Health Law Daily Provider not deemed satisfied, despite lack of legal challenge in cost report
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Tuesday, August 23, 2016

Provider not deemed satisfied, despite lack of legal challenge in cost report

The Provider Reimbursement Review Board’s (PRRB’s) decision that it lacked jurisdiction to hear acute care providers’ challenge to the Medicare regulations governing outlier payments for the treatment of extraordinarily expensive patient cases was erroneous. The U.S. District Court for the District of Columbia found that the PRRB’s application of HHS’ "self-disallowance" requirement conflicted with the plain text of 42 U.S.C. § 1395oo and was foreclosed by the U.S. Supreme Court’s decision in Bethesda Hospital Ass’n v. Bowen (485 U.S. 399 (1988)) holding that the Medicare statute does not compel providers who challenge the legality of a Medicare regulation to self-disallow to preserve their right to appeal to the PRRB (Banner Heart Hospital v. Burwell, August 19, 2016, Mehta, A.).

HHS’s "self-disallowance" regulation. To receive reimbursements for the cost of covered medical services to eligible patients, providers submit annual cost reports to fiscal intermediaries. 42 C.F.R. sec. 405.1835(a)(1) requires, as a precondition of the PRRB review of a cost report for covered services which providers provided during a year, the provider "has preserved its right to claim dissatisfaction" by either (1) including in its cost report the specific items for which it seeks reimbursement, or (2) "self-disallowing" those specific items if the provider believes that the items are not allowable under Medicare rules or policy. In industry parlance, "self-disallowance" means that a provider must essentially challenge the validity of the Medicare regulation in its cost report to preserve its right to appeal.

Background. In their cost reports for the 2008 fiscal year, the providers left blank the space where they could identify "Protested Amounts (Nonallowable Cost Report Items)," meaning that the providers did not challenge or self-disallow amounts not covered by the outlier regulations. According to the providers, they did this because the fiscal intermediary was bound by CMS’ regulations and lacked the ability to award the additional outlier costs sought. Some years later, the fiscal intermediary issued "Notices of Program Reimbursement" to the providers for services rendered during FY 2008. In 2013, the providers appealed to the PRRB, raising for the first time their challenges to the outlier regulations and protesting the amounts not reimbursed under those regulations. The PRRB rejected the providers’ request to grant "expedited judicial review" of their challenge. The providers seek judicial review of the PRRB’s decision, challenging the "self-disallowance" regulation on grounds that it violates the administrative appeal provision of the Medicare statute (42 U.S.C. § 1395oo) and the Supreme Court precedent interpreting it, Bethesda.

Satisfaction of intermediary. The district court found that when a provider fails to present a claim in its cost report that an intermediary can address, it can be deemed "satisfied" by the amounts requested in the cost report and awarded by the intermediary. But where the intermediary has no authority to address a claim, such as when a pure legal challenge to a regulation is at issue, a provider cannot be deemed to be "satisfied" simply because such a challenge is not reflected in the cost report. Satisfaction cannot be imputed from a provider’s silence when everyone knows that it would be futile to present such a claim to the intermediary.

Reading Bethesda. The court agreed with the provider’s reading of Bethesda that it foreclosed any exhaustion requirement, even by regulation, for pure legal challenges to Medicare regulations to an intermediary as a condition of the PRRB’s jurisdiction (see 42 C.F.R. sec. 405.1835(a)(1)). The court found that theBethesda decision was based on the "plain meaning of the statute," and rejected HHS’ contention that Bethesda applied the statutory language in light of the fact that the HHS had not yet adopted a regulation. The court found HHS’ argument curious, as it seemed to imply that Bethesda’s interpretation of the statute would have been different if, in 1988, an express exhaustion requirement had been in place. The court found that HHS did not explain how the presence of such a regulation would have negated Bethesda’s "plain reading" of section 1395oo. The court noted that a reading of the "plain text" depends on the text of the statute, not a regulation implementing that statute. The court noted that HHS’ reading of Bethesda was an example of the agency simply not seeing the forest for the trees.

The court noted that neither the PRRB nor the intermediary has the authority to address challenges to the validity of a regulation. Unlike the intermediary, however, the statute allows the PRRB to grant the providers the right to seek judicial review. The court found that HHS has done precisely what the Court inBethesda determined was "quite unnecessary"—it has required submission of a regulatory challenge to the fiscal intermediary as a precondition of the Board’s jurisdiction.

The case is Civil No. 14-cv-01195 (APM).

Attorneys: Michihiro M. Tsuda (Squire Patton Boggs) for Banner Heart Hospital, Banner Baywood Medical Center, and Banner Estrella Medical Center. Peter Bryce, U.S. Department of Justice, for Sylvia Mathews Burwell, Secretary, U.S. Department of Health and Human Services.

Companies: Banner Heart Hospital; Banner Baywood Medical Center; Banner Estrella Medical Center; U.S. Department of Health and Human Services

MainStory: TopStory CaseDecisions CostReportNews ReimbursementNews CMSNews PaymentNews MedicaidPaymentNews MedicareContractorNews BillingNews DistrictofColumbiaNews

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