Last week, the United States District Court for the District of Columbia denied CMS’s request to remand to the Provider Reimbursement Review Board (PRRB) the claims of several hospitals who sought expedited judicial review (EJR) in order to challenge in federal court the regulations governing Medicare outlier payments. Bayshore Community Hosp. et al. v. Hargan, case no. 16-cv-2353 (APM) (D.D.C. Oct. 25, 2017). The PRRB had denied the plaintiff hospitals’ request for EJR on the grounds that it lacked jurisdiction over their appeal because the providers had not complied with the regulations set forth at 42 C.F.R. § 405.1835(a)(1)(ii) and self-disallowed the costs at issue. On appeal, the district court rejected CMS’s remand request as futile and wasteful of the parties and court’s resources and further rebuked CMS for failing to acquiesce more broadly in Banner Heart Hospital, et al. v. Burwell, case no. 14-cv-01195 (APM) (D.D.C. Aug. 19, 2016), which held that the self-disallowance regulation was contrary to the Medicare statute.
The self-disallowance regulation at 42 C.F.R. § 405.1835(a)(1)(ii) was adopted in 2008 and requires providers to protest items on their cost reports that are unallowable under CMS policy in order to challenge the legality of that policy. Under the regulation, the PRRB may not grant a hearing to a provider which has not self-disallowed (i.e., protested) unallowable costs and items. CMS abandoned this particular regulation for cost reporting periods that began after January 1, 2016, and self-disallowance is now required for the PRRB or any administrative contractor to reimburse a provider should its legal challenge be successful. 42 C.F.R. § 413.24(j).
But for cost reporting periods that are still covered by the 2008 regulation, neither CMS, administrative contractors, nor the PRRB has the authority to set aside CMS regulations or rule upon their legality. For this reason, the district court in Banner Heart Hospital et al. v. Burwell, concluded that the self-disallowance regulation imposed a futile requirement to present an unallowable claim on a cost report which is inconsistent with the Medicare statutory language that grants an appeal to any hospital provider which is “dissatisfied” with the total amount of its Medicare reimbursement in that cost reporting year.
CMS did not pursue an appeal of the Banner Heart decision and has since failed to withdraw, change, or address the application of the self-disallowance regulation. For this reason, the PRRB concluded in the Bayshore case that it was bound to follow the self-disallowance regulation, and it denied jurisdiction over the providers’ appeal, effectively ending their EJR request and outlier challenge as well. When the providers challenged the PRRB’s denial of jurisdiction in Federal court, CMS stated that, while it continued to disagree with the Banner Heart decision, it would “acquiesce” to its application in the Bayshore case. It then asked the district court to grant an order remanding the case back to the PRRB to take jurisdiction and determine whether EJR was appropriate.
In language which demonstrated that he was clearly frustrated with CMS’s legal maneuvering, Judge Mehta of the D.C. District Court denied CMS’s remand request and retained Federal court jurisdiction over the providers’ claims, granting them an opportunity to amend their complaint in order to challenge the outlier regulations without the need for a return trip to the PRRB to consider and grant EJR. Judge Mehta cited three reasons for his decision: (1) remand would be futile because the PRRB would be required to grant EJR and the case would end up back in the district court; (2) for this reason, remand would only serve to unduly prejudice the plaintiff hospitals by causing unnecessary and extensive delay; and (3) CMS could not provide any legitimate reasons warranting remand and delay. In addition, the court indicated that while it was not prepared to invalidate the self-disallowance regulation for all providers based on the current status of the case, the parties could further brief the issue as the case progresses.
The experience of the plaintiff hospitals in Bayshore mirrors that of other providers who have challenged the 2008 self-disallowance regulation in Federal court after the PRRB has denied jurisdiction over their claims because they were not protested. These providers have found that CMS has determined not to continue to defend the 2008 self-disallowance regulation in Federal court and offers to “settle” the matter by remanding the case to the PRRB with an instruction that the Board recognize jurisdiction over the appeal. This solution works for some providers, but as the Bayshore case illustrates, it does not work in all cases. While the court’s decision in Bayshore underscores the need for CMS to take action and generally acquiesce in the Banner Heart case which struck down the regulation, it also will strengthen the position of providers who do not wish to return to the PRRB in order for the Board to grant EJR when they have not complied with the self-disallowance regulation.
The court’s opinion is available here.
