance from a private company. Beginning in 2014, [*2572] those who do not comply with the mandate must make a [s]hared responsibility payment to the Federal Government. 5000A(b)(1). The Act provides that this "penalty" will be paid to the Internal Revenue Service with an individual's taxes, and "shall be assessed and collected in the same manner" as tax penalties. 5000A(c), (g)(1). Another key provision of the Act is the Medicaid expansion. The current Medicaid program offers federal funding to States to assist pregnant women, children, needy families, the blind, the elderly, and the disabled in obtaining 1 This outline was prepared by Kenneth R. Marcus for a presentation with Robert Balderston. Mr. Marcus accepts sole responsibility for errors or omissions. This outline does not purport to provide either the legal advice of Mr. Marcus or the official position of the Centers for Medicare and Medicaid Services by Mr. Balderston. Note that excerpts from decisions, edited for format, are frequently quoted in this outline. Readers wishing to discuss this outline or the cases cited here may contact the author at kmarcus@honigman.com. The author expresses appreciation for the assistance of Gregory M. Nowakowski, attorney at the Honigman firm. 2 Quotes from syllabus of decision. The reader is referred to the decision for a full understanding of the Court s holdings and analyses. 1

7 medical care. 42 U.S.C. 1396d(a). The Affordable Care Act expands the scope of the Medicaid program and increases the number of individuals the States must cover. For example, the Act requires state programs to provide Medicaid coverage by 2014 to adults with incomes up to 133 percent of the federal poverty level, whereas many States now cover adults with children only if their income is considerably lower, and do not cover childless adults at all. 1396a(a)(10)(A)(i)(VIII). The Act increases federal funding to cover the States costs in expanding Medicaid coverage. 1396d(y)(1). But if a State does not comply with the Act s new coverage requirements, it may lose not only the federal funding for those requirements, but all of its federal Medicaid funds. 1396c. c Held: The judgment is affirmed in part and reversed in part. 2. Anti-Injunction Act Was Not A Bar To The Suit: Part II The Anti-Injunction Act provides that no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, 26 U. S. C. 7421(a), [**461] so that those subject to a tax must first pay it and then sue for a refund. The present challenge seeks to restrain the collection of the shared responsibility payment from those who do not comply with the individual mandate. But Congress did not intend the payment to be treated as a tax for purposes of the Anti-Injunction Act. The Affordable Care Act describes the payment as a penalty, not a tax. That label cannot control whether the payment is a tax for purposes of the Constitution, but it does determine the application of the Anti-Injunction Act. The Anti- Injunction Act therefore does not bar this suit. Pp Individual Mandate Not A Valid Exercise Of The Commerce Clause (a) The Constitution grants Congress the power to regulate Commerce. Art. I, 8, cl. 3 (emphasis added). The power to regulate commerce presupposes the existence of commercial activity to be regulated. This Court's precedent reflects this understanding: As expansive as this Court's cases construing the scope of the commerce power have been, they uniformly describe the power as reaching activity. [*2573] E.g., United States v. Lopez, 514 U.S. 549, 560. The individual mandate, however, does not regulate existing commercial activity. It instead compels individuals to become active in commerce by purchasing a product, on the ground that their failure to do so affects interstate commerce. Construing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority. Congress already possesses expansive power to regulate what people do. Upholding the Affordable Care Act under the Commerce Clause would give Congress the same license to regulate what people do not do. The Framers knew the difference between doing something and doing nothing. They gave Congress the power to regulate commerce, not to compel it. Ignoring that distinction would undermine the principle that the Federal Government is a government of limited and enumerated 2

