Health Law Daily Review board’s reliance on incorrect regulation tainted its affirmation of CMS decision
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Friday, January 24, 2020

Review board’s reliance on incorrect regulation tainted its affirmation of CMS decision

By Jessica Y. Washington, J.D.

A review board’s finding that CMS did not act arbitrarily or capriciously when it failed to consider a health care provider’s justification for regulatory non-compliance was, itself, arbitrary and capricious, in violation of the Administrative Procedure Act (APA).

The U.S. District Court for the District of Columbia granted summary judgment to a health care provider who appealed a Provider Reimbursement Review Board (PRRB) decision upholding CMS’s assessment of a 2 percent Medicare payment reduction against the provider. The court found that the PRRB relied on the wrong regulation when upholding the payment reduction. Moreover, the court found that the PRRB’s decision affirming CMS’s penalty met the APA’s standard of "arbitrary and capricious," because the PRRB’s misapplication of the rule likely affected the board’s analysis, which may have altered the adjudication outcome. The district court remanded the matter to CMS. (PAM Squared at Texarkana, LLC v. Azar, January 22, 2020, McFadden, T).

Background. Central to the matter, according to the court, was CMS’s assessment of a 2 percent Medicare payment reduction in the amount of almost $300,000 against the health care provider. The agency cited the latter’s failure to submit required data as its reason for assessing the payment reduction under 42 U.S.C. §1395ww(m)(5)(A)(i). Further investigation determined that the provider did, in fact, submit the data in a timely fashion, but due to a typographical error in one of the data sets, CMS was unable to access the information. The provider revised the data set; however, CMS was unwilling to lift the penalty. The provider appealed to the PRRB, which affirmed CMS’s decision to keep the payment reduction in place.

Regulatory labyrinth. The court found that the PRRB’s erroneous reliance on an outdated regulation was due to its inability to navigate its own "Kafkaesque regulatory labyrinth" of constantly changing health care rules. The court further noted that the PRRB’s confusion and misapplication of the incorrect regulatory authority during the evidentiary hearing of the health care provider’s complaint amounted to more than mere harmless error, as claimed by the agency. The health care provider argued that the mistake rendered the PRRB’s decisionmaking arbitrary and capricious, and the district court agreed, finding that "when a mistake infects [an] agency’s analysis or the outcome of the adjudication, it crosses the line into arbitrary and capricious territory." The PRRB reviewed the CMS decision through the "tainted lens" of a wrong regulation, which must be remediated. The court ruled that remand is the appropriate remedy, where the court has more than the slightest uncertainty about the agency’s decision on remand, once the proper regulatory standard is applied and informs the analysis and final decision making.

The case is No. 1:18-cv-02542 (TNM).

Attorneys: Jason M. Healy (Law Office of Jason M. Healy, PLLC) for Pam Squared At Texarkana, LLC d/b/a Pam Specialty Hospital of Texarkana North. Sean Michael Tepe, U.S. Department of Justice, for Alex M. Azar, II.

Companies: Pam Squared At Texarkana, LLC d/b/a Pam Specialty Hospital of Texarkana North

MainStory: TopStory CaseDecisions CMSNews PaymentNews ProgramIntegrityNews ProviderNews DistrictofColumbiaNews

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