Hospitals eye graduate medical education in post-Chevron lawsuit

Academic health systems are targeting graduate medical education funding in a new lawsuit, signaling how providers may challenge more regulations in the wake of recent Supreme Court rulings.

Hospitals belonging to the UNC Health, UChicago Medicine and Yale New Haven Health systems sued Health and Human Services Secretary Xavier Becerra Friday, alleging the federal government underpaid hospitals for graduate medical education under an allegedly flawed reimbursement calculation. The complaint filed in the U.S. District Court for the District of Columbia cites the Supreme Court’s June ruling overturning what’s known as the Chevron deference, which gave broad authority to federal agencies in interpreting statutes.

Related: What policies could be affected by the Chevron ruling

HHS and Bridgeport Hospital, Greenwich Hospital and Yale New Haven Hospital, all in Connecticut, did not immediately return requests for comment. University of Chicago Medical Center also did not return a request for comment.

A spokesperson for the University of North Carolina Hospitals at Chapel Hill said the system does not comment on pending litigation.

In the complaint, the hospitals focused on funding changes related to how HHS defines full-time equivalent residents under the Inpatient Prospective Payment System. The federal government pays academic hospitals for resident salaries and other teaching expenses based on the weighted number of residents working at a facility and the treatment those facilities provide for Medicare patients.  

The U.S. District Court for the District of Columbia in 2021 ruled the formula for determining direct graduate medical education payments violated the weighting factors Congress had established. In response, HHS retroactively modified full-time equivalent resident counts since 2001, when the formula came into use. 

According to the complaint, however, HHS allegedly erred in those retroactive changes by excluding hospitals with closed Medicare cost reports. 

Hospitals must submit cost reports within five months of the end of the reporting period. A Medicare administrative contractor must review and finalize the report to "close" it, which can take more than a year. Hospitals can ask the federal government to reopen an audited Medicare cost report within a three-year period after finalization. The government can also reopen reports outside the three-year period in some circumstances.

The hospitals allege HHS' justification for not reopening all Medicare cost reports and not adjusting graduate medical education funding for all facilities was based on a regulation that relied on the now-overturned Chevron doctrine. 

“The [HHS] secretary’s reopening regulation itself was upheld on the basis of agency deference which the Supreme Court has now overturned,” the complaint states.

The plaintiffs are asking the court to reopen all hospital cost reports and require HHS to increase direct graduate medical funding and associated interest. 

The Inpatient Prospective Payment System is one of many regulations providers are expected to challenge now that the Supreme Court has shifted the power to interpret statutes from federal agencies to the courts.