8 powers. The individual mandate thus cannot be sustained under Congress's power to regulate Commerce. Pp (b) Nor can the individual mandate be sustained under the Necessary and Proper Clause as an integral part of the Affordable Care Act's other reforms. Each of this Court's prior cases upholding laws under that Clause involved exercises of authority derivative of, and in service to, a granted power. E.g., United States v. Comstock, 560 U.S. The individual mandate, by contrast, vests Congress with the extraordinary ability to create the necessary predicate to the exercise of an enumerated power and draw within its regulatory scope those who would otherwise be outside of it. Even if the individual mandate is necessary to the Affordable Care Act s other reforms, such an expansion of federal power is not a proper means for making those reforms effective. Pp Individual Mandate Within Taxing Clause. a Individual Mandate Construed As A Tax: Part III.B. The most straightforward reading of the individual mandate is that it commands individuals to purchase insurance. But, for the reasons explained, the Commerce Clause does not give Congress that power. It is therefore necessary to turn to the Government's alternative argument: that the mandate may be upheld as within Congress s power to lay and collect Taxes. Art. I, 8, cl. 1. In pressing its taxing power argument, the Government asks the Court to view the mandate as imposing a tax on those who do not buy that product. Because every reasonable construction must be resorted to, in order to save a statute from unconstitutionality, Hooper v. California, 155 U.S. 648, 657 the question is whether it is "fairly possible" to interpret the mandate as imposing such a tax, Crowell v. Benson, 285 U.S. 22, 62. Pp b Individual Mandate Within Congress Taxing Power: Part III.A. (a) The Affordable Care Act describes the [s]hared responsibility payment as a penalty, not a tax. That label is fatal to the application of the Anti-Injunction Act. It does not, however, control whether an exaction is within Congress's power to tax. In answering that constitutional question, this Court follows a functional approach, [disregarding the designation of the exaction, and viewing its substance and application. United States v. Constantine [*2574], 296 U.S. 286, 294. Pp (b) Such an analysis suggests that the shared responsibility payment may for constitutional purposes be considered a tax. The payment is not so high that there is really no choice but to buy health insurance; the payment is not limited to willful violations, as penalties for unlawful acts often are; and the payment is collected solely by the IRS through the normal means of taxation. Cf. Bailey v. Drexel Furniture Co., 259 U.S. 20, None of this is to say that payment is not intended to induce the purchase of health insurance. But the mandate need not be read to declare that failing to do so is unlawful. Neither the Affordable Care Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS. And Congress s choice of language-stating that individuals shall obtain insurance or pay a penalty 3

9 does not require reading 5000A as punishing unlawful conduct. It may also be read as imposing a tax on those who go without insurance. See New York v. United States, 505 U. S. 144, Pp (c) Even if the mandate may reasonably be characterized as a tax, it must still comply with the Direct Tax Clause, which provides: No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken. Art. I, 9, cl. 4. A tax on [**463] going without health insurance is not like a capitation or other direct tax under this Court's precedents. It therefore need not be apportioned so that each State pays in proportion to its population. Pp The Medicaid Expansion Violates The Constitution The Medicaid expansion violates the Constitution by threatening States with the loss of their existing Medicaid funding if they decline to comply with the expansion. Pp (a) The Spending Clause grants Congress the power to pay the Debts and provide for the... general Welfare of the United States. Art. I, 8, cl. 1. Congress may use this power to establish cooperative state-federal Spending Clause programs. The legitimacy of Spending Clause legislation, however, depends on whether a State voluntarily and knowingly accepts the terms of such programs. Pennhurst State School and Hospital v. Halderman, 451 U.S. 1, 17. [T]he Constitution simply does not give Congress the authority to require the States to regulate. New York v. United States, 505 U.S. 144, 178. When Congress threatens to terminate other grants as a means of pressuring the States to accept a Spending Clause program, the legislation runs counter to this Nation's system of federalism. Cf. South Dakota v. Dole, 438 U.S. 203, 211. Pp (b) Section 1396c gives the Secretary of Health and Human Services the authority to penalize States that choose not to participate in the Medicaid expansion by taking away their existing Medicaid funding. 42 U.S. C. 1396c. The threatened loss of over 10 percent of a State's overall budget is economic dragooning that leaves the States with no real option but to acquiesce in the Medicaid expansion. The Government claims that the expansion is properly viewed as only a modification of the existing program, and that this modification is permissible because Congress reserved the right to alter, amend, or repeal any provision of Medicaid But [*2575] the expansion accomplishes a shift in kind, not merely degree. The original program was designed to cover medical services for particular categories of vulnerable individuals. Under the Affordable Care Act, Medicaid is transformed into a program to meet the health care needs of the entire nonelderly population with income below 133 percent of the poverty level. A State could hardly anticipate that Congress's reservation of the right to alter or amend the Medicaid program included the power to transform it so dramatically. The Medicaid expansion thus violates the Constitution by threatening States with the loss of their existing Medicaid funding if they decline to comply with the expansion. Pp (c) The constitutional violation is fully remedied by precluding the Secretary from applying 1396c to withdraw existing Medicaid funds for failure to comply with the requirements set out in the expansion. See The other provisions of the Affordable 4

