The U.S. Supreme Court last week heard oral arguments in two cases that will affect healthcare providers, with potentially more than $1 billion at stake.
One case could determine how the federal government reimburses hospitals for Medicare's share of the cost of debt refinancing. The other could result in billions of dollars of compensation to veterans disabled after treatment in Department of Veterans Affairs hospitals.
Decisions in the cases are expected later in the court's term, which ends in the spring of 1995.
The court, in Shalala vs. Guernsey Memorial Hospital, is considering whether to force HHS to apply so-called generally accepted accounting principles, or GAAP, in paying hospitals Medicare's share of refinancing.
If HHS is required to apply GAAP, it will have to pay hospitals in a lump sum, rather than stretching interest and principal payments over the life of the debt. HHS says a ruling in favor of Guernsey Memorial would require it to find $100 million to pay hospitals immediately.
At least 44 hospitals in addition to the 89-bed Guernsey Memorial in Cambridge, Ohio, have similar claims pending against Medicare. Several hospital groups also have joined in the call for HHS to use GAAP.
Kent Jones, an assistant U.S. solicitor general who argued the government's case, objected to the hospital's claim that HHS Secretary Donna Shalala needs to apply GAAP, which are developed by the independent Financial Accounting Standards Board, or FASB.
"Nothing (in the regulation) represents a clear, unambiguous and firm admonition to the secretary that she should always use GAAP," Mr. Jones said.
But Scott Taebel, the attorney representing Guernsey Memorial, cited the regulation's call for widely accepted accounting standards in reporting costs for reimbursement purposes.
"GAAP, by definition, is the most widely accepted standard there is," Mr. Taebel said.
But Justice John Paul Stevens, during oral arguments in the case, contended that at one time, GAAP standards called for stretching out payments as HHS is doing today.
The GAAP guidelines were changed in 1972. If the court required HHS to use GAAP, FASB, a private organization, could essentially dictate practices for a government department whenever it wanted, Justice Stevens said.
In the VA case, Korean War veteran Fred Gardner is challenging the government for denying him disability benefits. In 1986, Mr. Gardner underwent back surgery at a VA hospital in Temple, Texas, to repair a herniated disc, but since has suffered nerve damage and atrophying in his left leg and is unable to work.
Under a 1924 law, the VA is supposed to pay disability benefits to veterans who suffer injuries as a result of their treatment in VA hospitals.
The government has refused to pay, however, citing a regulation under the law written by the VA, which says a patient must also prove the hospital was negligent in the treatment.
During oral arguments before the court, Justice Antonin Scalia challenged the government's justification for refusing to pay, saying he saw no evidence that Congress intended to mandate proof of negligence when it passed the law.
"I have a lot of trouble reading in (the law) a negligence requirement," Justice Scalia said.
Edward DuMont, an assistant solicitor general who argued the government's case before the court, said that Mr. Gardner's disabilities were common and foreseeable effects of the surgery. Determining what is foreseeable and what is out-of-line should be left to the VA, he said, and not Mr. Gardner.
But the justices also challenged the argument of Mr. Gardner's attorney, Joseph M. Hannon Jr. Mr. Hannon contended that the standard of whether to pay disability benefits in such a case should not be whether the disability is foreseeable, but rather if it simply resulted from the surgery.
Veterans groups are watching this case closely because of the impact it could have on veterans' hospitals. The VA has claimed that if Mr. Gardner wins the case, it will have to pay up to $1 billion over five years to veterans with similar claims.