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From Health Law Daily, June 12, 2013

HHS permissibly applied DSH calculation rule retroactively

By Kelly J. Rooney, JD

The district court erred in finding (1) that HHS Secretary Sebelius’ denial of Medicare reimbursements for disproportionate share hospital (DSH) adjustments was impermissible and (2) that a rule requiring dual-eligible days to be included in the Medicare fraction for DSH calculation created in 2004 could not be retroactively applied to the 1997 cost-reporting period (Catholic Health Initiatives Iowa Corporation v Sebelius, June 11, 2013, Silberman, L). The court found HHS’ interpretation of the Medicare statute permissible and HHS’ retroactive application of the rule was not so unfair as to render the decision arbitrary and capricious. The district court’s judgment was reversed.

Facts of the case. Mercy Medical Center, a Des Moines hospital owned and operated by Catholic Health Initiatives (hereinafter referred to as “the hospital”), discharged two patients in 1997 that had been inpatients since 1992, and a lengthy history ensued. The patient days of the two inpatients included many where they were eligible for both Medicaid and enrolled in Medicare (dual-eligible days), but they exhausted their Medicare coverage for inpatient hospital services. Per a 1999 determination, to the detriment of the hospital, the intermediary failed to include exhausted days as days for which the patients were “entitled to benefits.” In 2002, in response to the decision in Edgewater Medical Center v Blue Cross & Blue Shield Ass’n, which said that dual-eligible days should not be included in the Medicaid fraction, the intermediary revised the calculations and excluded the days for the hospital’s 1997 reporting period. Although at that point the parties reached a settlement, the issue was later reopened in 2005 when the intermediary again adjusted the 1997 DSH adjustment based on the 2004 CMS rule that included dual-eligible days “in the Medicare fraction, whether or not the beneficiary has exhausted Medicare Part A hospital coverage.” Because of this rule, CMS declined to “include dual-eligible beneficiaries who have exhausted their Part A hospital coverage in the Medicaid fraction,” so the intermediary again excluded those days it had previously agreed to include.

The hospital appealed to the Provider Reimbursement Review Board, which reversed the intermediary’s decision, saying that the intermediary should have included the days in the Medicaid fraction and pointing to decisions and HHS rules that supported this decision. The Secretary reversed, citing the Edgewater decision, and stating that it was a long-standing policy to exclude dual-eligible exhausted days from the Medicaid fraction.

In filing suit in district court, the hospital argued that the Secretary’s interpretation of the Medicare statute was impermissible, and that her position could not be retroactively applied to the 1997 cost-reporting period, to which the district court agreed. These are the two questions at issue here on appeal. The HHS Secretary argued that the Medicare statute provides that an individual is “entitled to benefits” when basic statutory criteria are met and that there “was no impermissible retroactivity in the agency’s decision because the agency never had a clear policy to the contrary.” The hospital argued that the decision was impermissibly retroactive because HHS’ position was different in 1997, and that “entitled to benefits” means simply the right to have payment made on one’s behalf.

Entitled to benefits. The Secretary cited to 42 USC sec. 426(a) for the definition of this phrase, which states that “[e]very individual who . . . has attained age 65, and . . . is entitled to monthly [Social Security benefits] . . . shall be entitled to hospital insurance benefits under part A of [Medicare].” The hospital, on the other hand, pointed to sec. 426(c), which states that “entitlement of an individual to hospital insurance benefits for a month shall consist of entitlement to have payment made under, and subject to the limitations in, part A of [Medicare] on his behalf for inpatient hospital services.” The hospital argues that where an individual has exhausted his right to have payment made on his behalf, they are no longer to be included in a hospital’s DSH adjustment calculation. The court, however, found both interpretations permissible and acknowledged that the statute is ambiguous, which gave deference to the HHS interpretation.

Retroactivity. The court found that the 2004 rule merely reiterated the prior rule from the Edgewater decision. It was the Secretary’s reliance on the 2004 rulemaking, rather than the Edgewater decision, that confused the issue, but it did not mean that the rule was retroactively made. The court found, with regard to the question of whether applying the Edgewater interpretation retroactively was improper, that it need not decide on that point because the hospital did not show that it relied on a prior contrary policy to its detriment. Even if the rule were retroactively applied to the 1997 cost-reporting period, it would not have been an unfair retroactivity that would render the HHS decision arbitrary and capricious.

The case number is 12-5092.

Attorneys: Christopher L. Keough (Akin Gump Strauss Hauer & Feld LLP) for Catholic Health Initiatives Iowa Corporation. Stuart F. Delery, U.S. Department of Justice, for Kathleen Sebelius, Secretary, United States Department of Health and Human Services.

Companies: Catholic Health Initiatives Iowa Corporation

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