10 Care Act are not affected. Congress would have wanted the rest of the Act to stand, had it known that States would have a genuine choice whether [**464] to participate in the Medicaid expansion. Pp B. Sebelius v. Auburn, 133 S.Ct. 817 (2013) Equitable Tolling And Good Cause Exception 1. Background And Proceedings Below 3 a b Auburn involved the Medicare disproportionate share hospital ( DSH ) adjustment, which provides additional reimbursement to hospitals serving large numbers of low income patients. The plaintiffs in this case, 18 Medicareparticipating hospitals, alleged that the Secretary calculated their DSH payments for fiscal years using information hidden from the hospitals, which the Secretary knew was incomplete or incorrect, while unlawfully concealing that the information was, in fact, inaccurate. After the inaccuracy of the concealed information was disclosed in 2006, many years after the close of the first fiscal year at issue, the hospitals filed administrative appeals seeking recalculation of their DSH payment, arguing that the 180-day time period for appealing Medicare payments should be equitably tolled. District Court Decision The District Court dismissed the hospitals complaint for lack of subject matter jurisdiction, finding that the decision of the PRRB dismissing appeals that are filed after the 180-day deadline for filing such appeals are not final decisions for purposes of judicial review under 42 U.S.C. 1395oo(a)(1). Auburn Regional Medical Center v. Sebelius, 686 F.Supp. 2d 55, (D.D.C. 2010). In addition, the District Court held that equitable tolling is not available to toll the 180-day requirement for filing Medicare appeals with the PRRB. Id. at c Court of Appeals Decision On June 24, 2011, in Auburn Regional Medical Center, et al., v. Sebelius ( Auburn ), Civil Action No (D.C. Cir.), the United States Court of Appeals for the District of Columbia Circuit held that: (1) federal courts have jurisdiction to hear disputes regarding any final determination of the PRRB; and (2) the 180-day appeal period to the PRRB can be tolled for equitable reasons, such as when the government withholds information regarding program underpayments. 3 Adapted by permission, for which appreciation hereby is expressed, from summary prepared by attorney Robert L. Roth, Managing Partner of Washington, D.C. office of Hooper Lundy and Bookman PC. 5

11 The Court, therefore, remanded the case to the District Court for further proceedings on the question of whether equitable tolling applies under the facts of this case d With respect to the final decision issue, the Court said: (1) According to the Secretary and the district court, the Board s dismissal of an untimely claim is not a final decision. We fail to see how this could be the case. Slip Op. at 4. The Court went on to say: Such a dismissal is final in any sense of the word. It is not pending, interlocutory, tentative, conditional, doubtful, unsettled, or otherwise indeterminate. It is done. Slip Op. at 5. 4 (2) With respect to the equitable tolling claim, the Court stated: The district court rejected equitable tolling on the ground that plaintiffs have proffered nothing suggesting that... Congress intended to authorize equitable tolling for provider claims. Slip Op. at 6. The Court pointed out that equitable tolling presumptively applies unless there is Congressional intent that it not apply. Then, after several pages of analysis, the Court concluded we find that equitable tolling is available under 1395oo(a). Slip Op. at 10. The Court, however, hastened to add that the question of whether tolling is appropriate in this particular case... is a different question that cannot be answered without further factual development and that that question is for the District Court on remand. Slip Op. at Decision Of Supreme Court 5 a The 180-day limitation in 1395oo(a)(3) is not jurisdictional. Unless Congress has clearly state[d] that a statutory limitation is jurisdictional, the restriction should be treated as nonjuris-dictional. Arbaugh v. Y & H Corp., 546 U. S. 500, [C]ontext, including this Court's interpretations of similar provisions in many years past, is probative of whether Congress intended a particular provision to rank as jurisdictional. Reed Elsevier, Inc. v. Muchnick, 559 U. S.,. If 139oo(a)(3) were jurisdictional, the 180-day time limit could not be enlarged by agency or court. Section 1395oo(a)(3) hardly reveals a design to preclude any regulatory extension. The provision instructs that a provider may obtain a hearing by filing a request within 180 days after notice of the intermediary's final determination. It does not speak in 4 The Court of Appeals holding that the decision of the PRRB was subject to judicial review was not appealed and, therefore, is final. 5 Adapted from and quoting the syllabus. The reader is referred to the decision for a full understanding of the Court s holdings and analyses. 6

