HHS must better explain how Medicare calculated payments to hospitals for particularly expensive patients in 2004, a federal appeals court ruled Tuesday in a case brought by 186 hospitals.
The court also, however, rejected the hospitals' challenge over those payments for 2005 and 2006.
A lawyer for the hospitals declined to comment on the case Wednesday. But Stephen Nash, a partner with Squire Patton Boggs who filed a friend-of-the-court brief in the case on behalf of 10 other hospitals, praised the ruling. His firm also represents hospitals in seven similar cases that raise broader challenges over a greater number of years.
“The court's decision is a favorable development for those hospitals that have filed appeals challenging the secretary's rule-making during her administration of the Medicare outlier program,” Nash said in a statement.
The Justice Department, which argued the case on behalf of HHS, said in a statement that it "is reviewing the opinion and considering the next steps in this litigation."
The 186 hospitals alleged in District Hospital Partners v. Burwell that Medicare underpaid them by more than $3 billion. Outlier payments are extra payments made to hospitals when the estimated cost of treating a patient exceeds the standard Medicare payment by a certain amount.
The hospitals allege that HHS used unreasonable methods to project future Medicare payments for the purposes of setting the thresholds for outlier payments. The hospitals called the thresholds "arbitrary and capricious" and allege they led to underpayments in 2004, 2005 and 2006.
Lawyers for the government, however, have argued that projections are implicitly imprecise and its methods for determining the payments were reasonable.
A three-judge panel of the D.C. Circuit Court of Appeals ruled Tuesday against the hospitals' arguments for 2005 and 2006, upholding a lower court's decision. Judge Karen LeCraft Henderson, who wrote the opinion, called the 2006 outlier threshold “plainly reasonable.”
The panel, however, disagreed with the lower court over the 2004 payments, saying the HHS secretary needs to better explain those calculation methods. The court also didn't rule out the possibility of recalculation.
“If she decides that it is appropriate to recalculate the 2004 outlier threshold, she should also decide what effect (if any) the recalculation has on the 2005 and 2006 outlier and fixed loss thresholds,” the judge wrote.
If the HHS secretary recalculates and lowers the thresholds, that could mean more money for hospitals. It's also possible either party in the case might ask the circuit court to rehear the case before a full panel of judges.
