Court orders CMS to correct dsh payments - Medicare/Medicaid - Centers for Medicare and Medicaid Services, disproportionate-share hospitals

Healthcare Financial Management, Oct, 2001 by Christopher L. Keough

On July 27, 2001, the D.C. Circuit ruled in Monmouth Medical Center v. Thompson that two disproportionate-share hospitals (DSHs) are entitled to additional DSH payments for Medicaid-eligible days that were not accounted for in the hospitals' Medicare DSH payments for FY93 and FY94. (a) The two fiscal years were settled before the February 1997 issuance of Ruling 97-2, in which the Centers for Medicare and Medicaid Services (CMS--formerly HCFA) reversed its policy of excluding eligible-but-unpaid Medicaid patient days from the calculation of a hospital's Medicare DSH payment. (b)

Ruling 97-2 had purported to operate only prospectively with respect to fiscal years settled after the date of its issuance. The D.C. Circuit found, however, that the ruling implicitly acknowledged that Medicare's prior policy of excluding Medicaid-eligible days from the DSH calculation was inconsistent with law. Accordingly, the court concluded that the Medicare reopening regulations require the program to correct the DSH payments made to the hospitals for earlier fiscal years that were settled under the prior policy and within three years of the issuance of Ruling 97-2.

Background

The Medicare prospective payment system (PPS) provides for an additional DSH payment to each hospital that serves a relatively high percentage of low-income patients. (c) The amount of the DSH payment typically is based upon the hospital's "disproportionate patient percentage," which reflects the sum of two fractions: the percentage of the hospital's Medicare inpatients who were entitled to Federal supplemental security income benefits during their hospital stay, and the percentage of the hospital's total inpatient days dedicated to patients who were eligible for medical assistance under an approved state Medicaid plan but not entitled to Medicare Part A benefits during their inpatient stay. The latter fraction commonly is referred to as the "Medicaid fraction."

Until 1997, CMS had taken a narrow view of which days could be represented by the numerator of the Medicaid fraction. Generally, CMS interpreted the Medicare statute to include only those days for which Medicaid actually made payment to a hospital. (d) Thus, CMS's policy excluded days spent in a hospital by Medicaid-eligible patients if, for example, Medicaid coverage had been exhausted or some other payer paid for the hospitalization.

CMS issued Ruling 97-2 as a consequence of having its policy overturned by all four Federal courts of appeals to consider the issue. (e) The courts unanimously concluded that the numerator of the Medicaid fraction must reflect all inpatient days for which a patient was eligible for medical assistance under Medicaid, regardless of whether the Medicaid program paid the hospital for those days.

Nonetheless, Ruling 97-2 asserted that CMS's change in policy would apply only prospectively to fiscal years that had not yet been settled and to previously settled years that were involved in an appeal to the Provider Reimbursement Review Board (PRRB) or the courts. The ruling advised hospitals that the Medicare intermediaries would "not reopen settled cost reports on this issue."

That aspect of the ruling runs counter to Medicare's reopening regulation at 42 CFR [section] 405.1885. Section 405.1885 permits the reopening of an intermediary's determination any time within three years of the date of intermediary's notice of its decision. Section 405.1885(a) provides that an intermediary may reopen and revise any matter at issue in a determination either upon the request of a provider or on its own initiative. The intermediary's decision to grant or deny a provider's request for reopening pursuant to this provision is discretionary, however, and, following the Supreme Court's decision in Your Home Visiting Nurse Services, Inc. v. Shalala, an intermediary's refusal to exercise this discretion may not be reviewed either by the PRRB or the Federal courts. (f)

Section 405.1885(b), on the other hand, includes a mandatory reopening requirement. The rule provides that an intermediary "shall" reopen and revise a determination if CMS notifies the intermediary that the determination "is inconsistent with applicable law, regulations, or general [CMS] instructions."

The Monmouth Decision

The two hospitals in Monmouth asked their intermediaries to reopen their DSH payments for FY93 and FY94 to include eligible-but-unpaid Medicaid days, soon after GMS issued Ruling 97-2 and within the three-year reopening period for those years. The hospitals also appealed to the PRRB, challenging the validity of the ruling's prohibition on reopening prior DSH determinations. The intermediaries denied the hospitals' requests for reopening, and the PRRB concluded that it did not have authority to consider their challenge to the validity of the reopening proscription.

On appeal, the Federal district court also concluded that it lacked the power to hear the hospitals' complaints because the hospitals had waited too long to appeal the intermediaries' original notices of program reimbursement for the fiscal years at issue. In addition, following the Supreme Court's decision in Your Home, the lower court concluded it could not review the intermediaries' denial of the hospitals' requests for reopening of the DHS payments.