Health Law Daily CMS’s payment deduction policy must be exercised in a procedurally proper way
Friday, November 16, 2018

CMS’s payment deduction policy must be exercised in a procedurally proper way

By Elizabeth M. Dries, J.D.

CMS’s payment deduction policy regarding disproportionate share hospitals (DSH) is consistent with the Medicaid Act; however, CMS must promulgate the policy in a procedurally valid fashion. A district court decision to enjoin CMS from enforcing its policy was insufficient. The district court’s judgment was affirmed and remanded (Tennessee Hospital Association v. Azar, November 14, 2018, Moore, K.).

Procedural history. The Tennessee Hospital Association (Tennessee Hospital) and three of its member hospitals challenged efforts by CMS to direct Tennessee to recoup certain reimbursements paid to the hospitals under the Medicaid program. The Tennessee Hospital is a DSH serving a disproportionate share of Medicaid eligible and low-income patients and is thereby entitled to receive supplemental DSH payments under the Medicaid Act to help offset the cost of caring for indigent individuals. The Medicaid Act limits the amount of DSH payments each hospital can receive in a given year. CMS contended that Tennessee Hospital miscalculated their DSH payment adjustments for fiscal year 2012 and received extra payments when it failed to account for Medicaid-eligible patients who have additional sources of insurance coverage.

On December 1, 2016, Tennessee’s Medicaid program (TennCare) notified Tennessee Hospital that audits of 2012 payment adjustments revealed it had received significant DSH overpayments for fiscal year 2012 and directed Tennessee Hospital to repay the excess funds to the state. In response, Tennessee Hospital sued, arguing that CMS’s payment-deduction policy was contrary to the unambiguous language in the Medicaid Act, ran contrary to a published 2008 rule, and was not promulgated pursuant to the required notice and comment rulemaking process.

The district court granted summary judgment in Tennessee Hospital’s favor reasoning that the policy was arbitrary capricious, procedurally invalid, and promulgated in excess of CMS’s statutory authority. The district court permanently enjoined CMS from enforcing the policies against Tennessee Hospital for fiscal years 2012-2016. CMS appealed the district court’s judgment in favor of Tennessee Hospital, and Tennessee Hospital appealed the district court’s failure to impose a permanent injunction.

The appeal. On appeal, CMS argued that the payment deduction policy set forth in the 2008 rule and a 2010 FAQs is a valid interpretive rule that answers unaddressed questions raised by the Medicaid Act and the 2008 rule. It further argued that the policy merely clarified how to comply with preexisting regulatory obligation to report uncompensated care costs and did not create new rights or duties. The Sixth Circuit disagreed, ruling that while CMS was correct insisting that its payment deduction policy is consistent with the Medicaid Act, CMS failed to promulgate the policy in a procedurally valid fashion. The payment deduction policy found in the FAQ and 2008 rule seeks to amend rather than merely clarify 2008 regulations and therefore is the sort of agency action that requires notice and comment rulemaking. Furthermore, the district court’s decision to enjoin CMS from enforcing its policy from fiscal years 2012-2016 was insufficient. The district court’ final judgment was affirmed. CMS must devise a procedurally valid legislative rule requiring deductions of third party payments. The case was remanded to the district court to permanently enjoin defendants from enforcing the payment deduction policy against Tennessee Hospital.

The cases are Nos. 17-5970/6033.

Attorneys: William H. West (Baker Donelson Bearman Caldwell & Berkowitz, PC) for Tennessee Hospital Association, Takoma Regional Hospital, Delta Medical Center and Parkwest Hospital. Tara S. Morrissey, U.S. Department of Justice, for Alex M. Azar, II.

Companies: Tennessee Hospital Association; Takoma Regional Hospital; Delta Medical Center; Parkwest Hospital

MainStory: TopStory CaseDecisions CMSNews DSHNews MedicaidNews MedicaidPaymentNews

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