Court Upholds Application of Payment-Reduction Factor to Part B Ancillary Services

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

Second, even assuming that HCFA has unlimited discretion to determine the extent to which payment may be made under these circumstances, courts may be troubled by the lack of notice given to hospitals regarding HCFAs extension of the payment-reduction factor to inpatient ancillary Part B services. This policy is not expressed in the August 12, 1992, rule implementing the payment reduction factor. It also was not mentioned in the accompanying preamble published in the Federal Register, or anywhere else, with the exception of the last clause of a sentence in the instructions for completion of the Medicare cost-report form. Indeed, some precedents support the view that HCFA should be prohibited from extending the outpatient payment reduction factor to inpatient ancillary services because affected hospitals were not given fair notice that the payment-reduction factor is intended to apply to such services. [1]

Christopher L. Keough, JD, is a principal, Powers Pyles Sutter & Verville PC, Washington, D.C., and a member of HFMA's Metropolitan Washington Chapter. His e-mail address is ckeough@ppsv.com.

(a.) St. Barnabas Hospital v. Thompson, [Current Developments] Medicare & Medicaid Guide (CCH) 300,679, April 19, 2001.

(b.) See Sections 1832(a)(2)(B) and 1861(s) of the Social Security Act.

(c.) See Section 1861(s)(2)(B) and (C), 1861(s)(3), 1861(s)(4), and 1833(d) of the Social Security Act.

(d.) See, for example, Medicare Intermediary Manual, Section 3110; Medicare Carriers' Manual, Section 2255.

(e.) See Section 1833(a)(2)(B) of the Social Security Act.

(f.) See Omnibus Budget Reconciliation Act of 1990, Section 4151 (adding Section 1861(v)(1)(S)(ii)(11) of the Social Security Act). Notably, the prospective payment system for hospital outpatient department services expressly applies to both "hospital outpatient services" and "inpatient hospital services... that are covered under [Part B]." See Section 1833(t)(1)(B) of the Social Security Act.

(g.) Federal Register, August 12, 1992, p. 36,017.

(h.) See St. Barnabas Hospital, Medicaid & Medicaid Guide [n] 300,679 at 802,350.802,351.

(i.) See St. Barnabas Hospital v. Blue Cross and Blue Shield Assoc./Empire Medicare Servs., [2000-2 Transfer Binder] Medicare & Medicaid Guide (CCH) [n] 80,518 at 201,668 (HCFA Adm'r Dec. June 27, 2000) (citing Provider Reimbursement Manual, Part II, Section 2814.5).

(j.) Centra Health Inc. v. Shalala, 102 F. Supp. 2d 654 (WD. Va. 2000).

(k.) See Sections 1861(s) and 1832(a)(2)(B) of the Social Security Act.

(l.) See, for example, GranCare, Inc. v. Shalala, 93 F. Supp. 2d 24, 31 (D.D.C. 2000).