PRRB Upholds Liquidation Requirement for Pension Expenses in Wage Index Calculation

by Baker Donelson
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The Provider Reimbursement Review Board (PRRB) has issued a decision upholding CMS’s policy of not recognizing pension expenses for purposes of calculating the wage index unless such expenses are liquidated within one year. The decision may be viewed here.

The dispute stems from a policy change that CMS made in 2005, applicable beginning with the FY 2007 wage index. Prior to this change, CMS’s policy since 1994 had been that hospitals should report their pension expense for wage index purposes using generally accepted accounting principles (GAAP) rather than using Medicare reasonable cost principles. In 2005, CMS announced that pension costs must also meet the liquidation of liabilities requirement in the regulation at 42 C.F.R. § 413.100, beginning with the FY 2007 wage index.

The PRRB’s decision in favor of the intermediaries rests entirely on its finding that CMS effectively promulgated regulations in advance of the cost years at issue. The PRRB found that it lacked authority to reverse the fiscal intermediaries’ determinations, since such determinations were made pursuant to a validly promulgated regulation.

The PRRB’s decision was a narrow one, and so avoided many of the providers’ arguments in the case. In particular, the providers argued that requiring them to liquidate pension liabilities within one year is inconsistent with CMS’s statutory mandate to create a uniform wage index, since funding decisions vary widely among providers and from year to year while GAAP results in uniform measurement of pension liability. Additionally, the PRRB found that it lacked authority to address the providers’ position that CMS engaged in improper retroactive rulemaking when it applied its 2005 rule to wage data from prior fiscal years.

Ober|Kaler’s Comments

While the PRRB’s decision ostensibly upholds the government position, it does so by expressly disclaiming authority to find for the providers. In that sense, the PRRB has essentially punted the evaluation of CMS’s pension policy to the federal district courts. Given that the CMS Administrator would almost certainly have overturned a favorable decision, the providers were likely to end up in court no matter how the PRRB ruled.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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