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From Health Law Daily, April 13, 2016

Asset-only facility purchase backfires, provider loses $7.4M in reimbursements

By Kayla R. Bryant, J.D.

A provider may not bill Medicare for patient services at a new facility until that facility has its own provider agreement if the facility was acquired in an assets-only transaction. The U.S. Court of Appeals for the Ninth Circuit upheld a California district court’s decision finding for HHS after Mission Hospital Regional Medical Center (Mission Hospital) challenged the agency’s denial of claim reimbursement for services provided at a new Laguna Beach facility. This facility was purchased from another provider, and Mission Hospital’s unsuccessful attempt to encompass the new facility in its existing provider agreement resulted in the denial of about $7.4 million in reimbursements (Mission Hospital Regional Medical Center v. Burwell, April 11, 2016, Trott, S.).

Purchase. Mission Hospital purchased South Coast Medical Center (South Coast) in an assets-only transaction to avoid potential liabilities under South Coast’s existing provider agreement, such as the recoupment of prior overpayments. Mission Hospital attempted to file CMS form 855A requesting that its own provider agreement cover South Coast under 42 C.F.R. section 489.13(d)(1)(i) (2009) or, alternatively, be reimbursed retroactively under 42 C.F.R. section 489.13(d)(2). HHS’ rejection of these interpretations resulted in the loss of about $7.4 million in reimbursement for services provided prior to March 18, 2010, when the South Coast campus was enrolled as a provider.

Continuity of agreements. On appeal, Mission Hospital agreed that South Coast’s provider agreement terminated upon the acquisition. Mission Hospital also admitted that it entered into the assets-only transaction in a deliberate attempt to leave South Coast’s liabilities with the prior owner, Adventist Health Systems West. However, Mission Hospital maintained that filing form 855A was enough to bring the South Coast facility under Mission Hospital’s existing provider agreement.

HHS argued that the 2009 regulations provided that an existing provider agreement will be assigned to the new owner after the purchase, but that the assigned agreement is subject to the terms and conditions under which the agreement was originally issued. The agreement cannot be transferred on a “forward-looking” basis alone. Due to the structure of the purchase, the court found that the South Coast campus became a “new hospital” without a provider agreement. Had Mission Hospital accepted South Coast’s Medicare liabilities in the transaction, the outcome would have been different.

The case is No. 13-56264.

Attorneys: Wesley Douglas Hurst (Polsinelli, LLP) for Mission Hospital Regional Medical Center. Kathleen R. Unger, Office of the California Attorney General, and Deborah En-Qi Yim, Office of the U.S. Attorney, for Sylvia Mathews Burwell.

Companies: Mission Hospital Regional Medical Center; Adventist Health Systems West; South Coast Medical Center

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