Regardless of whether the taxes are good policy, critical-access hospital advocates argue that the provider taxes should count as a Medicare cost as they have historically, and say that the CMS is not following proper procedure in raising the issue as part of what it calls a clarification in rulemaking for the inpatient prospective payment system.
“The clarification as it were that CMS came out with last year … is very troubling,” says Brock Slabach, senior vice president for member services at the National Rural Health Association, Kansas City, Mo. “It's a significant change in policy by the CMS.”
The question arose when the CMS in its proposed inpatient prospective payment rule—published in the May 4, 2010, Federal Register—stated that CMS officials believe taxes paid into Medicaid pools that draw federal matching funds are in part, if not completely, offset by increased Medicaid funding to the sector. For that reason, the taxes are not necessarily a cost for Medicare purposes, and just the net amount between what is paid in taxes and what the hospital is reimbursed for by Medicaid from that pool should be classified as a Medicare cost, the CMS states in its proposed and final inpatient prospective payment rules.
“In situations in which payments that are associated with the assessed tax are made to providers specifically to make the provider whole or partly whole for the tax expenses, Medicare should similarly recognize only the net expense incurred by the provider,” the CMS wrote in the final rule published in the Aug. 16, 2010, Federal Register. “Thus, while a tax may be an allowable Medicare cost in that it is related to beneficiary care, the provider may only treat as a reasonable cost the net tax expense,” according to the rule.
As a result, Medicare fiscal intermediaries—third parties hired to administer Medicare for the CMS—already are making decisions about how much of a provider tax paid by critical-access hospitals, if any, qualifies as an appropriate cost, and how much hospital reimbursement should be reduced.
The change caught many critical-access hospital administrators off guard. “It came out of the blue,” says Michele Lawless, director of reimbursement for Commonwealth Health Corp., Bowling Green, Ky., a not-for-profit operator of two critical-access hospitals and two general acute-care hospitals in Kentucky. The decision cost one of its hospitals $115,000 and the other $65,000, she says. Commonwealth Health is appealing the decision with Medicare, Lawless says. “You have some avenues to appeal and we are beginning the appeal process,” she says.
Others in the industry also are fighting the rejection by Medicare of state provider taxes as a cost of doing business. In Kentucky, the state hospital association last year sued Berwick, HHS Secretary Kathleen Sebelius and Kentucky's fiscal intermediary, National Government Services, in federal court. Though that suit was dropped by the Kentucky Hospital Association, it could be revived if the association's appeal plan goes as hoped, says the association's outside counsel, David Dirr, an attorney with Dressman Benzinger LaVelle, in its Crestview Hills, Ky., office.
HHS moved to dismiss the association's initial case because the matter had not been reviewed by the administrative body charged with doing so, the Provider Reimbursement Review Board, Dirr says, so the hospital association dropped the suit and took it up with the review board. A group appeal was filed with the board Feb. 11 requesting expedited judicial review, which would move the dispute back into federal court, where the association thinks it belongs, he says. “It's a legal matter” and not something that the review board would normally be deciding, Dirr says. But for procedural reasons, the board needs to review the dispute before it goes to court, he says.
Among the arguments raised by the KHA in its initial suit and by others opposing the revision is that the CMS is changing its policy and not issuing a clarification, as the CMS rule called it. By calling it a clarification, “it precluded the public comment routine,” Slabach says.
Moreover, they argue that the move goes against the spirit of having a critical-access hospital designation in the first place. “This change in policy, which HHS erroneously describes as a ‘clarification' in the final rule … will have a serious negative economic impact on each of the (critical-access hospital) members of the KHA, and will deprive the low-income, mostly rural populations they serve of access to the healthcare services currently provided by these KHA members,” according to the lawsuit.
“It's really an about-face from what they've done in the past,” Dirr says. “They've always allowed the full amount of these provider taxes,” he says.
Two provider groups in the state of Wisconsin make a similar argument in a letter to the CMS opposing the agency's interpretation.
“The CMS policy is not a clarification,” according to a June 16, 2010, letter to the CMS signed by the Wisconsin Hospital Association and the Rural Wisconsin Health Cooperative. “CMS has never described these taxes as nonreimbursable, nor that amounts received from the state must be offset against the amount of the taxes, in the (Medicare provider reimbursement manual) or in any other guidance,” the groups write. “And although the CMS has had opportunities to do so in the past when addressing provider tax issues at the Provider Reimbursement Review Board and through administrator review, it has never articulated a policy akin to what is being proposed here."