Ohio hospitals lose appeal in dispute over Medicare reimbursement: 6 things to know

A group of Ohio hospitals have lost an appeal in their lawsuit against CMS challenging how the agency counts beds used for inpatient care for the purpose of calculating Medicare reimbursement.

Here are six things to know about the lawsuit. 

1. Medicare reimburses hospitals for providing inpatient care through the Inpatient Prospective Payment System, which pays hospitals a fixed amount for each patient regardless of the actual costs incurred. To account for differences among hospitals, the reimbursement formula includes several supplemental adjustments.

2. In 2015, a group of 10 Ohio hospitals sued CMS over two of the adjustments: the Indirect Medical Education adjustment, which supplements payments to hospitals that train medical residents; and the Disproportionate Share Hospital adjustment, which supplements payments to hospitals that serve a disproportionate share of low-income patients. Both of the adjustments at issue in the lawsuit are calculated based on the number of inpatient beds at a hospital.

3. CMS previously excluded swing beds and outpatient beds from a hospital's total bed count when calculating the adjustments. However, this policy was challenged in 2001 by two Kentucky hospitals that fell short of the bed count required for the DSH adjustment. In 2003, the U.S. Court of Appeals for the Sixth Circuit ruled in favor of the hospitals, stating that CMS' method for counting hospital beds conflicted with the plain language of the applicable regulation. 

4. In response to the court's decision, CMS amended the regulation to permit its preferred method for counting beds. The agency included a provision in the IPPS rule for 2004 that expressly excluded swing and observation beds from the adjustment formulas. However, due to the court's decision, CMS said it would include swing and observation beds in the total bed count for hospitals located in the Sixth Circuit for discharges until the final regulation took effect.

5. In their 2015 lawsuit, the Ohio hospitals, which are located in the Sixth Circuit, were seeking to exclude swing and observation beds from their total bed count when calculating reimbursements for discharges that occurred prior to CMS' amendment to the regulation. The hospitals advanced several arguments in their case, including that CMS acted arbitrarily and capriciously in its approach to the reimbursement issue.

6. The U.S. Court of Appeals for the District of Columbia agreed with the district court in rejecting the hospitals' arguments. The court ruled that CMS acted reasonably in adopting a regulation that treated hospitals in the Sixth Circuit differently. 

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