A federal appeals court ruled on Friday that HHS must better explain the formula it used to create its Medicare outlier payment system to address concerns that some providers "turbocharged" the program and affected the payouts.
A three-judge panel of the U.S. Circuit Court of Appeals for the District of Columbia Circuit determined HHS' formula for 2004 through 2006 may have been influenced by past patterns of 123 "turbocharging" hospitals. Those providers manipulated list charges to make their costs look higher and secure additional outlier payments.
HHS uses outlier payments to boost Medicare reimbursements for hospitals with unusually expensive patients that cost more to treat than through the DRG payment arrangements.
Banner Health and 28 other not-for-profit hospitals claimed they hadn't turbocharged the outlier program and that HHS underpaid them from 1997 to 2007.
Approximately 2% of hospitals manipulated the outlier payment program, according to the decision.
The D.C. Circuit ruled that HHS was not to blame for reimbursement issues before it learned about the turbocharging or after the distortions were resolved in 2007.
If HHS fails to provide a "satisfactory explanation for including the turbo-charged data," the D.C. Circuit panel said it will vacate that portion of the 2004 rule. The federal appeals court previously criticized HHS' 2004 outlier formula in a 2015 decision that sided with another group of potentially underpaid hospitals.
A stock analyst first uncovered the turbocharging issue in 2002, when he alleged Tenet Healthcare was manipulating the outlier payment system. The health system later paid more than $788 million to resolve the government's allegations that it received excessive outlier payments. Many other hospitals also reached settlements with the federal government for the practice.
The problems stemming from turbocharging are still around today, according to Stephen Nash, a partner at Squire Patton Boggs and attorney for Banner Health. He believes the health system and 28 others in this case could reach a settlement with the HHS for more than $100 million.
An HHS spokesman said the agency does not comment on pending litigation.