12 jurisdictional terms. Zipes v. Trans World Airlines, Inc., 455 U. S. 385, 394. This Court has repeatedly held that filing deadlines ordinarily are not jurisdictional; indeed, they have been described as quintessential claim-processing rules. Henderson v. Shinseki, 562 U. S.,. Pp b The Secretary's regulation is a permissible interpretation of 1395oo(a)(3). (1) Congress vested in the Secretary large rulemaking authority to administer Medicare. A court lacks authority to undermine the Secretary's regime unless her regulation is arbitrary, capricious, or manifestly contrary to the statute. Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837, 844. Here, the regulation survives inspection under that deferential standard. The Secretary brought to bear practical experience in superintending the huge program generally, and the PRRB in particular, in maintaining a three-year outer limit for intermediary determination challenges. A court must uphold her judgment as long as it is a permissible construction regulation. Pp (2) A presumption of equitable tolling generally applies to suits against the United States, Irwin v. Department of Veterans Affairs, 498 U.S. 89, 95-96, but application of this presumption is not in order for 1395oo(a)(3). This Court has never applied Irwin's presumption to an agency's internal appeal deadline. The presumption was adopted in part on the premise that [s]uch a principle is likely to be a realistic assessment of legislative intent. Irwin, 498 U. S., at 95. That premise is inapt in the context of providers' administrative appeals under the Medicare Act. For nearly 40 years the Secretary has prohibited the Board from extending the 180-day deadline, except as provided by regulation. In the six times 1395oo has been amended since 1974, Congress has left untouched the 180-day provision and the Secretary s rulemaking authority. Furthermore, the statutory scheme, which applies to sophisticated institutional providers, is not designed to be unusually protective of claimants. Bowen v. City of New York, 476 U. S. 467, 480. Nor is the scheme one in which laymen, unassisted by trained lawyers, initiate the process. Zipes, 455 U. S., at 397. The hospitals ultimately argue that the Secretary's regulations fail to adhere to fundamentals of fair play. FCC v. Pottsville Broadcasting Co., 309 U. S. 134, 143. They point to 42 CFR (b)(3), which permits reopening of an intermediary's reimbursement determination at any time if the determination was procured by fraud or fault of the provider. But this Court has explained that giving intermediaries more time to discover overpayments than providers have to discover underpayments may be justified by the administrative realities of the system: a few dozen fiscal intermediaries are charged with issuing tens of thousands of NPRs, while each provider can concentrate on a single NPR, its own. Your Home Visiting Nurse Services, Inc. v. Shalala, 525 U. S. 449, 455, 456. Pp

13 II. Outlier Banner Health et al. v. Sebelius, 2012 WL (D.D.C. 2012) 1. Plaintiffs challenged three sets of outlier payment regulations promulgated in 1988, 1994, and C.F.R and eleven sets of Fixed Loss Threshold Regulations. 2. The Court granted in part the Secretary s motion to dismiss in a prior preceding, dismissing the mandamus claim and ordered the Plaintiffs to file a bullet point format notice of claims. 797 F.Supp.2d 97. (D.D.C. 2011) 3. After the Plaintiffs filed their notice of claims, the Court permitted the Secretary to file a targeted Rule 12(c) motion to dismiss. 4. Plaintiffs claims challenged the Secretary s directions to reopen cost reports to recover outlier overpayments but not to pay underpayments ( Reopening Claims ). 5. The Court granted the Secretary s motion to dismiss based on several arguments, including reliance on Your Home Visiting Nurse Services, Inc. v. Shalala, 525 U.S. 449 (1999), the Court found that the scope of judicial review authorizes review of determinations of payment amounts, [but] it does not authorize review of decisions about whether to reopen determinations of payment amounts. Banner Health, 2012 WL at *7. III. Recovery Audit Contractor Challenges (RAC) A. Palomar Medical Center v. Sebelius, (9 th Cir.) (9/11/2012), rehearing denied 1/29/2013 Plaintiffs challenged RAC reopening. 9 th Circuit affirmed district court holding that RAC is authorized to reopen and that reopening determination is not subject to appeal. B. Emerging Issue: AHA et al. v Sebelius, , (D.D.C.) American Hospital Association and several major hospital systems challenge CMS policy denying payment of outpatient services where RAC determines that inpatient admission was not medically necessary. IV. Bad Debt A. The Must Bill Policy 1. Cove Associates Joint Venture v. Sebelius, 848 F.Supp.3d 13 (D.D.C. 2012) a The Court found inconsistent agency action: 8

14 (1) For all periods prior to the 2005 fiscal year on review, the Intermediary allowed the Provider s bad debt without receipt of remittance advices ( RA s ) evidencing that claims had been filed with the Medicaid program. (2) The Intermediary issued an confirming the Secretary s practice of not requiring RA s. (3) Prior to rescission in the wake of the Community Hospital of the Monterey Peninsula v. Thompson, 323 F.3d 782 (9 th Cir. 2003) decision, Provider Reimbursement Manual L permitted a provider to not bill a Medicaid program if the provider could establish that the Medicaid program was not responsible for payment. b c d The Court found that although the Secretary did not change the Must Bill Policy, the Secretary changed enforcement. The Court further found that the change in enforcement did not take into account legitimate reliance on prior interpretation, and therefore may have constituted arbitrary, capricious or abuse of discretion. The Court remanded to the agency for reconsideration of the limited issue of whether for the the Providers were justified in relying on the Secretary s prior failure to enforce the Must Bill Policy against the Providers. 2. Grossmont Hospital Corp. v. Sebelius, 2012 WL (D.D.C. 2012) a b c The State, in a broader universe of claims without formal remittance notices, including claims denials for the various patients in question (as part of a broader population of claims), issued reports to the hospital. The hospital, based on that report, created its own claims denial reports, using the State s methodology, to support the must-bill requirement. At issue was whether the hospital-created report was sufficient to meet the mustbill requirement. The Court held that the Secretary s must-bill requirements were consistent with Medicare regulations, and the subsequent denial of payments was supported by substantial evidence that the provider did not obtain the state claims denials. 3. Maine Medical Center (Portland, ME) v. BlueCross BlueShiel Association/ National Government, PRRB Hearing, Dec. No D3, November 29, 2012 (Medicare and Medicaid Guide (CCH) 82,827) Issue: Whether the Intermediary's exclusion of the crossover bad debts for cost reporting periods ended September 30, 2002 and September 30, 2003 due to a lack of documentation was proper. 9

