Academic medical centers that want Medicare to start paying for medical school expenses are all but out of luck because of a U.S. Supreme Court decision handed down last week.
"The decision puts an end to many pending cases, unless the hospitals can prove that there are peculiar facts in their cases that make the decision not applicable," said James Gaynor, the attorney with the Chicago office of McDermott, Will & Emery who represented the hospital plaintiff in the case.
In a narrow 5-4 decision, the high court on June 24 ruled that Medicare doesn't have to pay university-operated teaching hospitals for separate costs incurred by the university's affiliated medical school.
Justice Anthony M. Kennedy, who wrote the opinion for the majority of the high court, said HHS correctly interpreted and applied a 1983 Medicare regulation to bar hospitals from reallocating medical school costs to their reimbursable Medicare expenses.
The regulation, known as the "anti-redistribution" rule, says, "It is not intended that this program (Medicare) should participate in increased costs resulting from redistribution of costs from educational institutions or units to patient-care institutions or units."
The hospital plaintiff in the case,Thomas Jefferson University Hospital in Philadelphia, argued that other provisions of the federal Medicare Act supersede the redistribution rule.
Specifically, other provisions of the act require Medicare to pay its share of hospitals' direct and indirect graduate medical education costs, the hospital said. And those costs can include costs incurred by a hospital-affiliated medical school in support of the hospital's GME program, it said.
The hospital wanted Medicare to pay about $430,000 in administrative expenses incurred in 1985 by the hospital's affiliated medical school. The hospital claimed a total of $8.8 million in GME costs for 1985. The government rejected $2.9 million of that, including the $430,000 in medical school costs.
After the hospital sued HHS, the U.S. District Court in Philadelphia sided with the government in May 1992. A year later, the 3rd U.S. Circuit Court of Appeals in Philadelphia upheld the lower court decision without comment, and the hospital appealed to the U.S. Supreme Court. The high court accepted the case in January and heard oral arguments on April 18.
Attorneys for the government also urged the high court to take the case because a previous decision by another federal appeals court sided with the hospital in a nearly identical lawsuit.
In its brief, the government said at least 18 similar claims by university hospitals were pending in lower federal courts or in the Medicare administrative appeals process, and that a decision against HHS could cost Medicare as much as $150 million.
In a 15-page dissent, Justice Clarence Thomas said HHS arbitrarily interpreted the anti-distribution regulation to avoid paying hospitals what they were owed by Medicare. He said the regulation really was a statement of intentions rather than a formal regulation.