Jun 20, 2019

Stephanie Kennan Provides Insight on Medicare Supreme Court Case for Bloomberg Law

On June 3, the U.S. Supreme Court ruled in Azar v. Allina Health Services, stating that the Health and Human Services Department (HHS) improperly changed Medicare payment rates without notice.

In a June 20 article for Bloomberg Law, McGuireWoods Consulting senior vice president, Stephanie Kennan, reviewed the case’s impact and what hospitals can expect moving forward.

“The ruling does not stop good, bad, or indifferent policy from being implemented,” Kennan said. “However, it does ensure transparency when a substantial change in Medicare policy is proposed by the HHS’s Centers for Medicare & Medicaid Services (CMS), and stakeholders will be able to provide information about how a proposed policy will impact Medicare providers and patients in real terms.”

Kennan reviewed the history of rule changes related to the disproportionate share hospital (DSH) calculation formula, noting that CMS issued a final rule in 2004 that included a new methodology for DSH payments that counted Medicare Part C inpatient days. This differed from the proposed rule issued in 2003 and was vacated after hospitals filed legal action.

In 2014, CMS posted Medicare fractions for fiscal year 2012 on its website, noting that they included Part C patients, and hospitals again sued over the change, stating that the government violated the Medicare Act’s requirement to provide public notice and a 60-day comment period.

“The HHS asked the court to review its claim that the Administrative Procedures Act’s (APA) exception for interpretive rules applies to its DSH payment change and that Congress never intended the Medicare Act to have stricter procedural requirements than the APA,” Kennan said.

The Supreme Court decided that HHS had not identified a lawful excuse for neglecting its statutory notice and comment obligation and found in favor of the hospitals.

“Many hospitals preserved appeal rights for their 2004-2014 cost reports that are eligible to appeal this issue,” she said. “In addition, some Medicare administrative contractors (MAC) alerted hospitals that the MAC would unilaterally reopen the hospital cost report if there were a final decision in Allina that changed the hospital’s DSH payments.”

It is not yet known how CMS will address hospitals who are eligible to appeal and CMS could take steps to recalculate the fractions in the formula of cost reports that have been appealed or are still subject to appeal.

“Going forward, stakeholders should watch for situations that create or change a substantive legal standard governing the scope of benefits, payment for services, and eligibility to provide or receive services under Medicare,” Kennan said. “If the CMS created or changed a substantive legal standard without a notice and a comment period, then a violation of the standard established by this case could exist.”