15 Key Fact(s): The Provider was unable to provide a Medicaid (MaineCare) Remittance Statement because the MaineCare program did not, and could not, provide them. PRRB Analysis: 1. The Board reviewed the applicable regulations at 42 C.F.R (e) and the program guidance at CMS Pub , 310, 312 and 322 and finds that neither the regulation nor the manual sections contained a requirement to bill the state Medicaid agency. Rather, the regulation and manual sections require that a provider make reasonable collection efforts and apply sound business judgment to determine that the debt was actually uncollectible when claimed. 2. The Board recognized that the court in Community Hospital of the Monterey Peninsula v. Thompson, 323 F.3d 782 (9 th Cir. 2003) upheld the agency's must bill policy; however, the Board found that two key aspects distinguished the facts in Monterey Peninsula from the instant cases. First, in Monterey Peninsula, there was a possibility of some payment from Medi-Cal (the state Medicaid agency) for the crossover claims. In the current cases, there was absolute no possibility that MaineCare is liable for the claims because as of July 1, 1999 state regulations eliminated payments for crossover claims. Second, in Monterey Peninsula, Medi- Cal's billing system was incompatible with Medicare's requiring the providers to hand-code bills to establish payment and eligibility. In the instant case, MaineCare entered into a trading partner agreement with Medicare, which permits the automatic exchange of eligibility information pertaining to dual eligible beneficiaries. 3. The record showed that the Provider billed MaineCare for the crossover bad debts through the Trading Partner Agreement. However, due to apparent problems with MaineCare's electronic billing system the state was unable and continued to be unable to issue any Medicaid remittance advices. The Board found that the Provider had actively pursued obtaining the remittance advices, but due to circumstances beyond its control the Provider was unable to obtain the advices. The Board found that the Provider demonstrated reasonable collection efforts in their attempt to recover the bad debts. 4. Given the unique circumstances in this case, the Board found that the Providers met the requirements for a reasonable collection effort related to the dual eligible beneficiaries as required by 42 C.F.R and the manual instructions. The Board found that the bad debts were actually uncollectible when the Providers claimed them as worthless and that sound business judgment established that there was no likelihood of recovery at any time in the future. Decision: The Intermediary improperly disallowed the bad debts arising from coinsurance and deductibles for dual eligible Medicare and Medicaid beneficiaries. The Intermediary's adjustments are reversed. 10

16 B. Indigency Determination 1. Doctors Hospital Columbus Ohio v. BCBS CGS Administrators, PRRB Hearing Dec. No D18, Case No (cost reporting period ending 06/30/04), July 18, 2012 (Medicare and Medicaid Guide (CCH) 82,811), rev d, CMS Administrator Decision, Sept. 11, (Medicare and Medicaid Guide (CCH) 82,824). Issue: Did the Intermediary properly disallow Medicare bad debt expense - specifically, did the Intermediary correctly disallow those claims from the sample review where the Provider was unable to produce all of the documentation from the patient file used to substantiate the indigency determination. Key Fact: The Intermediary denied the Provider s bad debt claim based on the finding that the Provider failed to make an indigency determination. PRRB Analysis: 1. The Board determined that the Intermediary did not dispute or challenge that the Provider's internal policies used to arrive at a bad debt determination comply with Medicare bad debt rules or that such policies were in place during the period under audit. 2. The Board further found that the Intermediary limited its review to a verification that a hard copy application existed for each bad debt determination. Consistent with this limited review, the Intermediary considered those accounts for which the hard copy of the application was not available as errors and made an adjustment to the Providers bad debts for these errors. 3. The Board found no evidence that the Intermediary considered other documentation offered by the Provider in support of the bad debt prior to the disallowance of these bad debts. The Board found no supporting basis in the regulation or the PRM that permitted the Intermediary to require a specific form of documentation to support bad debt and, thereby, to exclude from consideration other supporting documentation to determine bad debts. 4. The Board concluded that the Provider's bad debt identification process was operationally consistent with the Provider's policy and producing documentation that was adequate to support the Provider's bad debt claims in compliance with 42 C.F.R and PRM The Intermediary's requirement for specific supporting documentation is unsupported by 42 C.F.R and PRM Further, the Board found that the Intermediary's refusal to consider the other available supporting documentation that the Provider maintained in the individual patient's files was improper. Decision: The Intermediary improperly disallowed the Provider's claimed Medicare bad debts. The Intermediary's adjustment is reversed. 11

