Health Law Daily Outdated regs applied in hospital reimbursement decisions
Wednesday, March 4, 2020

Outdated regs applied in hospital reimbursement decisions

By Cathleen Calhoun, J.D.

"At every level of review, HHS misapplied the procedures it enacted."

A hospital that was charged Medicare reimbursement penalties that stemmed from a typo and a system problem was granted summary judgment since incorrect versions of the regulations were relied on in appeals. The federal district court for the District of Columbia found that the Department of Health and Human Services (HHS) misapplied its own rules denying the penalties, and the Provider Reimbursement Review Board’s (Board) misapplication of CMS rules was "prototypically arbitrary and capricious" (Landmark Hospital of Salt Lake City v. Azar, March 2, 2020, T. McFadden).

Errors. The hospital had errors at two locations, one in Salt Lake City, Utah, and the other in Savannah, Georgia. A CMS contractor notified the Salt Lake City hospital one week before the February 2016 reporting deadline that it had not received the hospital’s data. According to that hospital’s Director of Quality Management (DQM), she went on the reporting website, found error messages for two reports she thought she had submitted, and re-entered the data, saved, and submitted it. She also said that she logged on to the website several times prior to the deadline to make sure no more error messages had been sent. Several months later, CMS notified the hospital it would impose a two-percent penalty of about $129,000. At the Savannah location, the DQM timely entered reporting data on the national website in May 2016. According to the DQM, after verifying the submission with a CMS contractor, she checked the website several times before the deadline and saw no cause for concern. She did not realize that she had mistakenly transposed two digits of the CMS Certification Number. As a result, the reporting data was never received by CMS. Two months after the reporting deadline closed, CMS informed the hospital of the two-percent penalty of about $275,000.

Appeals. The hospital administratively appealed two times. After first receiving the penalty letters, the hospital asked CMS to reconsider, arguing that the reporting error in Salt Lake City was a technical error with the reporting site, rather than a failure to submit, and that Savannah’s transposed numbers were a clerical error rather than a failure to submit. CMS replied with letters that it had reviewed the requests but that CMS was upholding the decision to reduce the annual payment. After that, the hospital turned to the Board for review. The Board held a joint evidentiary hearing for both appeals and upheld CMS’s decision to impose the two-percent payment reductions. The hospital appealed again judicially under the Administrative Procedure Act (APA).

Analysis. The court noted that "a careful eye might see the Board’s errors." Specifically, the court said that the hospital’s extenuating argument quoted Volume 79 of the Federal Register, but the Board cited the previous year’s volume. The Board also misapplied the regulation when it cited 42 C.F.R. § 412.560(c) instead of subsection (d), according to the court, subsection (c) also allows CMS to grant "an exception or extension . . . in the event of certain extraordinary circumstances beyond the control of the long-term care hospital…" The Board, in its decision, considered that provision to be the "key phrase" in the regulation, and denied the hospital’s appeal for failing to show circumstances beyond its control. However, according to the court, the Board failed to realize that the phrase it called "key" is absent from subsection (d), the section that covers reconsiderations of noncompliance decisions. The court found, "that alone is enough to reject the Board’s decision and remand this case to the Secretary." But the court found another reason as well. The court stated that the Board also relied on an obsolete rule. Specifically, when CMS codified its rule from Volume 79 of the Federal Register at 42 C.F.R. § 412.560, the "extenuating circumstances" language in the preamble did not carry over. According to the court, the Board’s analysis of outdated authority deprived the hospital and the court of meaningful consideration of that issue.

Ruling. Since the Board relied on the incorrect regulations to affirm CMS’s reconsideration decision, the court granted the hospital summary judgment and remanded the matter to the agency for further proceedings.

The case is No. 1:19-01227

Attorneys: Jason M. Healy (Law Office of Jason M. Healy, PLLC) for Landmark Hospital of Salt Lake City. Sean Michael Tepe, U.S. Department of Justice, for Alex M. Azar, II.

Companies: Landmark Hospital of Salt Lake City

MainStory: TopStory CaseDecisions CMSNews LTCHNews MedicareContractorNews

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