The U.S. Supreme Court last week let stand an appellate court ruling that denied hospitals across the country $3 billion in Medicare payments for treating extremely ill beneficiaries.
At issue in the case, filed by 181 hospitals, was the level of supplemental Medicare payments for medical "outlier" patients--patients far sicker than the average for their diagnosis. The hospitals sought payments above the normal DRG rates for those patients and a change in how those supplemental payments are calculated.
Federal law requires that the total amount of outlier payments be at least 5% of total projected prospective payment system (PPS) payments for that year. But the plaintiff hospitals claimed that the total outlier payments to all hospitals for at least two years--fiscal 1985 and 1986--were 3% and 4.4%, respectively. The government did not dispute that.
Because of that calculation, the country's hospitals were shortchanged $342 million in those two years and as much as $3 billion since 1983, when Medicare's PPS began, the plaintiff hospitals alleged.
The hospitals bringing suit were a mix of for-profit and not-for-profit, community and public hospitals from around the country that believed they were underpaid by HHS, said the hospitals' attorney, Lloyd Bookman of Hooper, Lundy & Bookman in Los Angeles.
The hospitals also claimed that HHS used outdated information from 1981 to set its outlier payment rates, rather than more current information available since 1984.
While the law didn't require HHS to use the 1984 data, Bookman conceded, "It does require that the government to do a reasonably good job of determining thresholds; and by not using the 1984 data, we think they acted improperly and unreasonably."
The hospitals sued HHS in 1993, and in 1998, U.S. District Judge Stanley Harris in Washington sided with the hospitals on one issue. He ordered HHS to make retroactive payments to the hospitals for their outlier patients, but he didn't require HHS to explain or adjust its calculations for determining those payments.
"We were happy with that ruling, because it established the 5% minimum," Bookman said.
But HHS appealed, and last October the U.S. Circuit Court of Appeals in Washington reversed the lower court's decision and denied the hospitals' request for back payments.
In its 20-page unanimous decision, a three-judge panel of the appellate court said the government's interpretation of its own billing rules and its execution in paying the hospitals for their outlier cases was appropriate.
"These payments were not intended to subsidize hospitals simply for treatments, which in absolute terms were extraordinarily costly or lengthy," the panel said. "Rather, Congress directed the secretary to provide additional payments for cases which are extraordinarily costly to treat, relative to other cases within the DRG."
But the appellate court did order HHS to explain its methodology or recalculate the fiscal 1985 and 1986 rates on 1984 data, which would increase hospital reimbursements.
While the hospitals appealed the verdict, HHS did not.