Two Important Regulation, Accreditation, and Payment Practice Group Updates

02 September 2010 Publication

American Health Lawyers Association

CMS Administrator Vacates PRRB's Jurisdictional Decision Granting Expedited Judicial Review on CMS Ruling 1498-R Regarding DSH Calculations

On August 12, 2010, the Centers for Medicare & Medicaid Services (CMS) administrator issued a decision vacating a jurisdictional decision that was issued by the Provider Reimbursement Review Board (PRRB) on June 14, 2010. The PRRB's jurisdictional decision granted "expedited judicial review" (EJR) to a group of hospitals seeking the right to challenge and invalidate CMS Ruling 1498-R (issued on April 28, 2010) regarding the calculation of the Medicare disproportionate share hospital (DSH) payment adjustment for certain pending appeals. The CMS administrator's decision vacated the PRRB's grant of EJR and remanded the case to the Medicare contractor for a recalculation of the hospital's DSH adjustment.

In Southwest Consulting 2004 DSH Dual Eligible Days Group, et al. v. Blue Cross Blue Shield Association, et al. (PRRB Decision No. 2010-D36, for cost reporting periods ending in 2004), the providers alleged that their DSH adjustments should have included "dual eligible" days, i.e., days for which the patient was eligible for both Medicare Part A and Medicaid, in the Medicaid fraction of the DSH calculation. In CMS Ruling 1498-R, CMS ruled that such days should be included in the Medicare (a/k/a SSI) fraction, but not in the Medicaid fraction. Notwithstanding that finding, CMS' Ruling nevertheless declared that the PRRB and other administrative tribunals lacked jurisdiction to consider appeals that included the dual eligible day issue, even if, as was the case in Southwest Consulting Group, the providers appealed the issue. The CMS Ruling mandated that the PRRB remand the providers' cost report appeals to the Medicare contractor for a recalculation of the DSH adjustment, with the providers still having a later opportunity to administratively appeal the resulting recalculation.

The providers in Southwest Consulting Group sought the PRRB's exercise of statutory power for EJR under 42 U.S.C. § 1395oo(f)(1), whereby a grant of EJR enables the provider to initiate an appeal in federal court over a decision for which the PRRB "lacks the authority to decide."

The PRRB held that it had jurisdiction over the providers' group appeal necessary to grant EJR. The PRRB found that granting EJR is appropriate to maintain the status quo by preserving the parties' position in the administrative process to allow a federal court to determine the PRRB's jurisdiction. Thus, the PRRB granted EJR so that a federal court could review the validity of the provisions of CMS Ruling 1498-R.

The CMS administrator noted that the underlying issue in dispute involves the treatment of inpatient days for patients who were enrolled in Medicare Part A, but did not have Part A payment made on their behalf for the particular patient days at issue, either because the patient had exhausted his or her Part A benefits for the inpatient hospital stay or another payor had primary obligation to pay and thus Medicare was the secondary payor.

On March 31, 2010, the PRRB conducted the hearing in this case. Subsequently, on April 28, 2010, CMS issued CMS Ruling 1498-R. The Ruling provided notice that the PRRB and other Medicare administrative appeal tribunals lack jurisdiction over three specific types of provider appeals regarding the calculation of the Medicare DSH adjustment. One of these types of provider appeals includes inpatient days for discharges before October 1, 2004, for dual-eligible patients where the patient's Part A benefits were exhausted. The Ruling required the PRRB and other administrative appeals tribunals to remand each qualifying appeal to the appropriate Medicare contractor for a recalculation of the DSH adjustment. As noted above, the PRRB's decision granting EJR was issued on June 14, 2010.

The administrator found that the issue appealed by the providers involved an issue covered by CMS Ruling 1498-R. Accordingly, the administrator vacated the PRRB's jurisdictional decision and remanded the case to the appropriate Medicare contractor for resolution consistent with CMS Ruling 1498-R.

Further litigation and administrative action may be expected with this case, and with similar cases involving CMS Ruling 1498-R.

