Health Reform WK-EDGE Hospital’s procedural challenge to post-merger Medicare payment change can proceed
Tuesday, August 6, 2019

Hospital’s procedural challenge to post-merger Medicare payment change can proceed

By Leah S. Poniatowski, J.D.

Calculation of disproportionate share hospital payment rule change under ACA impacting merged hospitals largely not reviewable on account of preclusion provision.

The surviving hospital following a merger could not challenge CMS’ determination of a factor considered when calculating the annual disproportionate share hospital payment because of the explicit review preclusion provision of the governing statute, but the challenge that the calculation change violated the Administrative Procedures Act and the Medicare Act were outside the scope of the preclusion provision, the federal district court in Connecticut ruled, dismissing all but the procedural claim (Yale New Haven Hospital v. Azar, July 25, 2019, Hall, J.).

Background. Yale New Haven Hospital (YNHH) merged with Hospital of Saint Raphael in 2012, following which YNHH assumed the second hospital’s Medicare provider agreement and YNHH’s CMS certification number subsumed the second hospital’s number. At the time of the merger, hospitals such as YNHH could be reimbursed for inpatient hospital operating costs under the inpatient prospective payment system (IPPS) based on nationally applicable rates that are subject to certain payment adjustments, including the disproportionate share hospital payment.

Calculation methods. Beginning in FFY 2014, hospitals became subject to the uncompensated care disproportionate share hospital (UC DSH) payment system as part of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), specifically 42 U.S.C. § 1395ww(r). Under this system, disproportionate share hospitals received two payments—one for a percentage due to the hospital under the prior system, and the other as percentage of the national total DSH payment. The ACA outlined the calculation method for the second payment in section 3133, which determines the UC DSH payment after consideration of three factors. The third factor, a fraction, represents each eligible hospital’s uncompensated care as a percentage of the total national uncompensated care for all qualifying hospitals. CMS calculates the UC DSH payments in advance based on historical data, and for FFY 2014, CMS relied on Medicare cost reports from hospitals submitted in 2010 and 2011. Additionally, the ACA explicitly precluded review of "[a]ny estimate of the Secretary for purposes of determining the factors described in paragraph (2)." (42 U.S.C. § 1395ww(r)(3)).

2014 payment. CMS provided its proposed calculation method in the IPPS Proposed Rule for FFY 2014 but did not state that CMS intended to change its policy when calculating for post-merger payments. The CMS data table accompanying the proposed rule included data and a projected UC DSH for both YNHH and Hospital of Saint Raphael. Another hospital that merged in the same period issued a comment, requesting CMS account for mergers and include data for both hospitals when calculating the third factor instead of only using the surviving hospital’s data.

CMS responded that using only the surviving hospital data was "consistent with the treatment of other IPPS payment factors," prompting YNHH to request a correction rule. CMS denied the request, thus excluding the merged hospital’s inpatient days when it calculated the 2014 UC DSH payment. YNHH’s appeal was dismissed on the ground that the preclusion statute applied; CMS has not responded to the appeal of the dismissal. YNHH filed a lawsuit against the DHS Secretary, asserting claims for violations of the Medicare Act, the APA, mandamus statute, All Writs Act, and the Constitution. CMS filed the present motion to dismiss.

Preclusion provisions. The court held that the review preclusion provisions in the Medicare Act and ACA barred judicial review of YNHH’s claims because the hospital’s argument essentially challenged CMS’ estimate for calculating payments. The hospital argued that CMS failed to consider certain data, which was distinct from challenging the "act of estimating." The court was not persuaded, holding that CMS’ choice of data was "inextricably intertwined" with its estimate for the third factor. Moreover, YNHH’s argument that its challenge to CMS’ practices and polices was not precluded because it was collateral to CMS’ determination also failed because they were not collateral challenges. The court held that YNHH’s two claims were raised only for the purpose of reversing an individual decision, which fell within the statutory bar. Consequently, these two claims were dismissed.

Procedural violations. The court allowed YNHH’s claim that CMS violated the Administrative Procedure Act and Medicare Act’s procedural requirements. Specifically, the hospital contended that the FFY 2014 policy for merged hospitals had not been presented in the proposed rule, was not a "logical outgrowth" of any applicable rule, had not been adopted through the notice-and-comment process, and did not follow "long-standing agency policy without explanation or justification." The court held that the preclusion provision governing estimates did not include review of the rule that might lead to an estimate. Because the hospital sought review of the promulgation of the rules—distinct from their substance—and Congress did not include any language to that effect, the court has jurisdiction to review the hospital’s challenge.

Remaining claims. The court determined that the hospital’s ultra vires claim was duplicative of its procedural violations claim. Under applicable precedent, ultra vires claims cannot proceed unless there is no other avenue for review of the claim. With respect to the mandamus claim, the court explained that hospital could not pursue a writ of mandamus to overcome the statutory review preclusion in part because CMS’ choice of data and estimation methodology are discretionary. Review of non-discretionary duties could be remedied through mandamus if all other avenues of relief had been exhausted, which was not true in the present case. The All Writs Act claim did not provide jurisdiction to the court because the Act applies only when jurisdiction is conferred by another source. Finally, the due process and separation of powers claims failed because they were not adequately supported in the complaint. Therefore, these claims were dismissed.

The case is No. 3:18-CV-1230(JCH).

Attorneys: Patrick M. Noonan (Donahue, Durham & Noonan, P.C.) and Robert L. Roth (Hooper, Lundy & Bookman, PC) for Yale New Haven Hospital. Carolyn Aiko Ikari, U.S. Attorney's Office, for Alex M. Azar, II.

Companies: Yale New Haven Hospital

Cases: CaseDecisions AgencyNews ConnecticutNews NewsFeed

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