Court clears the way for 277 hospitals to challenge Medicare reimbursements

The U.S. District Court of Appeals for the District of Columbia Circuit held June 29 that a 2013 regulation by HHS imposing a three-year limit on reconsidering Medicare reimbursement decisions does not apply to appeals.

Here are eight things to know about the lawsuit:

1. Prospective payment amounts for acute care hospitals are determined annually under a statutory formula that depends in part on base rates known as "standardized amounts." Although prospective payment amounts are adjusted over time, the standardized amounts are not. They were calculated in 1983 based on hospitals' cost-reporting data from 1981. Therefore, Medicare payments for inpatient services depend on data embedded in 1983 data, including the "allowable operating costs per discharge."

2. At the end of every year, hospitals submit a cost report to Medicare administrative contractors, who determine appropriate payments for the services rendered. One way hospitals can challenge the annual reimbursement decision is by requesting a "reopening" of the determination "no later than three years after the date of the determination or decision that is the subject of the requested reopening."

3. As early as 2005, hospitals across the nation began challenging payment decisions spanning the last two decades in appeals filed with the Provider Reimbursement Review Board, an administrative tribunal appointed by the secretary of HHS.

4. The 277 hospitals contend that the payment decisions rest on errors in the 1981 cost-reporting data. They argue the data overstated the number of discharges and understated the allowable operating costs per discharge by erroneously characterizing transfers of patients from one hospital to another as patient discharges. Because that determination was embedded in the standardized amount in 1983, it has affected payment decisions ever since.

5. The Provider Reimbursement Review Board dismissed the appeals in light of amendments made to the reopening regulation in 2013, which the board said barred the hospitals' challenges to the much-earlier determination of allowable operating costs per discharge. The hospitals then sought further review in the district court.

6. At the district court level, the hospitals made three arguments: the reopening regulation does not cover administrative appeals to the PRRB; the 2013 amendments were arbitrary and capricious; and the application of the amendments to appeals pending on their effective date would be impermissibly retroactive. The district court rejected the hospitals' arguments and granted HHS' motion for summary judgment.

7. The hospitals filed an appeal in the case, and the appellate court held that there is no basis for extending the limitation rules that govern reopenings to PRRB appeals.

"The provisions we have surveyed establish these basic points: A fiscal intermediary reopening its own decision is one thing, and the PRRB reviewing that decision on appeal is quite another," states the appellate court opinion. "Reopenings and administrative appeals are conceptually different, are governed by different statutory and regulatory provisions, and, most importantly here, are governed by different limitations rules."

8. The appellate court reversed the district court judgment and remanded the case for further proceedings.

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