34 urban hospitals win challenge to Medicare rate formula change

A Medicare payment formula change enacted in fiscal year 2020 unlawfully lowered reimbursements for 34 urban hospitals, a federal district court ruled April 8. 

The payment rate change was made by HHS to prevent hospitals from manipulating a process used to adjust payments to account for wage differences between rural and urban facilities. 

Specifically, HHS modified the method for calculating what is known as the "rural floor" by omitting reclassified urban-to-rural hospitals from the calculation. Because urban-to-rural reclassified hospitals tend to have higher wages than rural hospitals, removing these reclassified hospitals from the calculation decreased the rural floor and thereby reduced the minimum reimbursement rate for urban hospitals, according to the lawsuit. HHS said in its rule that the reclassified urban-to-rural hospitals would still be included in determining the rural wage index, however.

The 34 hospitals located in Arizona, Florida and Connecticut alleged that they were reimbursed at lower rates than rural hospitals in their states as a result of this formula change. Specifically, they argued HHS assigned them lower wage indexes in violation of Medicare laws. 

"Court finds that the Medicare statute unambiguously bars the methodology employed by the secretary in FY 2020, which resulted in plaintiffs being reimbursed at lower rates than rural hospitals in their same states," the court ruled. 

The U.S. District Court for the District of Columbia remanded the case to HHS for further proceedings but didn't vacate the 2020 rule. 

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