DSH Dual Eligible Part A Exhausted Patients – DC Circuit Issues Latest DSH Decision, Reducing Reimbursements

From: U.S. Court of Appeals District of Columbia -6/11/13

We received a disappointing decision from the U.S. Court of Appeals regarding DSH dual eligible days applicable to Part A Exhausted patients.  Unfortunately the manner in which the case was decided could have more far reaching effect on other types of Medicare/Medicaid dual eligible beneficiaries.

Included below is an article from King & Spalding, involved in this appeal, as well as comments from Glenn Bunting our V.P. of Appeals.

King & Spalding Article

On June 11, 2013, the D.C. Circuit Court issued the latest ruling relating to the proper calculation of hospitals’ disproportionate share hospital (DSH) payment leading to potentially lower Medicare reimbursements related to admissions of low-income patients.  See Catholic Health Initiatives – Iowa Corp. d/b/a Mercy Medical Center – Des Moines v. Sebelius, Case No. 12-5092, available here. The question in this case was whether the Secretary’s exclusion of dual-eligible (i.e., Medicare and Medicaid-eligible) patient days for which a patient’s Medicare Part A benefits have been exhausted from the Medicaid Fraction component of the DSH calculation was permissible.  In holding that it was permissible, the court overturned a D.C. District Court ruling in favor of Catholic Health Initiatives (CHI).  Catholic Health Initiatives – Iowa Corp. d/b/a Mercy Medical Center – Des Moines v. Sebelius, Case 1:10-cv-00411-RCL (Jan. 30, 2012), available here.

The case involved payments related to the hospital’s 1997 fiscal year that were reduced years later.  Among other arguments, the hospital argued that under the DSH statute, which defines the Medicaid Fraction as containing patient days for “patients who (for such days) were eligible for medical assistance under [Medicaid] but who were not entitled to benefits under part A of [Medicare],” dual-eligible Part A exhausted days belong in the Medicaid Fraction.  The theory behind this argument is that “entitlement” to Part A benefits is synonymous with “payment”—if a day is not paid by Part A because the patient’s Part A benefits are exhausted, then the patient was not “entitled to benefits under Part A” for that day.  Under this theory, a hospital’s patients classified as low-income for purposes of the DSH payment would generally increase based on the mathematics involved in the payment calculation, which in turn would lead to a rise in the hospital’s DSH revenue.  Although the D.C. Circuit found CHI’s theory reasonable, the court determined that the district court erred in finding that the HHS Secretary’s denial of Medicare reimbursements for DSH adjustments was impermissible and that a 2004 rule requiring dual-eligible days to be included in the Medicare fraction for the DSH calculation could not be retroactively applied to the 1997 cost-reporting period.  Underpinning the Circuit’s decision was the finding that the language of the mathematical calculation in the DSH statute “is downright byzantine and its meaning not easily discernible.”  The court therefore granted significant deference to the agency’s interpretation, and found that it was not arbitrary.  Moreover, the D.C. Circuit reasoned that even if the policy for excluding dual-eligible exhausted days from the Medicaid fraction was retroactively applied to the 1997 cost-reporting period, “it would not constitute the sort of unfair retroactivity that may render an agency decision arbitrary and capricious.”

The D.C. Circuit’s decision will likely have a significant impact on pending appeals with a similar issue.  A more detailed background about the Catholic Health Initiatives case and the D.C. District Court’s January 30, 2012 decision is available at the February 6, 2012 Health Headline entitled “DC Court Issues Latest DSH Decision,” available here.

Comments from Glenn Bunting:

This is a disappointing development for all hospitals with properly pending appeals before the Provider Reimbursement Review Board addressing the DSH dual eligible Part A day dispute.  In our opinion the federal appellate court’s decision is flawed from the standpoint the court failed to connect alleged CMS policy with their actual practice and handling of dual eligible Part A days.  No evidence was presented by CMS demonstrating the dual eligible days at issue were included in the Provider’s SSI ratio, which if it could be shown, would uphold CMS’ alleged policy from FY 2000.

However this is not the end of the litigation road on this issue.  In their decision the court concluded a dual eligible Medicare beneficiary with exhausted benefits is considered entitled to Medicare Part A even though the Medicare Program did not make a payment on the beneficiaries behalf.  This case focused heavily on the Medicare beneficiary with exhausted Part A benefits.  The silver lining is the Medicare beneficiary with exhausted Part A benefits typically is a small number of the average hospital’s dual eligible Part A day count.  The court did not address the situation where the Medicare Program is a secondary payor and was not billed for any service due to the fact the patient’s primary payor satisfied the patient’s debt.  Are patients with Medicare secondary coverage considered Medicare “entitled” patients, as the courts have now defined in the Catholic Health Initiatives decision?  Certainly in practice CMS has taken no action or steps to include Medicare secondary payor days that were never billed to the Program into their SSI Ratio calculation.  In fact it is not evident CMS has ever considered or addressed this question.  The dual eligible Part A day dispute has taken an unfortunate step backward for Providers but I expect there will continue to be further court litigation on the secondary payor aspect of this dispute.

Hospitals should remain cautiously optimistic with respect to the dual eligible Part C days dispute covering fiscal periods 10/1/2004 to 9/30/2013.  The hospital community received a favorable district court decision on this issue in the Allina decision announced in November 2012.  CMS has appealed this decision and the case now resides in federal appellate court.  An appellate court decision in the Allina case is expected early next year.

Read more: DSH Dual Eligible Part A Exhausted Patients – DC Circuit Issues Latest DSH Decision, Reducing Reimbursements

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