D.C. District Court Invalidates CMS’s “Protest” Requirement

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On August 19, 2016, the United States District Court for the District of Columbia granted a group of hospitals’ motion for summary judgment against HHS in a challenge of the Provider Reimbursement Review Board’s (PRRB) denial of jurisdiction based on an application of CMS’s “self-disallowance” regulation, whereby providers must protest each unallowable cost on their cost reports to prove “dissatisfaction” with that item for purposes of PRRB jurisdiction.  The court held that the so-called “protest” requirement was foreclosed by the Supreme Court’s decision in Bethesda Hosp. Ass’n v. Bowen, 485 U.S. 399 (1988).  The case is Banner Heart Hospital, et al. v. Burwell, case no. 14-cv-01195 (APM) (D.D.C. August 19, 2016).  A copy of the district court’s opinion can be found here.

Plaintiffs are a group of non-profit acute care hospitals that participate in the Medicare program.  Plaintiffs brought their action to challenge the PRRB’s decision that it did not have jurisdiction to review plaintiffs’ appeal of Medicare regulations that govern the amount of “outlier” payments owed to plaintiffs for the treatment of extraordinarily expensive patient cases because plaintiffs had not complied with the “self-disallowance” regulation under 42 C.F.R. § 405.1835(a)(1)(ii) (2008).  That regulation requires that a provider report to the Medicare Administrative Contractor (MAC) a cost sought that it believes should be reimbursable but nonetheless knows will not be paid because of Medicare regulations or policies that it ultimately seeks to challenge.  The provider cannot specifically seek payment for that cost since payment is prohibited, but it must nonetheless “self-disallow” that item under protest with the filing of its Medicare cost report. 

The district court noted that plaintiffs submitted their respective cost reports to the MAC in 2009 but did not challenge or self-disallow amounts associated with outlier regulations on their as-filed cost reports.  In 2013, plaintiffs filed an appeal to the PRRB requesting expedited judicial review of their challenges to the outlier regulations.  The PRRB denied the request, finding that it had no jurisdiction because of the failure of the providers to protest the issue on their as-filed cost reports.  The providers appealed that decision to the D.C. District Court.

The district court found that the Supreme Court in Bethesda Hosp. Ass’n v. Bowen, 485 U.S. 399 (1988) had already considered the same section of the Medicare statute at issue (42 U.S.C. § 1395oo) and held that the plain language of section 1395oo did not require a provider to first raise with the MAC legal challenges to Medicare regulations in order to preserve its right to an appeal of those regulations.  The district court rejected the Secretary’s argument that Bethesda was distinguishable because the Secretary had issued the self-disallowance regulation after the Bethesda decision, imposing an exhaustion requirement on providers before they could bring appeals on these issues.  The district court agreed with plaintiffs that Bethesda held that exhaustion requirements are not permissible, even if imposed by regulation, for pure legal challenges to Medicare regulations.  The district court reasoned that the Supreme Court interpreted the plain language of the statute, which simply requires that a hospital be dissatisfied with its amount of reimbursement in order to file an appeal of a particular issue.

The court held that under Bethesda, the Secretary’s self-disallowance regulation, as applied to plaintiffs’ specific regulatory challenge, conflicted with the plain text of section 1395oo.  Therefore, the court concluded that the PRRB erred in ruling that it lacked jurisdiction to hear plaintiffs’ challenge to the outlier regulations.  The district court remanded the case to the PRRB for further action consistent with the correct legal standards.  The Secretary can appeal this decision to the D.C. Circuit Court.  Since all hospitals in the nation can bring suit in the D.C. Circuit for Medicare reimbursement, a favorable decision there would effectively set national policy. 

 

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