HHS Secretary Dinged For Vague Rule Change

     WASHINGTON (CN) – The Secretary of the Department of Health and Human Services did not properly lay out her reasoning for decreasing Medicare payouts to health care providers, depriving hospitals of the opportunity to comment on the rule change, a federal judge ruled Monday.
     Secretary of the Department of Health and Human Services Sylvia M. Burwell will now have to republish the proposed rule, this time allowing sufficient comment from the public, U.S. District Judge Randolph Moss ruled.
     Moss’ ruling comes as part of a consolidated case brought by hospitals across the country challenging a 0.2 percent reduction in the standardized rate hospitals receive for treating patients on Medicare, which former Secretary of Health and Human Services Kathleen Sebelius put in place to combat a shortfall in the program, according to the ruling.
     The shortfall was the result of a new rule defining the length of time a patient had to stay in the hospital for Medicare-review contractors to consider the patient as receiving inpatient treatment. The so-called “2-midnight benchmark” meant nearly 40,000 more patients would be considered as inpatients, increasing payouts under the system by $220 million, according to the ruling.
     Meanwhile, the standardized rate is part of the formula through which hospitals receive payment for treating patients on Medicare, and hospitals are generally paid more for inpatient than outpatient treatment, according to the ruling.
     The hospitals commented on the rule before its passage, claiming the secretary did not have the authority to unilaterally cut payouts for hospitals and questioning how she determined the new rule would cost the program $220 million. Sebelius did not properly address these concerns in the final, causing the hospitals to file suit, according to the ruling.
     While the suit originally named Sebelius – who first put the rule in place – as defendant, it shifted to Burwell when she took office.
     The hospitals claimed in the suit that the provision for determining Medicare payouts, while broad, does not allow the secretary to make “across-the-board reduction” by changing the standardized amount hospitals are paid for treating patients on Medicare. The government argued the secretary simply took a broad interpretation of the law, according to the ruling.
     While Moss disagreed with the hospitals that the secretary overstepped her bounds in adjusting the standardized payout, he agreed the secretary did not give the public enough notice of how she arrived at the rule change and that such notice was important for “meaningful public comment.”
     The Administrative Procedures Act requires an agency to explain its reasoning for putting a new rule on the books and must allow enough time for the public to comment on the proposed change. This includes the methods the agency used to arrive at its new rule and not doing so could potentially invalidate the rule, Moss ruled.
     Sebelius waited until after the final rule was announced to clarify that the 40,000 expected total patients shifted from outpatient to inpatient status came from the examination of only a specific subset of outpatients, according to the ruling.
     “Borrowing a metaphor from the Court of Appeals, plaintiffs contend that the secretary engaged in a game of ‘hunt the peanut’ by failing to disclose critical aspects of her methodology until after the comment period,” Moss wrote.
     Because of this, the hospitals claimed they did not have the opportunity to fully critique the new rule, Moss wrote.
     The secretary, meanwhile, claimed she did not need to release this information because the hospitals already had access to it, according to the ruling.
     But just because the hospitals had the data does not mean they knew how the secretary used it, Moss wrote.
     “Plaintiffs are not arguing that the secretary needed to disclose the publicly available Medicare claims data the actuaries used in their analysis,” Moss wrote. “They are arguing that she was required to disclose what the actuaries did with that data. It is that deficiency that precluded meaningful public comment and the secretary offers no reason to believe the commenters had any idea what the actuaries did.”
     While her methods were not necessarily wrong, the secretary’s omission was not a “harmless” error either, Moss ruled.
     “The assumptions the HHS actuaries applied substantially curtailed the universe of hospital stays the secretary considered and likely affected the outcome of the secretary’s analysis,” Moss wrote. The validity of those assumptions, moreover, is far from self-evident. Against this background, the court cannot conclude that the secretary’s failure to provide the public with the opportunity to offer meaningful comment on the assumptions and methodology used to derive the .2 percent reduction was harmless.”

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