On February 21, 2024, CMS published a transmittal on its website with instructions for Medicare Administrative Contractors (MACs) to implement CMS’s final rule, issued June 9, 2023, concerning the treatment of the Part C days in the Medicare DSH calculation. The transmittal, titled Change Request (CR) 13294, effectively ends the years-long hold that CMS imposed on settlements for cost years affected by the Allina litigation. It orders MACs to settle cost reports and issue notices of program reimbursement (NPRs) or revised NPRs for reporting periods beginning before October 1, 2013, using disproportionate patient percentages (DPPs) calculated in accordance with CMS’s new Part C rule.
Background: The Legend of Allina
CR 13294 marks the latest chapter in the ongoing Allina litigation saga. This whole affair dates back to the inpatient prospective payment system (IPPS) proposed rule for FY 2004, wherein CMS proposed to “clarify” its existing policy concerning how Part C days are counted in the Medicare DSH formula. CMS explained that under its then-existing policy, Part C days were excluded from the Medicare/SSI fraction and, if the patient was dual-eligible, included in the Medicaid fraction.
Stakeholders commented on CMS’s proposed clarification. But CMS did not address those comments until the following year in the IPPS final rule for FY 2005. Therein, CMS reversed course and decided that Part C days would be included in the Medicare/SSI fraction and excluded from the Medicaid fraction.
Hospitals cried foul. They argued that CMS’s proposal to “clarify” its longstanding practice did not give them adequate notice that the agency might consider reversing its policy instead. Hospitals lodged their grievances before the PRRB and ultimately in Federal court, culminating in the D.C. Circuit’s decision in Allina I. The Allina I court invalidated the Part C policy CMS adopted in the FY 2005 rule, finding that it was not a logical outgrowth of its FY 2004 proposal.
In the FY 2014 IPPS rule, CMS readopted the Part C policy it attempted to establish in the FY 2005 rule. While this may have “fixed” the issue prospectively for cost reporting periods beginning on or after October 1, 2013, it did not address the treatment of Part C days between FYs 2005 and 2013.
CMS decided that it would continue to apply its preferred Part C policy to FYs 2005 through 2013 even in the absence of the FY 2005 rule that the Allina I court had vacated. In 2014, CMS published the Medicare/SSI fractions for FY 2012, which continued to reflect the agency’s defunct Part C policy. Hospitals cried foul again, and a second round of litigation ensued, this time making its way up to the Supreme Court. The Allina II Court ruled that CMS could not apply its preferred Part C policy because it had not gone through notice-and-comment rulemaking.
Just over a year after the Allina II decision, on August 6, 2020, CMS issued a proposed rule in which it proposed to invoke its retroactive rulemaking authority to adopt a DSH Part C policy for FYs 2005 through 2013. The proposed policy mirrored the FY 2005 rule that the Allina I court invalidated—Part C days would be included in the Medicare/SSI fraction and excluded from the Medicaid fraction.
While that proposal was pending, CMS made efforts to ensure that whatever policy came out of the final rule would be applied to all cost reports that were reopenable as of the time of the proposed rule. To that end, CMS instructed the MACs to issue notices of reopening for all cost reports that were reopenable at that time.
CMS also placed a stay on all settlements or appeals that might be affected by the outcome of the final rule. The agency published CMS Ruling 1739-R on August 17, 2020. The ruling instructed the Provider Reimbursement Review Board (PRRB) to remand all Allina-like appeals (for cost reporting periods preceding October 1, 2013) to the MACs, who would then calculate each provider’s DPP “pursuant to the forthcoming final rule.”
CMS also imposed a moratorium on any settlements implicating DSH payments, stating, “Medicare contractors will not calculate the SSI fractions, Medicaid fractions, or DSH payment amounts that depend upon them, necessary for the DSH payment adjustment for discharges prior to October 1, 2013, until a new rule is promulgated through notice and comment rulemaking that addresses the treatment of MA [i.e., Medicare Advantage] days.”
Since receiving this instruction, MACs have refused to process realignment requests by hospitals to have their SSI fractions be calculated using their cost reporting period instead of the Federal fiscal year. MACs have also refused to process requests by hospitals to reopen their cost reports to add additional Medicaid eligible days.
These Allina holds remained in effect for quite some time, largely because of the large gap between the proposed and final rules. It was not until June 9, 2023, nearly three years after the proposed rule, that CMS published a final rule adopting its Part C policy for FYs 2005 through 2013. The final rule was adopted as proposed.
The Next Chapter: CR 13294
CR 13294 contains instructions for MACs to implement the final rule. It directs the MACs to use CMS’s published Medicare/SSI ratios—which reflect CMS’s Part C policy—to calculate DSH payments and issue NPRs or revised NPRs for all cost years that were placed on hold pending the final Part C rule. This includes cost years for which MACs issued notices of reopening, cost years that were part of the Allina cases, and cost years for which providers had requested reopening to add Medicaid eligible days. The effective date of the Transmittal is March 25, 2024, which gives MACs until late September 2024 to execute on this instruction.
The timeline is different for cost years that were appealed to the PRRB and remanded under CMS Ruling 1739-R. MACs have until the later of 12 months from the date of the CR or six months from the date of the remand (if issued after the date of the CR) to apply CMS’s published Medicare/SSI ratios to settle the 1739-R cost years. The date of the transmittal (not to be confused with its effective date) is February 21, 2024, which means MACs have until February 21, 2025, to issue settlements for cost years that were remanded prior to February 21, 2024. Some providers remain concerned by the CR’s failure to explicitly address timelines for resolving outstanding SSI realignments requests.
A copy of the change request is available here.
