Several hospitals and a hospital association successfully alleged that some of CMS’ "policy clarifications" issued by the agency in Frequently Asked Questions (FAQs) documents contradicted the plain language of the Medicaid Act and violated the Administrative Procedure Act. CMS issued FAQs addressing disproportionate share hospitals (DSH) and had noted that states must subtract payments from private health insurance and Medicare for dual-eligible Medicaid patients from the hospital services costs. The court permanently enjoined CMS from enforcing the language in the FAQs unless those policies were properly promulgated regulations (New Hampshire Hospital Association v. Burwell, March 2, 2017, McCafferty, L.).
Background. Under the Medicaid Act, states must ensure that such hospitals receive an "appropriate increase in the rate or amount of payment for such services" and that the reimbursements "reflect not only the cost of caring for Medicaid recipients, but also the cost of charity care given to uninsured patients. Per 42 U.S.C. §1396r-4(b), such increased payments are available to any hospital that treats a disproportionate share of Medicaid patients, namely a disproportionate share hospital (DSH). To monitor DSH payments, Congress enacted into law a requirement that each state provide to the HHS Secretary an annual report and audit on its DSH program. In 2008, CMS promulgated a Final rule (73 FR 77904) requiring that states annually submit information "for each DSH hospital to which the State made a DSH payment." In 2010, CMS posted answers on its website to FAQs regarding the audit and reporting requirements of the 2008 Final rule.
The hospitals and hospital association contended that CMS’s responses to FAQs 33 and 34 improperly provided that, in calculating the hospital-specific DSH limit, a state must subtract payments received from private health insurance (FAQ 33) and Medicare (FAQ 34) for dually-eligible Medicaid patients from the costs incurred in providing hospital services to those patients. The court previously granted the hospitals and hospital association’s request for a preliminary injunction, finding that the association may succeed on the merits of its suit (see CMS unable to recoup so-called DSH overpayments from New Hampshire hospitals, March 14, 2016).
FAQs and regulations. The hospitals and hospital association asserted that the audit of their DSH payments for Fiscal Year 2011 revealed an overpayment because the auditors followed the policies set forth in CMS’ FAQs 33 and 34. They further argued the recoupment of past DSH overpayments based on the audit was directly traceable to FAQs 33 and 34. As a result, no recoupment would be required if CMS were enjoined from enforcing the policies. CMS countered that when a DSH audit reveals an overpayment to a hospital, the recoupment of that overpayment is in the hands of state authorities and subject to state law. Thus, any injuries alleged by the hospitals and hospital associations could not be traced to the FAQs in question. The court disagreed, finding that the state agency charged with Medicaid administration was set to recoup past DSH payments for Fiscal Year 2011 from the hospitals and that the state agency would recoup those payments because its audit revealed overpayments to those hospitals based on FAQs 33 and 34.
The court further noted that FAQs 33 and 34 are not regulations. Although in 42 U.S.C. §1396r-4(g)(1)(A) Congress delegated authority to CMS to make rules carrying the force of law, i.e., regulations, FAQs 33 and 34 were not "promulgated in the exercise of that authority." The court further rejected CMS’ Chevron defense that the 2008 Final rule’s Preamble contained the discussion in FAQs 33 and 34. The court noted that the Preamble listed the three types of payments and revenues to be subtracted from the costs of care, and the list did not include payments from private health insurance or Medicare.
The court added that even if 42 U.S.C. §1396r-4(g)(1)(A) authorized CMS to interpret the statute to mean that Medicare payments and private insurance payments should be included as offsets to costs, the statute did not authorize CMS to do so through FAQs on CMS’ website. FAQs 33 and 34 are not regulations, and in promulgating those FAQs, CMS acted in excess of its statutory jurisdiction or authority.
Thus, CMS was permanently enjoined from using FAQs to require that states subtract payments received from private health insurance and Medicare for dually-eligible Medicaid patients from the costs incurred in providing hospital services to those patients in calculating disproportionate share hospital limits, unless those policies and procedures were replaced by an enforceable and properly promulgated regulation.
The case is No. 15-cv-460-LM.
Attorneys: W. Scott O'Connell (Nixon Peabody LLP) for New Hampshire Hospital Association, Mary Hitchcock Memorial Hospital, and LRGHealthcare. James C. Luh, U.S. Department of Justice, for U.S. Department of Health and Human Services.
Companies: New Hampshire Hospital Association; Mary Hitchcock Memorial Hospital; LRGHealthcare; U.S. Department of Health and Human Services
MainStory: TopStory CaseDecisions AuditNews CostReportNews DSHNews GCNNews MedicaidNews EligibilityNews PaymentNews NewHampshireNews
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