Seventh Circuit Holds That Hospital Was Entitled to Medicare Indirect Medical Education Reimbursement for Time Spent by Residents in Research Activities Not Related to Patient Care

On August 25, 2010, the Seventh Circuit Court of Appeals issued a decision in University of Chicago Medical Center v. Sebelius (09-3429). The court held that the hospital was entitled to include the time spent by residents conducting educational research unrelated to the care of Medicare patients, which the court referred to as "pure research," in its full-time equivalent (FTE) resident count for purposes of calculating the hospital's Indirect Medical Education (IME) reimbursement for 1996. This case is important, particularly for hospitals with active cases regarding the counting of residents' time in non-patient care activities. It demonstrates that these activities, which have always been parts of approved medical residency programs, are countable for purposes of determining the IME resident count of the hospital, at least for cost reporting periods beginning before October 1, 2001.

In its 1996 Medicare cost report, the hospital included time that residents spent on pure research in its Medicare IME FTE count. The Medicare fiscal intermediary disallowed the time that residents spent conducting pure research as a part of their approved medical residency programs. The intermediary contended that the time spent conducting pure research is not an allowable Medicare cost because it is not directly related to the treatment of particular patients.

The hospital sought review by the Provider Reimbursement Review Board (PRRB), which held that the intermediary's adjustments were improper. The Centers for Medicare & Medicaid Services (CMS) administrator reversed the decision of the PRRB, concluding that time spent exclusively on research activities not related to patient care must be excluded for purposes of the IME adjustment. The CMS administrator reviewed Medicare's legislative and regulatory history and concluded that indirect costs unrelated to patient care were never reimbursed under Medicare. The administrator noted that the applicable regulation provides that residents may be included in the FTE resident count for IME purposes if they are providing services in an "area" of the hospital that is paid under the prospective payment system or in the outpatient department. The administrator concluded that the regulatory reference to "area" included a functional requirement as well as a geographical one. Because residents engaged in pure research were not providing patient care services, the administrator concluded that they were not assigned to an "area" of the hospital that is attributable to the prospective payment system or the outpatient department and, therefore, were not allowable.

The district court disagreed with the CMS administrator and held that the regulation's reference to "area" of the hospital clearly referred to geographical locations within the hospital facility. As the residents were in a portion of the hospital subject to the prospective payment system, they were allowable even if they were conducting pure research.

On appeal, CMS argued that the IME regulation contains a patient-care requirement by reading the term "area" to have a functional meaning. CMS contended that Medicare reimbursement was conditioned on the services or functions performed by the residents, and that residents performing pure research are not assigned to the area of the hospital subject to the PPS because the only costs incurred in that that portion of the hospital are patient-care-related costs incurred while providing inpatient hospital services.

The hospital (as have others with the same issue) argued that the IME regulation had no requirement that the residents be performing patient care and that it was an easy-to-administer, rough proxy for the indeterminate indirect costs of teaching hospitals based on the number of residents relative to the size of the hospital.

The Seventh Circuit found that the regulation is less than clear as to whether teaching hospitals may include the time that residents spend in pure research in the IME resident count. However, the court held that Congress provided a clear, statutory answer in the Patient Protection and Affordable Care Act (PPACA). In that legislation, Congress specified that, effective January 1, 1983, the IME FTE count includes all the time spent by a resident in an approved medical residency training program in non-patient care activities, such as didactic conferences and seminars that occur in the hospital. Congress also clarified that for periods after October 1, 2001 (and without giving rise to any inference as to how the law in effect prior to such date should be interpreted), all the time spent by an intern or resident in an approved medical residency training program in research activities that are not associated with the treatment or diagnosis of a particular patient shall not be counted. The Seventh Circuit held that Congress spoke clearly when it retroactively allowed reimbursement for non-patient care activities starting in 1983.

The Seventh Circuit therefore held that the hospital should have received reimbursement as part of its IME adjustment for pure research in 1996. The court noted that its decision is contrary to a decision of the First Circuit in a similar case, but also noted that the First Circuit did not have the opportunity to consider Congress' action in PPACA, which the Seventh Circuit found was dispositive.


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