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From Health Law Daily, December 2, 2015

SNF’s Medicare payment challenge is old argument in new packaging

By Mary Damitio, J.D.

A hospital-based skilled nursing facility (SNF) that previously challenged the HHS Secretary’s (Secretary) calculation of its atypical services exception was precluded from re-litigating the matter in a subsequent lawsuit, the U.S. Court of Appeals for the D.C. Circuit ruled. In affirming the district court’s grant of summary judgment in favor of the Secretary, the court concluded that matter had been fully litigated in a previous suit and to allow a subsequent hearing on the merits could result in inconsistent decisions for the parties (Canonsburg General Hospital v. Burwell, December 1, 2015, LeCraft Henderson, K.).

RCLs. Health care providers’ Medicare reimbursements are subject to reasonable cost limits (RCLs) that are calculated by the Secretary based on applicable statutes and regulations. The Secretary may adjust RCLs to allow SNFs to receive an exception and be reimbursed above the established RCLs (42 U.S.C. § 1395yy(c); 42 C.F.R. Sec. 413.30(e)).

Atypical services. One exception is the “atypical services” exception that allows reimbursement higher than the RCLs if a SNF provides services that are “atypical in nature and scope” (42 C.F.R. Sec. 413.30(e)(1)). For many years, SNFs received full reimbursement for the exception until the Secretary altered the calculation for hospital-based SNFs and created a reimbursement gap (Medicare Provider Reimbursement Manual, Section 2534.5). Freestanding SNFs continued to receive reimbursement for the entire cost of their atypical services, while hospital-based SNFs did not.

Background. Canonsburg General Hospital (Canonsburg) is a hospital-based SNF that received an exception to the RCLs for many years dating back to 1987. In 1998, the HHS Secretary revised the calculation of the exception, which Canonsburg claimed created a “reimbursement gap” that deprived it the reasonable costs of its services. In 2001, Canonsburg brought suit (Canonsburg I) contesting the recalculation and its reimbursements for fiscal years (FYs) 1987 through 1990 and 1993, which were upheld by a district court. Canonsburg did not appeal the ruling.

Subsequent challenge. In the late 1990’s Canonsburg challenged its reimbursement for the FY 1996 (Canonsburg II) and, a decade later, the Provider Reimbursement Review Board (PRRB) reversed the intermediary’s calculation. The CMS Administrator (Administrator) reversed the PRRB’s decision and concluded that the calculation complied with statutory and regulatory language that established RCLs.

Canonsburg II. Canonsburg filed suit in district court (Canonsburg II) seeking review of the Administrator’s decision. As it had in Canonsburg I, the SNF argued that the exception calculation (section 2534.5) was arbitrary and capricious because it was inconsistent with applicable statutes and regulations and was created without notice or comment. The district court concluded that the validity of section 2534.5 had been decided in Canonsburg I and granted summary judgment in favor of the Secretary on the ground of issue preclusion. Canonsburg appealed the decision arguing that the Secretary waived the affirmative defense of issue preclusion by failing to raise it during the administrative proceedings.

Issue preclusion. The district court appropriately granted summary judgment in favor of Secretary based on issue preclusion. Canonsburg did not dispute that the same issue was being raised that had been previously contested by the parties and determined by the court in the prior case. The court determined that the Secretary did not waive the affirmative defense by failing to raise it during the administrative review process because the Secretary did not explicitly decline to apply issue preclusion and the affirmative defense was properly raised in the district court.

Equitable considerations. The court found that the application of the preclusion affirmative defense would not be unfair to Canonsburg because the parties had the same incentive to litigate in both the earlier and subsequent litigation and there was no change in controlling law and no concern about procedural defects in the first litigation. The court also concluded that rendering a decision in Canonsburg II on the merits could create inconsistent decisions involving the two parties.

The case is No. 13–5370.

Attorneys: Sven C. Collins (Squire Patton Boggs LLP) for Canonsburg General Hospital. Benjamin M. Shultz, United States Department of Justice, for Sylvia Mathews Burwell.

Companies: Canonsburg General Hospital

MainStory: TopStory CaseDecisions CMSNews PaymentNews SNFNews DistrictofColumbiaNews

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