The number of hospitals filing lawsuits against HHS over cuts to inpatient payments under the two-midnight rule continues to grow, despite the CMS' firm resistance to erasing the reduction.
More than 50 hospitals across the country filed a lawsuit Friday against HHS over a part of the two-midnight rule that reduces compensation for inpatient services by 0.2%. The controversial policy directs CMS payment contractors to presume short hospital stays are appropriately billed as inpatient admissions rather than outpatient observation visits if they span two midnights.
The rule was a response to a surge in observation claims that the CMS attributed to hospitals trying to avoid having their claims challenged by Medicare's auditors. The agency expects the policy to yield an increase in inpatient claims, and the 0.2% rate reduction is intended to offset the estimated $220 million a year in additional costs to the program.
Hospitals and hospital associations disagree with the estimate and say HHS exceeded its authority in making the rule, which they call “arbitrary and capricious.”
A U.S. Justice Department spokeswoman declined to comment on the case Monday.
The lawsuit filed Friday is at least the fourth over the issue. In a separate case filed by the American Hospital Association and more than 100 hospitals (Shands Jacksonville Medical Center v. Burwell), a federal judge ruled in September that the HHS secretary must provide better justification for the cut and reopen that part of the two-midnight rule to comments.
Six Ohio hospitals filed a lawsuit against HHS in November over the matter. More than 30 hospitals filed yet another in October.
In response to the September ruling in the Shands case, the CMS issued a notice and request for comment in December in which it stood behind its inpatient payment cut. The agency said it does “not propose to reconsider the reduction” in light of its analysis of historical inpatient and outpatient admissions data “at this time.”
Still, the lawsuits keep coming, showing that hospitals have no intention of backing down.
“There's a lot of money at stake,” said Michael Clark, special counsel with Duane Morris. “It's clear the hospitals think they have a good shot, or they wouldn't keep pressing it.”
More potential lawsuits may be working their way through the administrative appeals process, said Jim Flynn, a partner with Bricker & Eckler, who is representing the hospitals in the Ohio lawsuit. He noted that he has challenges from a few hospitals still pending before the federal Provider Reimbursement Review Board.
Hospitals must bring challenges to that board before taking their grievances to court. In these cases, the board has been saying it can't rule on the issue because it doesn't have the authority to invalidate an HHS regulation, said Don Romano, of counsel with Foley & Lardner, who is representing the hospitals in this latest lawsuit.
The cases already before the courts make a number of the same arguments, and at least three of them are before the same judge. Romano said he expects the judge who ruled in the Shands case to consider the two other cases before him together with Shands moving forward.
Though the cases make the same arguments, hospitals are continuing to file more legal challenges to ensure they get a piece of the pie should they ultimately win in the courts or with the CMS.
“Each year that CMS keeps the payment cut in place, the more lawsuits there will probably be,” Romano said.
Even if the court ultimately vacates the regulation, there's no guarantee the CMS will apply the relief to all hospitals, he said. “In order to protect themselves, hospitals are filing these lawsuits.”
What happens next will likely hinge on what the CMS does in coming months. Even though the CMS defended and further explained its reasoning for the pay cut in December, the agency must accept comments and publish another notice by March 18.
That notice, Flynn said, will determine the hospitals' next move.