Health Law Daily HHS can’t flout appellate bed count decision, court admonishes hospitals
Tuesday, September 6, 2016

HHS can’t flout appellate bed count decision, court admonishes hospitals

By Sarah E. Baumann, J.D.

The HHS Secretary properly followed Sixth Circuit precedent in counting swing and observation beds in total inpatient bed counts in order to calculate 10 hospitals’ indirect medical education (IME) and disproportionate share hospital (DSH) reimbursements. The U.S. District Court for the District of Columbia determined that HHS was legally bound to include those beds in its calculations related to discharges prior to October 1, 2003, and that it did not act arbitrarily and capriciously or violate the Fifth Amendment equal protection clause by treating hospitals located in the jurisdiction of the Sixth Circuit Court of Appeals differently than those located in other jurisdictions. Furthermore, HHS was correct in not retroactively applying a Final rule related to bed counts, since the Final rule changed existing legal rights. As a result, the district court entered summary judgment for HHS (Grant Medical Center v. Burwell, September 1, 2016, Collyer, R.).

Bed counts. CMS imposes cost limits on Medicare reimbursement by classifying providers by bed count and type. For example, it provides additional IME payment adjustments to inpatient hospitals, but calculates them based on a factor involving the ratio of medical students to beds. The formula gives teaching hospitals an incentive to exclude beds from the total count to raise IME payments. On the other hand, a DSH payment will be higher if a DSH has a higher number of beds, up to 100.

Grant Medical Center. For fiscal years (FYs) beginning October 1, 2003, Medicare Administrative Contractors (MACs) counted swing and observational beds in their bed counts for ten hospitals in the jurisdiction of the Sixth Circuit. On appeal by the hospitals, the Provider Reimbursement Review Board (PRRB) determined that CMS properly included swing and observational beds in its inpatient bed calculations as it was required to do by the Sixth Circuit in Clark Regional Medical Center v. HHS (314 F.3d 241, 2002). The hospitals, led by Grant Medical Center (collectively Grant Medical Center) appealed to the district court.

Because HHS disagreed with the Clark decision, it issued a Final rule effective October 1, 2003, (68 F.R. 453546, August 1, 2003) that excluded swing and observation beds from inpatient bed counts. However, to comply with the decision, it issued a Joint Signature Memorandum 109 (JSM-109) indicating that it would follow the Clark opinion with respect to hospitals within the jurisdiction of the Sixth Circuit for discharges prior to the effective date of the Final rule.

In its appeal, Grant Medical Center argued that HHS violated the Administrative Procedure Act (APA) and the equal protection clause of the Fifth Amendment by applying the Clark decision. Specifically, it argued that HHS was only bound to follow Clark with respect to the parties in that particular case, that it should have retroactively applied the 2003 Final rule to Grant Medical Cednter, and that it should not have treated Sixth Circuit hospitals differently from hospitals in the rest of the country.

Bound by Clark. The court determined that HHS did not act arbitrarily and capriciously in applying Clark to Grant Medical Center. The language in the Clark decision made it clear that it applied to all Sixth Circuit hospitals, and not just the parties to the case. Upon receiving the decision, HHS’ only available options were to appeal to the U.S. Supreme Court, ask Congress to issue legislation overriding Clark, or amend the regulation and follow Clark in other instances. Given appellate courts’ condemnation of "intracircuit nonacquiescence," and its desire for a speedy resolution, HHS acted reasonably in following the final approach. Furthermore, the Final rule changed substantive legal rights by modifying Sixth Circuit precedent, and HHS could not legally have applied it retroactively. Finally, HHS treated "similarly situated" hospitals—those in the jurisdiction of the Sixth Circuit—the same, and the geographic locations were "provided the relevant rule of law" at the time. As a result, the district court denied Grant Medical Center’s motion for summary judgment and entered judgment for HHS.

The case is Civil Action No. 15-480 (RMC).

Attorneys: Daniel C. Gibson (Bricker & Eckler, LLP) for Grant Medical Center, Riverside Methodist Hospital, and Doctor's Hospital. Jason Todd Cohen, U.S. Attorney's Office, for Sylvia Mathews Burwell, Secretary, U.S. Department of Health and Human Services.

Companies: Grant Medical Center; U.S. Department of Health and Human Services; Riverside Methodist Hospital; Doctor’s Hospital; Western Reserve Care System; St. Elizabeth Health Center; St. Joseph Health Center; Kettering Memorial Hospital; Grandview Medical Center; Summa Health System; Sycamore Hospital

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