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From Health Law Daily, March 6, 2013

D.C. Circuit finds hospitals entitled to an adjustment to graduate medical education full-time equivalents

By Sheila Lynch-Afryl, JD, MA

A consortium of hospitals was entitled to have erroneous resident full-time equivalent (FTE) counts from its 1996 and 1998 cost reports corrected because modifying the FTE counts did not require an adjustment to the total reimbursement for either closed reporting period (Kaiser Foundation Hospitals v Sebelius, March 5, 2013, Brown, J). Due to a cap on the number of FTEs imposed by Congress in 1997, 1996 FTE counts dictated the maximum reimbursement for subsequent reporting periods. The hospitals discovered an error in the FTE counts for 1996 and 1998, which affected their reimbursement for later cost reporting periods. Although 42 C.F.R. §405.1885 prohibits determinations from being reopened more than three years from the date the intermediary issues the notice of program reimbursement, modifying FTE counts in closed years did not constitute a “reopening.”

GME reimbursement. The amount for graduate medical education (GME) reimbursement is based in part on the number of “full-time equivalent” residents and interns in the hospital’s training program. In 1997, Congress capped those payments in such a way that the number of FTEs the hospitals trained in 1996 would dictate the maximum reimbursement for all future years.

Kaiser’s cost reports. The Kaiser Foundation hospitals requested an adjustment for their indirect medical education resident FTE count for clinic-based residents that were mistakenly excluded, but they did not request a similar adjustment for GME purposes in their 1996 cost reports. For years, the intermediary used the inaccurate resident FTE count from the 1996 cost report and additional data from the 1998 cost report to generate artificially low GME FTE caps. Kaiser challenged the intermediary’s handling of the 1999 through 2003 cost reporting years.

The intermediary, however, found that modification of the 1996 and 1998 GME FTE caps would constitute a reopening of years that were already closed pursuant to 42 C.F.R. §405.1885(a). The PRRB agreed with Kaiser’s position but the CMS Administrator found in favor of HHS. Kaiser filed a challenge in the district court, and the court granted summary judgment in Kaiser’s favor.

Appeal. On appeal, the D.C. Circuit noted that 42 C.F.R. §405.1885 provides that a determination of an intermediary may be reopened within three years of the date that the intermediary issues the notice of program reimbursement. 42 C.F.R. §405.1801 defines “intermediary determination” in terms of the “total amount of reimbursement.” Accordingly, the court concluded, the regulations allow for modification of predicate facts in closed years as long as the change will only affect the total reimbursement determination in open years.

The court held in the alternative that the Secretary acted arbitrarily in treating similarly situated parties differently. HHS routinely asserted a permissive interpretation of the reopening regulation when correction of the predicate facts would result in a windfall for the agency but adopted a contrary view in the instant case, where the provider would benefit.

The case number is 12-5037.

Attorneys: Jordan B. Keville (Hooper, Lundy & Bookman) for Kaiser Foundation Hospitals. Howard S. Scher (U.S. Department of Justice) for Kathleen Sebelius.

Companies: Kaiser Foundation Hospitals

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