D.C. District Court Upholds HHS’s Audits of Hospitals’ Worksheet S-10 and Resulting Adjustments When Determining Medicare DSH Payments

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On August 30, 2021, the United States District Court for the District of Columbia ruled in favor of HHS and dismissed claims related to improper audits that resulted in adjustments to plaintiff hospitals’ Worksheet S-10 that reduced the amounts of Medicare Disproportionate Share Hospital (DSH) payments made by CMS. The plaintiffs are 48 hospitals eligible to receive uncompensated care payments under the Medicare DSH provision of the Patient Protection and Affordable Care Act (ACA), codified at 42 U.S.C. § 1395ww(r). The plaintiffs’ primary challenge focused on HHS’s allegedly improper implementation of a Worksheet S-10 audit protocol without promulgating the audit protocol through notice-and-comment rulemaking.

Historically, Medicare DSH payments were calculated based on the number of days per year that the hospital served Medicaid and low-income Medicare patients. The ACA revised the DSH payment criteria and limited administrative and judicial review of CMS’s application of those criteria. The amended DSH criteria, which became effective in fiscal year (FY) 2014, created two payments: an “empirically justified” payment equal to twenty-five percent of the amount due to a hospital based on the pre-ACA formula and an “additional payment” for uncompensated care based on a hospital’s estimated proportional share of the uncompensated care of all disproportionate share hospitals. This additional payment is calculated by multiplying three factors, which include an estimate of each qualifying hospital’s proportional share of the total nationwide amount of uncompensated care (Factor Three). The ACA also included a provision precluding administrative or judicial review for calculating the estimates under each factor (Preclusion Provision).

The plaintiffs challenged the auditing procedure used to calculate Factor Three of their Medicare DSH payments. HHS initially calculated Factor Three by using proxy data on the basis that “hospitals [had] not had enough time to learn how to submit accurate and consistent data through this reporting mechanism.” Several years later, HHS announced via notice-and-comment rulemaking that its FY 2020 estimates of Factor Three—the proportions of hospitals’ uncompensated care—would be based on the data provided in Worksheet S-10 for FY 2015. Given the unfeasibility of auditing Worksheet S-10 data for each qualifying hospital, HHS decided that only certain hospitals’ Worksheet S-10 data would be audited based on a risk-based assessment process. The ensuing audits resulted in adjustments to the Worksheet S-10 that reduced or otherwise altered the amounts of payments made by CMS.

The plaintiffs first challenged the audits before the Provider Reimbursement Review Board (PRRB) by arguing that HHS’s use of unpublished audit protocols to establish Medicare DSH payments violated the notice-and-comment rulemaking requirements of the Medicare Act and Administrative Procedure Act. To circumvent the Preclusion Provision, the plaintiffs framed their challenge as procedural, asserting that procedural challenges to HHS’s “improper establishment of reimbursement policy” falls outside the scope of the Preclusion Provision. The PRRB determined that administrative review was barred by the Preclusion Provision and, consequently, that it did not have jurisdiction over the issues in the appeals. The PRRB further concluded that the Preclusion Provision barred the plaintiffs from challenging the methodology used in calculating the DSH payments regardless of whether the challenge is characterized as procedural or substantive.

The plaintiffs subsequently appealed the PRRB rulings before Judge Beryl A. Howell of the District Court for the District of Columbia. The plaintiffs’ requested that the Court (i) issue an order declaring the Worksheet S-10 audit protocol unlawful, (ii) vacate the payments based on the Worksheet S-10 audit, (iii) require CMS to recalculate those payments, and (iv) set aside the PRRB refusal to exercise jurisdiction over their appeals. In reviewing the merits of the plaintiffs’ claims, Judge Howell referenced similar cases where plaintiff providers argued that the Preclusion Provision did not bar review of the methodology used to calculate the Medicare DSH payments. Those courts concluded that the Preclusion Provision applies given that a challenge to the methodology for estimating the hospital’s uncompensated care is unavoidably a challenge to the estimates themselves.

Judge Howell reached a similar conclusion and determined that the Worksheet S-10 audit protocol is inextricably intertwined with the Factor Three estimates used to calculate the plaintiffs’ payments, and therefore is precluded from administrative and judicial review under the ACA. Judge Howell further determined that the ACA precludes the review of substantive or procedural challenges where the plaintiffs seek a recalculation of the estimates used to determine the Medicare DSH payments. Judge Howell noted that holding otherwise “would allow hospitals to challenge the estimates themselves through procedural attacks on the data and methodologies used to establish the estimates, thereby eviscerating the [Preclusion Provision] and undercutting Congress’s express language insulating the estimates from review.”

Finally, Judge Howell dismissed the plaintiffs’ claims that HHS’s application of the audited 2015 Worksheet S-10 data in implementing the FY 2020 Final Rule was ultra vires, i.e., beyond the agency’s statutory authority. A determination that HHS’s actions were ultra vires would effectively permit the District Court to review the plaintiffs’ claims despite the Preclusion Provision’s bar on judicial review. Judge Howell concluded that the plaintiffs’ ultra vires argument failed to meet the necessary elements to avoid the Preclusion Provision’s bar on judicial review. Judge Howell therefore granted HHS’s motion for summary judgment.

The case is Ascension Borgess Hospital, et al. v. Becerra, No. CV 20-139 (BAH), 2021 WL 3856621 (D.D.C. Aug. 30, 2021). The opinion is available here.

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