600+ Hospitals Sue Over $840M in Medicare Reimbursement Cuts

November 25, 2019 - More than 600 hospitals have filed a lawsuit against HHS over its decision to continue a 0.7 percent reduction in Medicare reimbursement for inpatient services in federal fiscal years (FFY) 2018 and 2019.

The lawsuit, filed on November 19 and originally obtained by Axios, claims that the decision to continue the cut oversteps violated Congress’ directive, which approved the 0.7 percent reimbursement reduction from 2014 through 2017 to recoup $11 billion in overpayments since 2008.

“Congress explicitly prohibited CMS from continuing any of the recoupment adjustments beyond FFY 2017,” the lawsuit stated.

The 0.7 percent reduction stemmed from a series of temporary, limited adjustments authorized by Congress for the purpose of recovering overpayments stemming from changes made to the Inpatient Prospective Payment System (IPPS). Specifically, Congress gave HHS the authority to lower the Medicare reimbursement rates in 2007 to recoup overpayments in FFYs 2010, 2011, and 2012. Several years later, Congress extended the recoupment adjustment through FFY 2017 to recover overpayments in FFYs 20120 through 2012.

Congress granted the reduction to offset coding changes implemented in FFY 2008, which policymakers anticipated to increase aggregate payments to hospitals.

Hospitals are now arguing that HHS should have adopted an “offsetting increase in the IPPS payment rate” at the start of FFY 2018 since Congress wrote that the recoupment adjustments “shall not be included in determination of standardized amounts for discharges in a subsequent year.”

The lawsuit that the “unlawful” continuation of the Medicare reimbursement cut in 2018 and 2019 represented $840 million in losses annually, or about $200,000 per year on average for each hospital participating in Medicare.

Hospitals also said that HHS “conflated” certain acts “to justify its unlawful conduct, which resulted in massive savings for CMS and significant financial determinant to the Plaintiffs.”

The hospitals, which included several Advocate Aurora Health and Ascension locations as well as UPMC’s flagship hospital UPMC Presbyterian, called on the US District Court for the District of Columbia to reverse the 0.7 percent reduction under the Inpatient Prospective Payment System (IPPS) for 2019.

The hospitals also want HHS to repay hospitals for the lost Medicare reimbursement in 2018 and 2019, plus interest.

HHS was also the defendant in another lawsuit filed on November 21. Obtained by Axios, the lawsuit alleged that HHS pursued a Medicare reimbursement policy despite the Supreme Court striking it down earlier this year.

Specifically, the case focused on the policy that included Medicare Advantage patients in the calculations of Medicare disproportionate share hospital (DSH) payments. The policy impacted billions of dollars in Medicare reimbursement to hospitals, which prompted the facilities to sue HHS.

The original lawsuit claimed that HHS overstepped its statutory authority by implementing the policy without a notice-and-comment period. The DC Circuit sided with the hospitals twice, ordering HHS to stop enforcing the policy. The Supreme Court then upheld the Circuit’s decision later in the year.

Fifteen hospitals, however, are now claiming that HHS still relies on the policy to determine Medicare DSH payments. The hospitals included Capital Health System Inc. in New Jersey and St. Barnabas Hospital in New York.

“Although the D.C. Circuit has twice ruled against the Secretary’s 2004 policy, and the Supreme Court has upheld the Allina II decision, the Secretary nonetheless has not acquiesced in those decisions,” their lawsuit stated.

The hospitals asked the US District Court for the District of Columbia to direct HHS to recalculate their Medicare DSH payments and repay the difference, plus interest. The hospitals are also seeking recoupment for legal fees and costs associated with the lawsuit.

Hospitals have recently realized success in court. In September, a federal judge ruled in favor of hospitals challenging Medicare’s site-neutral payment policy in the Outpatient Prospective Payment System (OPPS). A district court also vacated cuts to the 340B Drug Pricing Program after a group of hospitals claimed the nearly 30 percent payment cuts were beyond the department’s authority.