In a case worth as much as $100 million in extra Medicare payments to teaching hospitals, the U.S. Supreme Court last week heard arguments in a hospital's lawsuit that challenges how HCFA calculates the amount Medicare pays hospitals for their graduate medical education costs.
Medicare was expected to pay hospitals a projected $7.1 billion for Medicare-related medical education costs in fiscal 1997, which ended Sept. 30.
Regions Hospital, a 409-bed facility in St. Paul, Minn., is disputing HCFA's 1991 adjustment of its allowable 1984 GME costs. Under a 1986 law, costs in 1984 were used as a baseline for subsequent GME payments.
HCFA's 1991 re-estimate reduced the 1984 allowable costs of Regions -- known in the lawsuit by its former name, St. Paul-Ramsey Medical Center -- by 44.5% to $5.5 million from $9.9 million.
The audit that resulted in the re-estimate was conducted under the authority of a 1989 regulation that called for re-examination of the costs allowed under the 1986 law. With the 1989 regulation, HCFA sought to eliminate from the 1984 baseline any nonallowable costs that were erroneously included.
Under the re-estimate, HCFA did not demand that the hospital pay back any money from 1984. But the agency said it could use the re-estimate to determine payments for any year for which the hospital's cost report had not been settled.
The hospital claims HCFA's action is unfair because the audit that resulted in the 1991 adjustment took place in late 1990. Many records used to justify costs in 1984 were no longer available by then.
If the hospital wins its case, its GME payments would be calculated from 1986 forward using the original 1984 allowable cost baseline. That could mean another $10 million for the hospital in previous costs.
Ronald Sutter, Regions' attorney, said the impact of the case should be fairly limited because most teaching hospitals already have settled their 1984 base-year costs with HCFA. But it could affect payments to as many as 100 of the nation's 1,100 teaching hospitals.
The hospital sued HCFA in December 1994, claiming the 1989 regulation that authorized the recalculation was invalid. The hospital lost its challenge to the validity of the regulation in federal district court in Minnesota in August 1995 and, again, in federal appeals court in July 1996. The Supreme Court agreed in June to hear the case. A decision is expected before next summer.