American Hospital Association and Hospital Groups File Challenge to Medicare's Two Midnight Rule and Other Hospital Payment Policies

by King & Spalding

On April 14, 2014, the American Hospital Association (AHA), together with several hospitals and other hospital associations, filed two lawsuits in D.C. District Court challenging Medicare hospital reimbursement policies. In the two separate lawsuits, the Plaintiffs challenge (1) Medicare's Two Midnight Rule and related policies adopted in the FY 2014 IPPS final rule; and (2) the 0.2 percent payment reduction associated with the Two Midnight Rule. 

In the first lawsuit, the Plaintiffs challenge three inpatient reimbursement policies finalized in the 2014 IPPS rule. Specifically, the lawsuit challenges the Two Midnight Rule on the basis that under the Medicare program inpatient determinations have historically been based on expert physician decisions. The Two Midnight Rule's focus on length of time spent in the hospital, rather than a physician determination, therefore is arbitrary and capricious and contrary to the Medicare statute. In addition, the Plaintiffs also challenge the one-year post date-of-service claims filing deadline for the submission of Part B claims for payment following the denial of a Part A claim on the basis that the inpatient admission was not medically necessary. The AHA's challenge is based on the fact that, typically, by the time a Medicare contractor (in particular, a Recovery Audit Contractor) denies a claim, more than a year has passed since the date of service. As a result, hospitals will almost never be able to meet this deadline despite the fact that CMS determined in the final rule that the Medicare statute requires that hospitals must be reimbursed under Part B for medical necessary services provided during the inpatient stay. Finally, the Plaintiffs contend that the 2014 IPPS final rule requirement of a written physician order for admission as a condition for Medicare payment for Part A claims runs contrary to the Medicare statute. Congress specifically amended the Medicare statute in 1967 to specify that documentation of medical necessity was not required for hospital stays in the ordinary course, and such documentation was only required for extended inpatient stays.

The AHA's second lawsuit raises nearly identical claims to those brought in Athens Reg. Med. Ctr. v. Sebelius, Case No. 1-14-cv-503 (RBW) (D.D.C.). Athens, which was filed by King & Spalding on March 25 on behalf of 24 IPPS hospitals, challenges the 0.2 percent IPPS rate cut. In the AHA's lawsuit, the AHA and other Plaintiffs contend that the Two Midnight Rule's 0.2 percent rate reduction is unjustified because the Medicare claims data used to support the reduction does not, in fact, support CMS's proposition that IPPS payments will increase as a result of the Two Midnight Rule. The Plaintiffs also allege that the calculations CMS relied on were not properly explained and that CMS did not disclose the assumptions it relied upon during notice and comment rulemaking. More information regarding this legal issue and the Athens case challenging the issue is available here.

Reporter, Paige Fillingame, Houston, +1 713 615 7632,

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