17 V. Disproportionate Share Hospital Adjustment: Part C Days A. Allina Health Services v. Sebelius, 2012 Westlaw (D.D.C. 2012) 1. Background a b c d Medicare Part C previously was called Medicare + Choice and is now called Medicare Advantage. The Plaintiffs argument: To qualify for Medicare Part C, an individual must be entitled to benefits under Medicare Part A and enrolled in Medicare Part B. Upon enrollment in Part B, the individual is no longer entitled to receive benefits under Part A, and instead receives benefits under Part C. Because they are not entitled to Part A benefits, these Part C beneficiaries should be excluded from the SSI Ratio which is designed to include only patients entitled to Part A. In 2004, CMS issued notice of its intent to include Part C days in the SSI Fraction, effective October 1, Fed. Rag CMS had attempted to apply this policy to cost reports even prior to In Northeast Hosp. Corp. v. Sibelius, 657 F.3d 1 (D.C. Cir. 2011), the Court held that the CMS interpretation could not be applied retroactive to Moreover, a Allina a b c d Policy Change: The Court rejected the Secretary s argument that her 2004 policy was not a policy change. Notice and Comment. The Court held that the 2007 rule was not a logical outgrowth of the policy CMS announced in Arbitrary and Capricious. Applying the standard articulated in FCC v. Fox Television Stations, 556 U.S. 502 (2009), the Court applied a heightened standard of review; i.e., where a prior policy had engendered serious reliance interests a more detailed agency justification is necessary. The Court held that the Secretary failed this standard of review. Remedy: The Court vacated the portion of the 2004 rule announcing the Secretary s policy, as codified in 2007 and modified in Note: The Secretary has filed a notice of appeal. D.C.C., Case No B. Alegent Health-Immanuel Medical Center v. Sebelius, 2012 WL (D.C. D.C., Dec ). 1. The D.C. Circuit s holding in Northeast Hospital Corporation v. Sebelius, 657 F.3d 1 (D.C. Cir., 2011), controlled and held that the Secretary s decision to 12

18 exclude these low-income patient days... violated the rule against retroactive rulemaking. 2. At issue was whether the Court of Appeals should include additional obligations under the agency in the remand order, as opposed to the usual remand order. 3. The Court agreed with Alegent s request to include in the remand an order for payment of interest. 4. The Court declined other remand order requests that included (1) issue[ing] instructions to the Agency as to how to recalculate plaintiff s DSH payments on remand, and [an] order... to act promptly in doing so, and (2) retain jurisdiction pending the completion of the remand and order the Secretary to file progress reports every 90 days. Alegent Health-Immanuel Medical Center, 2012 WL , at *3. 5. The Court declined to issue a remand order containing the additional requirements because the court s inquiry is normally at an end after the court makes its legal determinations. Furthermore, [u]nder settled principles of administrative law, when a court reviewing agency action determines that an agency made an error of law, the court s inquiry is at an end: the case must be remanded to the agency for further action consistent with the corrected legal standards. PPG Indus., Inc. v. United States, 52 F.3d 363, 365 (D.C. Cir., 1995). Furthermore, the Court found the circumstances necessary to retain jurisdiction (e.g., unreasonable delay of agency action, failure to comply with statutory deadline), were not present. C. Columbia Saint Mary s Hospital Milwaukee, Inc. v. Sebelius, 2012 WL (D.C.D.C., September 28, 2012) 1. At issue was whether the Secretary s interpretation that patients enrolled as Medicare beneficiaries were entitled to Medicare benefits should be excluded from DSH payments. 2. The Secretary s practice of including unpaid Medicare benefit days in the Medicaid numerator of the DSH calculation existed before April of 2000, and [i]t was not until 2000, with Edgewater [Med Ctr. V. Blue Cross Blue Shield Ass n, 2000 WL (H.C.F.A.) at *4], that the agency implemented a substantive change from that prior policy and practice, and began excluding unpaid Medicare days from the numerator. Columbia Saint Mary s, 2012 WL at * The decision turned on the date of the DSH payments for the hospital, which was prior to the Secretary s decision in Edgewater. The Secretary s new rule departs from its established practice in 1999 of including unpaid Medicare days in the Medicaid numerator... A rule that alters the method for calculating those fractions, therefore, changes the legal consequences of treating low income patients... Thus, the Secretary s current interpretation of the statute, first applied in 2000 in the Edgewater decision, cannot be applied retroactively to Columbia 13

