HFMA MEDICARE LITIGATION UPDATE 2011

1. HFMA MEDICARE LITIGATION UPDATE 2011 Presented by John R. Hellow, Esq. 310-551-8155 Jhellow@Health-Law.Com

2. Disproportionate Share Hospital (DSH) • University of Washington Medical Center, et al. v. Sebelius, 634 F.3d 1029 (9th Cir., Feb. 11, 2011) • Washington amended state plan to subsidize care for general assistance-unemployable (GAU) and medically indigent (MI) patients using federal Medicaid DSH funds. • Hospital included GAU and MI days as Title XIX days for Medicare DSH calculations. • FIs disallowed days on grounds such days not Title XIX funded • Ninth Circuit rejected the hospitals’ argument: • GAU and MI populations are mentioned in Washington’s state Medicaid plan, but • They are not “eligible for medical assistance” as required by the DSH statute, and • Adopting the hospitals’ interpretation of the Medicare DSH statute would render meaningless the differences between the Medicare and Medicaid DSH statutes.

3. Disproportionate Share Hospital (DSH) • Phoenix Memorial Hospital v. Sebelius, 622 F.3d 1219 (9th Cir. 2010) • Arizona Health Care Cost Containment System • Operates under Section 1115 Medicaid waiver • Four relevant eligibility categories including: (1) Title XIX Categorically Needy (Mandatory Medicaid) and (2) Medically Needy/Medically Indigent(MN/MI) • Prior to 1990, the FI allowed inpatient days attributable to MN/MI • Beginning with 1990, FI notified hospitals such days no longer allowed; • On appeal, the Ninth Circuit held: • The MN/MI program patients were not eligible for medical assistance under the state’s Medicaid plan as evidenced by the state’s waiver application indicating the funding source for these patients was state only funding; and • Hospitals did not qualify for hold harmless treatment under PM A-99-62 because they did not claim such days or specifically appeal the issue. Record does not support court’s conclusion.

4. Direct Graduate Medical Education/Indirect Medical Education (DGME/IME) and Proof at the PRRB • MedCenter One Health Systems v. Sebelius, 635 F.3d 348 (8th Cir., Feb. 25, 2011) • FI’s disallowed DGME and IME payments because hospitals did not comply with written agreement requirement; • Eighth Circuit found that the hospitals did not meet the written agreement requirement because the documentation submitted by the hospitals • failed to identify the compensation to be paid to the residents while training at the nonhospital site, • did not cover the time periods at issue, and • absolved the hospitals of responsibility for any unreimbursed costs; and • The Eighth Circuit expressly rejected the hospital’s arguments that the Secretary waived the written agreement issue, stating that “the intermediary’s position before the PRRB does not bind the Secretary, which was not a party of the PRRB proceedings.”

5. DGME/IME • University of Chicago Medical Center v. Sebelius, 618 F.3d 739 (7th Cir. 2010) • Under the 1996 regulation residents enrolled in approved teaching programs must be “assigned” to one of the following “areas”: “the portion subject to the [PPS],”“the outpatient department of the hospital,” or “any entity receiving a grant under section 330 of the Public Health Service Act;” • In FY 1996 hospital included in its IME FTE count resident time spent conducting educational research, arguing that that “outpatient department” and “portion” refer to geographical locations within the hospital facility • CMS argued “area” should be interpreted as the “sphere or scope of operation or action” and “assigned” is an operational term. In other words, CMS argued that the terms have a functional, not a geographic meaning; • Seventh Circuit held PPACA § 5505 clarified that, effective Jan. 1, 1983, the IME FTE count includes “all the time spent by an intern or resident in an approved medical residency training program in non-patient care activities, such as didactic conferences and seminars… that occurs in the hospital” but that after October 1, 2001 such would not be the case.

6. Tax Equity and Fiscal Responsibility Act of 1982/ Balanced Budget Act of 1997 Cap (TEFRA/BBA Cap) • Hardy Wilson Memorial Hospital, et al. v. Sebelius, 616 F.3d 449 (5th Cir. 2010) • Under TEFRA, psychiatric units of hospitals were excluded from PPS and paid under TEFRA: • A “target amount” was calculated for each hospital; • After the first year, the target amount from the previous year would be updated by the applicable percentage increase specified by the statute. • The BBA further limited reimbursement payments for psychiatric units in by imposing a cap from FYs 1998 - 2002 at 75th % of target amounts for all hospitals in the same class; • Positions: • CMS - target amount in subsequent years must be calculated based on prior year with cap; • Provider - After the cap sunset with 2002, reimbursement based on the uncapped target; • Fifth Circuit found: • using the capped target amount violated time limit on the BBA cap period; and • CMS’s interpretation clearly contrary to its own regulation.

7. Tax Equity and Fiscal Responsibility Act of 1982/ Balanced Budget Act of 1997 Cap (TEFRA/BBA Cap) • Ancora Psychiatric Hospital, et. al. v. Sebelius, 2011 WL 547733 (3rd Cir., Feb. 17, 2011) • Same issue as Hardy Wilson • The district court found: • statutory language in 42 U.S.C. § 1395ww(b)(3)(A)(ii), calling for each hospital’s target amount to be calculated by making reference to the prior year’s target amount was clear and unambiguous; • even if the statute was ambiguous, CMS’s interpretation was entitled to deference; • The Third Circuit affirmed the district court’s opinion without any additional analysis, and expressly rejected the Fifth Circuit’s contrary decision in Hardy Wilson.

8. Wage Index/Rural Floor • Cape Cod Hospital v. Sebelius, 630 F.3d 203 (D.C. Cir., Jan. 14, 2011) • Hospitals challenged Secretary’s implementation of the budget-neutrality provision of the BBA, which imposed a “rural floor” on the wage index used to calculate prospective payment rates: • Argued that CMS duplicated prior adjustments by each year calculating the full amount of the adjustment necessary to counteract the effect of the rural floor and then applied that adjustment to a figure that includes adjustments carried over from previous years; • error came to light in an email exchange between a CMS employee and the hospitals’ consultant. • The D.C. Circuit found that CMS’s reliance on the need for finality in IPPS was insufficient to lock the error in place, but gave agency a second opportunity to justify on remand; • Proposed FY 2012 IPPS Rule seeks to prospectively correct the error; • Cases on remand for retrospective correction by agency.

9. Equitable Estoppel to Extend PRRB Appeal Deadline • Auburn Regional Medical Center, et al., v. Sebelius (“Auburn”), Civil Action No. 10-5115 (D.C. Cir. June 24, 2011) • Case concerned DHS/SSI factor; • Court determined that In situations where providers could not know they had an appeal issue because of absence of disclosure by government, equity may require tolling of appeal deadline; • Court also determined that all dismissals by the PRRB are final reviewable determinations in federal court; • Remanded to determine if government failed to disclose or concealed material information material to appeal determination.

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