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From Health Law Daily, May 21, 2013

Texas Supreme Court ruling did not lead to retroactive relief for hospitals seeking Medicaid reimbursement

By Sarah E. Baumann, JD

Hospitals that successfully challenged a cutoff date used by a state Medicaid agency in calculating prospective payment system rates were unable to retroactively challenge rates calculated prior to the decision (El Paso County Hospital District v Texas Health and Human Services Commission, May 17, 2013, Devine, J). The Texas Supreme Court held that the hospitals could, however, administratively challenge prospective rates under the agency’s error correction rules. The court affirmed the judgment of the court of appeals.

Prospective payment rate. The Texas Health and Human Services Commission (HHSC) calculates hospitals’ prospective payment rates as part of a three-year cycle. In the first, or “base” year, it collects data from Medicaid reimbursement claims and the reported costs of treating those patients. During the second year, HHSC uses that data to calculate the average cost for treating an average Medicaid case, known as the standard dollar amount (SDA); sorts hospitals into payment divisions based upon SDAs; and computes a weighted average of each SDA group. The rates would take effect at the beginning of the third year and would be multiplied by a relative weight reflecting the complexity of services to determine the actual payment for a service.

Procedural background. Previously, HHSC ceased collecting claims data six months after the end of the base year to ensure that rates would be in place by the beginning of the next fiscal year. However, in 2008, the Texas Supreme Court determined that the cutoff date was invalid because it had not been properly adopted under the Administrative Procedure Act (APA) and enjoined enforcement of the rule (El Paso County Hospital District v Texas Health and Human Services Commission, 247 S.W.3d 709, (2008)). It also determined that the 14 hospitals suing HHSC, led by El Paso County Hospital District (El Paso), had the right to challenge appealable data entry errors. Upon remand, the district court entered judgment enjoining HHSC from applying the cutoff date to previous years and allowing El Paso to file an administrative appeal seeking retroactive recalculation of their rates. HHSC appealed, and the court of appeals reversed the judgment. El Paso appealed to the Texas Supreme Court.

Supreme Court decision. The Texas Supreme Court noted that it did not address the retroactivity issue in its previous opinion, but reasoned that data omitted under an invalid cutoff would be considered a “mechanical, mathematical, or data entry error” that could be appealed under HHSC rules. HHSC rules, however, prohibit the use of adjusted rates to correct payments made in prior fiscal years. The court of appeals interpreted agency language regarding corrections to originate from the time that an adjustment occurred rather than the time that a dispute originated. The only provision allowing retroactive corrections applies in limited circumstances to adjustments during the same fiscal year. Therefore, the Texas Supreme Court’s ruling did not require HHSC to retroactively recalculate rates.

Furthermore, the ruling did not require HHSC to immediately recalculate all rates beginning in 2008. The invalidated cutoff rule was one that applied to data collection involved in rate calculation; therefore, HHSC was enjoined from using the cutoff rule in the future to collect additional data, but was not enjoined from using prior calculations based on the cutoff rule that may have been in effect during or after 2008. Had the court intended for HHSC to immediately recalculate rates, it would not have held that El Paso was entitled to proceed with administrative appeals. The court therefore affirmed the court of appeals’ decision.

The case number is 11-0830.

Attorneys: Julie Plantes Woody (Fr. Bend Harris Montgomery Cos.) for El Paso County Hospital District. Rance L. Craft, Office of the Solicitor General for Texas Health and Human Services Commission.

Companies: El Paso County Hospital District; Texas Health and Human Services Commission.

MainStory: TopStory IPPSNews MedicaidPaymentNews TexasNews

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