Health Law Daily Hospital wins challenge to Medicare contractor’s Part C medical education payment
Tuesday, May 5, 2020

Hospital wins challenge to Medicare contractor’s Part C medical education payment

By Susan L. Smith, JD, MA

The Provider Reimbursement Review Board (PRRB) concluded that a sole community hospital was entitled to an additional payment for MA enrollee discharges for indirect medical education costs in addition to its hospital specific rate (HSR).

A Medicare contractor failed to properly pay a sole community hospital (SCH), which is also a subsection (d) teaching hospital, for indirect medical education (IME) costs for discharges for Medicare Part C (managed care) enrollees for the cost reporting period ending May 31, 2009. The Provider Reimbursement Review Board (PRRB) determined that under 42 U.S.C. §1395ww(d)(11) any subsection (d) hospital is to be paid "additional payments" for managed care enrollees. Therefore, the PRRB concluded that the SCH was entitled to a payment for Part C enrollee discharges for IME in addition to its hospital specific rate (HSR) and remanded the matter to the Medicare contractor to make the additional payment to the SCH (Northeast Regional Medical Center v WPS Government Health Administrators, Dec. No. 2020-D4, Case No. 13-1221, March 6, 2020).

The challenge. During fiscal year (FY) 2009, the SCH received interim payments for IME services provided to its Medicare Part A and Part C patients as reported on Worksheet E of its cost report. When the Medicare contractor finalized the SCH’s cost report for FY 2009, it paid the SCH based on its HSR because it was greater than the inpatient prospective payment system (IPPS) amount, however, it did not include any IME add-on payments for managed care enrollees in the settlement calculations. The SCH appealed the Medicare contractor’s finalized cost report for FY 2009 questioning whether the SCH was entitled to receive an adjustment or additional payment for certain graduate medical education (GME) costs associated with managed care patients regardless of whether the SCH received reimbursement under the IPPS or HSR payment methodologies.

An SCH’s Medicare reimbursement for IME. The SCH is entitled to Medicare payment for inpatient services provided to Medicare Part A beneficiaries, the higher of the amount calculated based on its HSR or the amount calculated based on the IPPS. The IPPS rate is adjusted when the operating costs of inpatient hospital services includes IME to ensure it encompasses that cost for those hospitals that incur IME costs (42 U.S.C. §§1395ww(a)(4), 1395ww(d), 42 C.F.R. §412.2(f)). There are also other add-on costs for the payment of costs not encompassed in the definition of operating costs of inpatient hospital services under the IPPS rate, such as GME (42 U.S.C. §§1395ww(a)(4), 1395ww(d), 42 C.F.R. §412.2(f)). The HSR is based on the SCH’s allowable inpatient operating costs for Medicare Part A patients (42 C.F.R. §412.2(c)).

Historically, Medicare reimbursed hospitals for direct and indirect GME only in connection with Part A patients. GME costs associated with Part C enrollees were reimbursed by health maintenance or managed care organizations. In 1997, however, the Balanced Budget Act of 1997 (BBA) (P.L. 105-33) amended the Medicare statutes governing subsection (d) hospitals to have the Medicare program pay hospitals directly for both direct and indirect GME costs associated with Part C enrollees. Section 4622 of the BBA added 42 U.S.C §1395ww(d)(11), which provides for an additional payment for subsection (d) teaching hospitals for each discharge of a Part C enrollee but does not specifically refer to IME. However, 42 C.F.R. §412.105(g) which CMS adopted to implement the statutory amendment, states that effective January 1, 1998, payment can be made to a hospital for IME costs for Part C enrollees.

The Medicare contractor’s argument. The Medicare contractor contended its calculations were correct because the regulations at 42 C.F.R. §412.92(d) provides the instructions on how to determine prospective payment for SCHs and does not mention an additional payment for medical education for MA enrollees. The Medicare contractor also relied on statements in the preamble to the August 22, 2014 final rule (79 FR 49853) that noted that the HSR calculation does not include add-on payments and a new policy to pay for medical education was to only apply to cost reports effective October 1, 2014. The SCH argued that 42 U.S.C. §1395ww(d)(11) requires any subsection (d) hospital to be paid an additional payment for medical education for managed care enrollees.

The PRRB decision. The PRRB reviewed 42 U.S.C. §1395ww(d)(11) and implementing regulation 42 C.F.R. §412.105(g) and found an IME payment to be a general "add-on" payment, not an adjustment to the subsection (d) hospital’s Part A IPPS rate because the adjusted per discharge IPPS rates are for discharges of Part A patients only. The PRRB agreed with the SCH that for cost reporting periods occurring on or after January 1, 1998, Congress explicitly provided a general "add-on" payment for Part C discharged patients to any subsection (d) hospital with an approved medical residency training program. The PRRB concluded that "an SCH that is also a teaching hospital must be paid a medical education payment for its managed care enrollees regardless of whether the SCHs’ payments are determined based on the IPPS Federal rate or the HSR rate."

Cost reporting period ending May 31, 2009.

Companies: Northeast Regional Medical Center; WPS Government Health Administration

MainStory: TopStory PRRBDecisions IPPSNews CMSNews BillingNews CostReportNews GCNNews GMENews PaymentNews PartANews PartCNews ProgramIntegrityNews ProviderNews

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