The U.S. Court of Appeals for the First Circuit recently ruled in favor of HHS, overturning a $17 million district court decision, in a dispute dating back as far as the 1993 fiscal year over whether hospitals may include, for purposes of their Medicare disproportionate share hospital (DSH) calculation, patient days for patients entitled to both Medicare Part A and Medicaid but not Supplemental Security Income (SSI).  The plaintiffs, a group of eight Maine hospitals, sued HHS arguing that these days should be included in one of the fractions because such patients were clearly indigent, while the Secretary asserted that they could not be included in the numerator of the Medicare/SSI fraction because they were not entitled to SSI benefits and they could not be included in the Medicaid fraction because the Medicaid fraction categorically excludes all individuals entitled to benefits under Part A.  The Court of Appeals held that the Secretary’s interpretation was supported by the plain meaning of the statute under a Chevron step one analysis.  Aside from the substantive holding, this case may be equally noteworthy for the technical and administrative issues analyzed on appeal regarding adequate notices of cost report reopenings and the effect of settlement agreements. 

In particular, the Court of Appeals rejected the hospitals’ argument “that the reopening notices were invalid because they failed to comply with mandatory reopening provisions contained in the regulations,” as well as their argument “that they should be held harmless” because they were merely following the previous advice of the Medicare Administrative Contractor (MAC). 

Departing from the district court decision on the technical issues, the Court of Appeals concluded that the regulation does not require that a reopening notice include advice about the opportunity to present evidence and arguments, and the regulation trumps any requirements found in the Provider Reimbursement Manual.  As for the effect of settlement agreements, the panel commented that the MAC lacks the authority to make payments, settlement agreements, or administrative resolutions that are not authorized by Medicare, and the fact that the Secretary was not a party to the settlement agreements reinforces this conclusion.    

The case is Maine Medical Center et al. v. Burwell, No. 15-2483 (1st Cir. Oct. 27, 2016).  Please click here for a copy of the opinion.