The CMS is standing behind the inpatient payment cut to hospitals imposed under the two-midnight rule despite ongoing battles with hospitals over the reduction.
It's a stance that doesn't bode well for hospitals' efforts to persuade courts to reverse the reduction, legal experts say.
The CMS made its position clear in a notice and request for comment published Tuesday in the Federal Register in response to a federal judge's September ruling. In that ruling, in Shands Jacksonville Medical Center v. Burwell, the judge partially sided with the American Hospital Association and scores of other hospitals around the country, ordering HHS to better justify the cut and re-open the policy to comments.
The hospitals had challenged a 0.2% reduction in compensation for inpatient services meant to offset estimated costs to Medicare associated with the two-midnight rule. The two-midnight rule directs CMS payment contractors to presume hospital stays are appropriately billed as inpatient admissions rather than outpatient observation visits if they span two midnights.
The policy was intended to reverse a trend toward higher rates of observation stays, which experts attributed to defensive billing practices by hospitals wary of having their admissions challenged by Medicare's audit contractors.
The CMS believes the two-midnight rule—the enforcement of which has been delayed several times—will yield an increase in inpatient admissions and higher costs for Medicare.
In the notice published Tuesday, the CMS shows how it reached its estimates and describes them as most likely “overly conservative.”
The agency said in the notice it does “not propose to reconsider the reduction” in light of its analysis of historical inpatient and outpatient admissions data “at this time."
The American Hospital Association plans to submit “a robust critique” to the CMS as part of the comment process, a spokeswoman in a statement. “We do not believe this cut was or can be justified,” she said.
The substance of the notice is not good news for hospitals because the justification in the notice is likely to satisfy the judge who ordered it, said lawyer Michael Clark, special counsel with Duane Morris.
Plus, Clark said, it would be difficult for the hospitals to show that the CMS' actuarial assumptions constituted an abuse.
“It's hard to say they abused their discretion unless they have a really compelling argument to say the actuarial assumptions are completely off-base,” Clark said. Courts also tend to grant substantial deference to agencies such as HHS.
Clark said hospitals may have won the battle in court in September but “could lose the war.”
Jim Flynn, a partner with Bricker & Eckler who is representing six Ohio hospitals also suing over the cut in a separate challenge, said he was underwhelmed by the rationale and methodology the CMS provided in the notice. That information, he said, had already been shared as part of the Shands case.
“I think they're going to through the act, which may end up being a charade, of receiving and entertaining the comments, but I think they're going to end up in the same place,” Flynn said of the CMS. “I think it means that the fight is going to be a long one and not a short one.”
David Glaser, a shareholder at Fredrikson & Byron, also said he doubts hospitals' comments to the CMS will change the reduction. “CMS has made its position pretty clear, so it's hard to believe they will be swayed ultimately by comments,” Glaser said.
That's not to say, however, that hospitals will likely give up any time soon. There's too much money at stake, Clark said.
Hospitals might next try to argue in court that the payment reduction was arbitrary and capricious. The hospitals in the Shands case already made that argument, but the judge didn't weigh in on it in his decision, saying he didn't need to because he had already decided HHS didn't provide a meaningful opportunity to comment. The judge already rejected the hospitals' argument in that case that the decision to reduce payments exceeded HHS' statutory authority.
Or, if CMS does hold its ground after receiving comments, hospitals might try to argue in court that the CMS didn't take the comments seriously enough. But “that's a really high burden to meet,” Glaser said.
CMS plans to publish a final notice on the payment reduction by March 18.
