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From Health Law Daily, August 20, 2014

Rush learns a lesson as HHS gets last word on IME reimbursement

By Bryant Storm, JD

The U.S. Court of Appeals for the Seventh Circuit held medical residents’ research activities for the years 1983 to 2001 were not reimbursable as indirect medical education (IME) costs. The court reached its decision by overruling its own prior holding allowing the adjustments, in favor of a more recent HHS regulation expressly disallowing the inclusion of resident research activities in IME calculations. The court held that the ambiguity inherent in the section of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), which gave rise to the earlier Seventh Circuit decision, was grounds to give deference to HHS (Rush University Medical Center v Burwell, August 18, 2014, Wood, D).

IME. In order to compensate teaching hospitals for the significant costs they taken on as a function of training residents, Medicare provides additional reimbursement beyond the cost of care for certain teaching hospital expenses. The IME adjustment accounts for time spent by medical residents and interns that is not connected to an individual patient but enhances the hospitals ability to provide patient care.

ACA and IME. Since 1983, HHS has consistently excluded research activities “wholly unrelated to the diagnosis or treatment of patients” from reimbursable IME costs. In 42 U.S.C. sec. 1395ww(d)(5)(B)(x)(III), the ACA codified the position from 2001 onward, yet expressly declined to provide a position for how those pure research activities should be treated from the period between 1983 and 2001, saying that “no inference” should be drawn as to the relevant law in effect prior to 2001. In 2010, the Seventh Circuit was asked to decide the very question left unanswered by the ACA. In University of Chicago Medical Center v Sebelius, the Seventh Circuit interpreted the ACA and held that pure research activities prior to 2001 were reimbursable as IME costs. Then, later in 2010, HHS promulgated a rule, 42 C.F.R. sec. 412.105(f)(1)(iii)(C), amending the previous IME regulations, to account for the changes made by the ACA. The new regulation developed a position diametrically opposed to the earlier Seventh Circuit holding and expressly disclaimed the applicability of the IME adjustment for pure research costs between 1983 and 2001.

Rush.Rush University Medical Center (Rush) operates a teaching hospital and, subsequent to the Seventh Circuit’s 2010 decision, sought to have its pure research costs reimbursed as IME expenses for the years 1983 to 2010. Rush took an administrative appeal to the Provider Reimbursement Review Board (PRRB), after its fiscal intermediary held that residents’ pure research activities were not reimbursable. The PRRB and the CMS Administrator affirmed the fiscal intermediary’s position. Rush then appealed those decisions to a federal district court, which while deciding several other issues about the hospital’s IME adjustments, held that it was required to follow the Seventh Circuit’s precedent in University of Chicago Medical Center v Sebelius, even though that holding was inconsistent with HHS’s subsequent regulation (see, Court upholds inclusion of contested beds in calculating medical center’s IME adjustment, rejects exclusion of research time, August 19, 2013).

Second look. Rush appealed its case to the Seventh Circuit and asked the court to revisit the issue. On the Seventh Circuit’s second evaluation of the treatment of pure research activities under the IME regulations, it overruled its prior position and agreed with HHS by stating that the 2010 HHS regulation was entitled to deference. The court’s holding rested primarily upon the notion that congress left ambiguity in the ACA when defining the role of pure research activities prior to 2001. Similarly, because the statute expressly granted HHS the authority to make decisions about IME costs, including the power to define “research activities” that would or would not be compensable, the court held that Congress’ intent may have been to leave the IME pure research activity question up to HHS. At the very least, the court held that its prior decision was only entitled to a controlling position if the holding was derived from the unambiguous and clear language of the statute. Because the Seventh Circuit did not read its prior decision to be so firmly grounded in the language of the ACA, the court extended deference to HHS and allowed the 2010 regulation to decide the issue. The court remanded the case to the district court with instructions to grant summary judgment in favor of HHS.

The case number is 13-3285.

Attorneys: James F. Flynn (Bricker & Eckler) for Rush University Medical Center. Robert D. Kamenshine, U.S. Department of Justice, for Sylvia Mathews Burwell, Secretary of the U.S. Department of Health and Human Services

Companies: Rush University Medical Center; U.S. Department of Health and Human Services

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