A group of hospitals has found a sympathetic federal judge who's willing to award the facilities extra Medicare payments for care the government says it already has paid for.
The decision, handed down last week, could open up the Medicare coffers to hospitals nationwide.
"If every hospital in the country were to receive these retroactive payments, the total liability for Medicare could be up to $341 million for that ('85-'86) period," said Jorge Lopez Jr., an attorney with Akin Gump Strauss Hauer & Feld in Washington, which represented the plaintiff hospitals.
The group comprises 211 facilities that sued HHS in 1993 in U.S. District Court in Washington. The hospitals claim Medicare underpaid them in 1985 and 1986 for treating "outlier" patients, or patients with unusually long or costly stays.
When Medicare moved to a prospective payment system in 1984, it agreed to pay hospitals extra money for such patients (See box).
A large chunk of the money Medicare set aside for outlier patients in 1985 and 1986 was never paid to hospitals, the suit alleged. Federal law requires HHS to set aside 5% to 6% of an entire year's PPS payments to cover outlier costs.
The question debated in court was whether that share is based on estimated or actual total PPS payments to hospitals.
HHS argued that the share should be based on the estimate, which is made before a fiscal year begins. The Medicare payments to hospitals during the subsequent actual fiscal year reflect those outlier costs, HHS said.
The hospitals, though, argued that the share should be based on actual fiscal year PPS payments, which would boost their payments. And in a 22-page opinion dated Jan. 20, U.S. District Judge Stanley S. Harris agreed with them.
"The (HHS) secretary is obligated to make additional payments to hospitals to ensure . . . the entire outlier pool is paid to hospitals," he said.
But that decision is at odds with a 1996 ruling by a federal district court in Los Angeles that found for HHS in a similar case.
In that case, U.S. District Judge Robert Takasugi said the hospitals weren't entitled to back payments for outlier cases in 1985 and 1986.
"Because the statute requires that outlier thresholds be set in advance of a fiscal year, Congress must have intended that the secretary rely on projections and estimates," Takasugi wrote. "No readjustment is required."
The hospitals in that case have appealed the decision to the 9th U.S. Circuit Court of Appeals in San Francisco. Oral arguments were heard in October 1997.
The split precedent means the government will almost surely appeal Harris' decision, legal observers said.
Karen Stewart, HHS attorney in the case, referred questions to U.S. Justice Department officials, who did not return calls by deadline.