19 St. Mary s fiscal year 1999 DSH calculation. Columbia Saint Mary s, 2012 WL at *12. D. Emerging Issue: Pre-Part C, Medicare HMO Days Baptist Medical Center et. al. v. Sebelius, Pending D..D.C., No At issue is whether days of care persons enrolled in a Medicare HMO or CMP, who are under Section 1876 of the Medicare Act, who are also entitled to Medicaid, for cost reporting periods prior to the enactment of Medicare Part C, should come within the Northeast and Allina decisions. VI. Disproportionate Share Hospital Adjustment: Exhausted Dual Eligible Days At issue is whether days of care for persons dually eligible for Medicare and Medicaid who have exhausted their Medicare coverage should be included in the numerator of the Medicaid fraction. The district courts in these two cases, currently on appeal, held in favor of the hospitals: Catholic Health Initiatives - Iowa, Corp. d/b/a Mercy Medical Center - Des Moines v. Sebelius, 2012 WL (D.D.C Jan. 30, 2012); decision pending D.C. Circuit, Case No Metropolitan Hospital, Inc. v. U.S. Dept. HHS, 702 F.Supp.2d 808 (W.D. Michigan 2011); decision pending 6 th Cir. Case No / VII. Disproportionate Share Hospital Adjustment; Indigent Care Days A. Judicial Decisions 1. Nazareth Hospital v. Sebelius, E.D. Penn., Decision Is Pending. a b At issue is Hospital s argument that the Secretary s disparate treatment of waiver state hospitals and state plan hospitals treating indigent non-medicaid patients funded through Medicaid violated the equal protection clause, or was arbitrary and capricious or an abuse of discretion. The Court remanded for the Secretary to issue a further explanation or to conduct a hearing focused on the disparate treatment issue. The Court also posed a series of specific questions to be addressed on remand which were designed to test whether the distinction drawn between hospitals treating non-medicaid eligible expansion patient and Medicaid DSH patients under the 2000 rule were essentially semantic and not rationally distinguishable. 6 The contribution of Mark H. Gallant of Cozen O Connor is acknowledged with appreciation. 14

20 c d e On remand, the Office of Attorney Advisor requested submissions from the providers, the MAC and CMS. CMS submitted arguments but no evidence. The providers submitted an expert report which compared Pennsylvania GA days to non-medicaid waiver days and found 10 states in which similarly situated hospitals could claim patient days for waiver patients who were substantially equivalent to the GA days that Pennsylvania hospitals were denied the right to claim under the rules as amended in The MAC agreed with most of the providers' responses to the questions posed by the court. The CMS Administrator issued a decision which asserted that the outcome of the case was controlled by Adena and Cooper although neither of those cases decided the equal protection/disparate treatment issues raised by the Nazareth plaintiffs and other concluded that the distinction was rational. Following remand the Court granted the plaintiffs motion to compel the Secretary to produce the rule making record. The record was produced and made clear that GA days in Pennsylvania at least were specifically covered directly under the state plan, which prescribed the payment of Medicaid DRG payments for individuals eligible for GA because their incomes were at or below the AFDC qualifying level, or about 47% of the FPL. Additionally, the record included a report to Congress from Med PAC, which was bluntly critical of the Secretary s continued refusal to allow hospitals to count GA days funded through Medicaid DSH payments. 2. Baptist Memorial Hospital v. Sebelius, 2012 WL (D.C. Cir.) The Court summarily affirmed the decision of the District Court, below, that the Hospital s DSH Adjustment claim did not come within the scope of the hold harmless provision of Program Memorandum A (12/1/1999). 3. Pending: University of Kansas et al. v Sebelius, D.D.C., ) At issue is whether the Hospitals claims come within the Past Payment Prong of the hold harmless provision of Program Memorandum A (12/1/1999). B. Administrative Decisions 1. QRS Colorado DSH/General Assistance Days Group v. Blue Cross Blue Shield \Trail Blazer Health, PRRB Decision Dec. No D23, August 1, 2012 (Medicare and Medicaid Guide (CCH) 82,816), aff d, QRS Colorado DSH/General Assistance Days Group v. BCBS/Trailblazer Health, CMS Administrator Decision, November 16, 2012 (Medicare and Medicaid Guide (CCH) 82,825) Issue: Whether days associated with patients covered under the Colorado Indigent Care Program (CICP) should be included in the numerator of the Medicaid proxy of the Medicare disproportionate share hospital (DSH) calculation pursuant to 1886(d)(5)(F)(vi)(II) of the Social Security Act, as amended (Act). 15

