Updates to our Terms of Use

We are updating our Terms of Use. Please carefully review the updated Terms before proceeding to our website.

Thursday, June 13, 2024 | Back issues
Courthouse News Service Courthouse News Service

No Room for ‘Fancy Two-|Step’ in Medicare Dispute

(CN) - A federal judge sharply rebuked the government for arbitrarily changing the Medicare reimbursement formula for hospitals serving low-income patients.

Hospitals that serve "a significantly disproportionate share of low-income patients" without private health insurance are classified as disproportionate share hospitals (DSH).

In addition to the normal payments Medicare gives for service, the U.S. government also pays such entities additional funds to help cover the costs of treating the very poor.

The U.S. Department of Health and Human Services calculates DSH payments by using the Medicare Disproportionate Share Hospital Fraction.

Allina Health Services and 26 other hospitals sued HHS Secretary Kathleen Sebelius after she revised the interpretation of a program known as "Medicare + Choice," or M+C program, a plan administered through Medicare Part C that gives beneficiaries an alternative to the traditional Part A fee-for-service system, allowing enrollment in a managed care plan.

U.S. District Judge Rosemary Collyer on Thursday slammed Sebelius for "banking on" the complex nature of the program to "execute a fancy two-step" without engaging in proper rulemaking or even an explanation for her actions.

"In reviewing this record and deciding this case, the court starts with the proposition that the secretary had a different practice for calculating DSH payments at least until 2004, when she abruptly announced a change in policy," Collyer wrote, noting that the D.C. Circuit concluded she had made an "about-face in 2004."

That 2010 ruling, Northeast Hospital Corp. v. Sebelius, played a big role in the latest decision, Collyer noted.

Though Sebelius has argued in the prior case that her proposed DSH payment recalculation for fiscal years 1999-2002 merely "codified a longstanding policy," the court said her actions would constitute illegal retroactive rulemaking.

In a concurring opinion for Northeast, Judge Brett Kavanaugh had said: "It is quite telling that, until 2004, HHS itself interpreted the statute as the hospital does here. In 2004, HHS abruptly changed course, apparently because of an overriding desire to squeeze the amount of money paid to Medicare providers (and beneficiaries) in light of the country's increasingly precarious fiscal situation."

The current case looks closer at whether Sebelius changed the formula arbitrarily and capriciously in violation of the Administrative Procedure Act.

"The secretary's pretense in briefing the instant matter - that her current interpretation is entirely consistent with the past - is, as the court explains below, clearly forestalled by Northeast Hospital," according to a footnote in Collyer's decision. "It is also irregular legal gamesmanship, which wastes time and casts unfortunate doubt on counsel's credibility. The D.C. Circuit has ruled and the secretary is not free to pretend otherwise when in this Circuit. If such an argument were to be made properly, it would at least need to recognize precedent and attempt to distinguish or argue to change it. Nothing of the kind happened here."

Sebelius has been trying to clarify the rule relating to the Medicare formula since 2003, and made subsequent attempts in 2007 as well as in 2004.

After some hospitals claimed that the proposal was "inconsistent" with the Medicare Act, Sebelius did not adopt the proposed clarification.

Instead, in 2004, she changed course and announced that henceforth, "patients enrolled in an M+C Plan should be counted in the Medicare fraction or the Medicaid fraction of the DSH patient percentage calculation. "

In 2007, the secretary issued what the agency characterized as a "technical correction" to the regulation regarding the Centers for Medicare & Medicaid Services policy on Part C days.

In doing so, she waived notice and comment for the change, saying the amendment was merely a technical correction of a previous oversight.

The Provider Reimbursement Review Board (PRRB) denied relief when the plaintiff hospitals appealed the proposed change.

Collyer said that Sebellius had advanced the position that the 2004 rulemaking did not constitute a policy change because her policy had not changed.

"The plain text of the D.C. Circuit's opinion undercuts the secretary's position," the 33-page opinion states.

"The court concludes that the secretary's interpretation of the fractions in the DSH calculation, announced in 2004 and not added to the Code of Federal Regulations until the summer of 2007, was not a 'logical outgrowth' of the 2003 NPRM," she wrote, abbreviating notice of proposed rulemaking. "The rulemaking procedure was flawed due to both the single-minded way the NPRM presented the issue and the fact that the secretary adopted the polar opposite of the original proposal. Contrary to the secretary's argument, the comments do not remedy these deficiencies."

The "cursory explanation" Sebelius gave in the 2004 Final Rule failed to meet the federal requirements, Collyer found.

"Even setting aside the Secretary's failure to acknowledge her 'about-face,' her reasoning for the change was brief and unconvincing," the decision states.

Collyer said that the statement Sebelius gave "contained no 'reasoned explanation, it merely restated the very same problem being fought over in this case.'"

"For the foregoing reasons, the hospitals' motion for summary judgment will be granted," she wrpte. "The Secretary's motion for summary judgment will be denied. The portion of the 2004 Final Rule at 69 Federal Register 48916, 49099, that announced the secretary's interpretation of the Medicare Disproportionate Share Hospital Fraction, as codified in 2007 at 42 C.F.R. § 412.106(b)(2) and as further modified in 2010, will be vacated, and the case will be remanded to the secretary for further action consistent with this opinion."

Categories / Uncategorized

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.