Some of the nation's 1,300 teaching hospitals hooked a key legal fish last week, but the big one got away.
The U.S. Supreme Court agreed to hear a case that will determine whether teaching hospitals operated by universities with medical schools can bill Medicare for certain medical school costs. At stake, according to federal estimates, is about $150 million in Medicare reimbursement.
But the high court refused to hear a case that allows HCFA to re-audit a teaching hospital's graduate medical education costs and collect any overpayments that have been made. That case could cost hospitals as much as $300 million.
"The Tulane case had broader implications in terms of dollars than the Thomas Jefferson case," said attorney James Gaynor Jr. with McDermott, Will & Emery in Chicago. He represents the plaintiff hospital in Thomas Jefferson, which the high court agreed to review.
Mr. Gaynor said the scope of his case is limited to about 70 teaching hospitals operated by universities with medical schools. The scope of Tulane, which the high court rejected, could be any teaching hospital that billed Medicare for graduate medical education costs during the first year of Medicare's prospective payment system.
But attorney Ronald Sutter, who's with Powers, Pyles & Sutter in Washington and who represented the hospital plaintiffs in Tulane, downplayed the high court's rejection, saying the lower court decision left intact by the high court applies in only one federal jurisdiction. And, he said, the matter is far from resolved.
The Tulane case involves an effort by HCFA to recalculate teaching hospitals' Medicare-reimbursed graduate medical education costs based on a set of 1989 regulations. The regulations allowed HCFA to recalculate hospitals' 1984 GME costs using more restrictive audit criteria. Hospitals' 1984 costs served as the basis for calculating succeeding years' GME payments.
After the audit, HCFA estimated that teaching hospitals in aggregate owe the government about $300 million for overpayments for GME costs from July 1, 1985, through Sept. 30, 1990. Because of the legal proceedings, HCFA put its collection efforts on hold in September 1992 (Oct. 19, 1992, p. 6).
Six teaching hospitals challenged the re-auditing activities, and in July 1992, the U.S. District Court in Washington sided with the hospitals. On appeal, however, the U.S. Court of Appeals for the District of Columbia Circuit reversed the lower court decision and said HCFA can retroactively audit hospitals' GME costs. The appellate court opinion will stand now that the Supreme Court has decided not to take the case.
Thomas Coones, supervisory litigation attorney for HHS, said the agency resumed collecting overpayments from teaching hospitals last August after the appellate court refused the hospitals' request to reconsider its decision.
Meanwhile, in Thomas Jefferson, the high court agreed to consider whether a university-operated teaching hospital can bill Medicare for certain costs incurred by the university's medical school in support of the hospital.
The case involves an attempt by Thomas Jefferson University Hospital in Philadelphia to charge Medicare for about $430,000 in administrative expenses incurred in 1985 by the hospital's affiliated medical school.
HCFA rejected the claim, arguing that the hospital was simply allocating to the hospital some costs incurred by the medical school that previously were never billed to Medicare and presumably had been paid with other revenue. The hospital argued that provisions of the Medicare Act require HCFA to pay its share of hospitals' direct and indirect GME costs. It also said HCFA's reasons for rejecting the claim were invalid.
In May 1992, the U.S. District Court in Philadelphia sided with HCFA. A year later, the 3rd U.S. Circuit Court of Appeals in Philadelphia upheld the lower court decision without comment, and the hospital appealed.
Attorneys for HCFA also urged the Supreme Court to take the case because a previous decision by another federal appellate court sided with the hospital plaintiff in a nearly identical lawsuit.
Oral arguments in Thomas Jefferson likely will begin this spring, with a ruling by year-end.-David Burda