21 Decision: The Intermediary properly refused to include Colorado Charity Care Program days in the numerator of the Providers' Medicaid proxy. The Intermediary's adjustments were affirmed. 2. See, also, QRS 93 DSH/Iowa Indigent Patient/Charity Care (GA) Group v. BCBS Association/Wisconsin Physician Service, PRRB Hearing Dec. No D2, November 21, 2012 (Medicare and Medicaid Guide (CCH) 82,822); QRS Colorado DSH/General Assistance Days Group v. BCBS/Trailblazer Health, CMS Administrator Decision, November 16, 2012 (Medicare and Medicaid Guide (CCH) 82,825); QRS 1995, 1996, DSH/Pennsylvania General Assistance Days Group v. BCBS Association/Novitas Solutions Inc., PRRB Hearing, Dec. No D1, November 20, 2012 (Medicare and Medicaid Guide (CCH) 82,821); Ober Kaler DSH Charity Care Groups v. BlueCross BlueShield Association/Highmark Medicare Services, PRRB Hearing Dec. No D17, June 20, 2012 (Medicare and Medicaid Guide (CCH) 82,797); aff d, Ober Kaler DSH Charity Care Groups v. BCBS Association Highmark Medicare Services and Cahaba Government Benefits Administrators, CMS Administrator Decision, August 15, 2012 (Medicare and Medicaid Guide (CCH) 82,823). VIII. Disproportionate Share: Other A. Challenge To Remand Under CMS Ruling 1498-R A number of cases are challenging a remand under CMS Ruling 1498-R have been consolidated in the D.C. District Court. See Catholic Health Initiatives v. Sebelius, No B. Dual Eligible Medicare/Medicaid Patient Days Memorial Hospital at Gulfport v. Sebelius, 2012 WL (5 th Cir.) Patients dually eligible for Medicare and Medicaid but not eligible for SSI not included in DSH computation. IX. Medical Education A. Base Year FTE Cap Determination Kaiser Foundation Hospitals et al. v Sebelius, (D.C.C. 3/5/2013) The Court affirmed the decision of the District Court that inaccurate FTE base year data can be corrected in payment year although more than three years beyond the base year. B. Shared Full Time Equivalent Resident Slots 1. Swedish American Hospital (Rockford, IL) v. Wisconsin Physicians Service- (formerly Mutual of Omaha Insurance Co.), PRRB Hearing Dec. No D24, September 6, 2012 (Medicare and Medicaid Guide (CCH) 82,819) 16

22 Issue: Whether the Intermediary's adjustments reducing the 1996 base year IME/GME FTE count for osteopathic and allopathic medicine interns and residents and their effect on the May 31, 2004 through May 31, 2007 FTE counts are correct. Key Facts: The Provider contended that it was entitled to a permanent increase in its base year resident cap where it had trained residents enrolled in a hospital s residency program which closed. As stated in the PRRB decision, The Provider argues that St. Anthony could not possibly have been able to affiliate with the Provider at any time subsequent to July 1, 1996 because, in June 1996, St. Anthony resigned as a sponsoring institution with ACGME and did not retain the FTE slots. Further, the Provider asserts that it was administratively unfeasible to enter into an affiliation agreement with other hospitals to increase the number of aggregate slots subsequent to December 31, The Provider asserts that the portions of the county it is located in and two neighboring counties are Medically Underserved Areas containing Medically Underserved Populations. As such the Provider argues that the Secretary was required to provide special consideration to programs established to serve rural undeserved areas pursuant to 42 U.S.C. 1395ww(h)(4)(H)(i) as added by BBA The Provider argues that it was training all of St. Anthony's residents by September 30, 1996 and that the Intermediary should have adjusted St Anthony's and the Provider's 1996 FTE cap to account for the residents that were shifted from St. Anthony to the Provider. Further, the Provider asserts that there were a significant number of unused resident slots in the U.S. notwithstanding the FTE caps and that it did not assume OSF St. Anthony's resident slots but merely claimed the number of residents on its costs reports that the U of I-Rockford's [FPR] Program was accredited for. The Provider asserts the Intermediary gave explicit approval for the Provider to increase its 1996 FTE caps for GME/IME slots for the Provider's fiscal years. PRRB Analysis: The PRRB found itself bound by applicable law notwithstanding various arguments advanced by the Provider. The provider did not seek a redistribution of FTE slots within the deadline. The PRRB further found that the Provider was not eligible to receive a temporary cap increase by assuming the residents the closed hospital because the residents would have completed their programs before the provider requested the increase. The PRRB also found that the Provider had not entered into an affiliation agreement with closed hospital and that the Provider did not definition of a facility serving a medically underserved area because the Provider was not located in a rural area. Decision: The Intermediary properly applied and used the 1996 base year IME/GME FTE cap for the Provider only. The Intermediary's adjustments are affirmed. 2. Alegent Health Immanuel Medical Center v. Wisconsin Physician Service, PRRB Hearing Dec. No D16, June 15, 2012 (Medicare and Medicaid Guide (CCH) 82,796) 17