Hospital special-interest groups have jumped into the legal ring in a pending case before the U.S. Supreme Court that may be worth more than $100 million in Medicare payments to hospitals.
The interested parties include the American Hospital Association, the Federation of American Health Systems, the California Association of Hospitals and Health Systems, the Texas Hospital Association and 44 individual hospitals.
The groups, which collectively represent virtually every hospital in the country, and individual hospitals, want the high court to affirm a June 1993 decision by the 6th U.S. Circuit Court of Appeals in Cincinnati. A three-judge panel of the 6th Circuit said Medicare must pay hospitals in one lump sum for its share of any of the costs incurred by hospitals in refinancing their debt.
HHS, which argues that such payments should be spread out over the life of the debt refinanced, appealed the ruling to the U.S. Supreme Court, which accepted the case in April (See chronology). The high court has yet to schedule arguments in the case, and a decision isn't expected until next year.
In asking the high court to take the case, HHS said an adverse decision could force the government to come up with at least $100 million in principal and interest payments to immediately pay hospitals for Medicare's share of their refinancing costs.
At least 44 hospitals in addition to the hospital plaintiff in the case, HHS vs. Guernsey Memorial Hospital, have similar claims pending against Medicare through either group or individual lawsuits and administrative appeals. All the cases have been put on hold pending the outcome of Guernsey.
The payment dispute dates back to 1985, when 89-bed Guernsey Memorial Hospital in Cambridge, Ohio, incurred $673,000 in refinancing costs when it replaced $18 million in revenue bonds with new bonds payable at a lower interest rate. The hospital charged Medicare $314,000 for the program's share of the costs.
Although the hospital and HHS agree Medicare is liable for the amount, they didn't agree on when it should be paid. The hospital wanted it all at once, and HHS said the amount should be amortized over the life of the refinanced revenue bonds.
In 1990, the five-member Provider Reimbursement Review Board, which hears providers' payment disputes with Medicare, sided with the hospital, ruling that Medicare should have reimbursed the hospital in full in fiscal 1985, the year in which the costs were incurred.
Two months later, HCFA reversed the PRRB's ruling, and the hospital filed suit in November 1990.
The central issue in the case is whether Medicare should follow generally accepted accounting principles, or GAAP, in its payment policies, or use its discretion to follow any accounting methodology it deems appropriate. If Medicare had to follow GAAP, it would have to reimburse hospitals the same year the refinancing costs were incurred.
In its brief filed with the U.S. Supreme Court, HHS says it doesn't have to follow GAAP when it has put its own reimbursement rules in place. And in 1983, it did so in the HHS Provider Reimbursement Manual, the agency claims.
Provisions of the manual instruct Medicare to reimburse hospitals for incidental refinancing costs, such as legal fees, immediately. But, the provisions bar Medicare from reimbursing refinancing costs such as those incurred by Guernsey until the refinanced debt is repaid.
Taking issue with that are the hospital trade groups in their briefs.
In its brief, filed with the high court last month, the AHA says other Medicare regulations require the agency to follow GAAP and, therefore, require HHS to pay its share of refinancing costs immediately.
And, just in case the regulations don't apply, the AHA says HHS violated the Administrative Procedure Act in establishing its reimbursement policy and failing to seek public comment on such a major issue facing hospitals.
The FAHS, CAHHS and THA signed on to the AHA's brief.
A similar friend-of-the-court brief was filed with the high court by 42 hospitals that also want HHS to cough up money immediately for their debt-refinancing costs.
Twenty-eight of the hospitals are plaintiffs in a case against HHS called St. John Hospital vs. Shalala. St. John is pending before the 6th Circuit, which previously sided with the hospital industry in Guernsey. The other 14 hospitals are participating in a group payment appeal that's pending before the PRRB in Washington.
A third brief was filed by two Texas hospitals. One has won its debt-refinancing case against HHS in the 5th U.S. Circuit Court of Appeals in New Orleans, and HHS' appeal to the U.S. Supreme Court is pending. The other's lawsuit against HHS is pending in federal district court.