Some believe a federal appeals court decision over hospital classifications could lead to millions of dollars in savings for hospitals across the country.
The 2nd U.S. Circuit Court of Appeals decided Thursday to invalidate a Medicare regulation that says certain hospitals can't be classified as both rural and urban. The decision applies only to hospitals within that circuit. But some hope that decision, combined with an earlier similar one in a different circuit, will inspire HHS to change the regulation across the country.
“It's not good to have the Medicare program inconsistent across the country,” said Joseph Glazer, the New Jersey attorney for the plaintiff, 252-bed Lawrence & Memorial Hospital in New London, Conn. The change would have significant nationwide impact, he said.
“We're talking about millions of dollars a year” for about 200 hospitals, he added.
The U.S. Attorney's Office in Connecticut, which represented the government in the case, said Friday the Justice Department and HHS are reviewing the decision “to determine how best to proceed.”
Under current Medicare law, hospitals can be classified as urban for some purposes (PDF). Urban classifications help them get higher reimbursements for wages paid. Rural classifications can provide access to the 340B drug discount program.
But in 2000, HHS Secretary Donna Shalala issued a regulation known as the “reclassification rule” which prohibited hospitals that had been reclassified from urban to rural from then getting an additional reclassification as urban.
A three-judge panel on Thursday invalidated that regulation, saying it didn't fit the plain language of the law and exceeded the HHS secretary's authority.
The law “simply increases the number of situations in which hospitals can be treated as rural for some purposes and urban for others, but there is nothing 'absurd' about such a measured approach,” Judge Jed Rakoff wrote in an opinion.
HHS had argued in court documents that the law was ambiguous on the matter, and the regulation was a reasonable way to address that statutory gap. HHS argued that Congress did not show any clear intent on the issue.
The 3rd U.S. Circuit Court of Appeals also ruled against the regulation in a decision involving 248-bed Geisinger Community Medical Center in Scranton, Pa., last year.
The decisions invalidate the regulation only for hospitals in those circuits (PDF). The 2nd Circuit includes Connecticut, New York and Vermont, and the 3rd Circuit includes Delaware, New Jersey, Pennsylvania and the Virgin Islands.
The appeals court decision reversed a district court decision siding with HHS.
