Following the implementation of Medicare outpatient PPS, a number of

providers challenged CMS's continuation of payment using a blended rate

methodology for outpatient hospital services between January 1, 1999 and

August 1, 2000, when outpatient PPS went into effect. By statute, outpatient

PPS was to have become effective January 1, 1999. Due to Y2K issues,

however, CMS decided not to implement the statute at that time and, instead,

elected to postpone the effective date for approximately a year and a half.

During the interim period, CMS continued to pay hospitals for outpatient

services based on the existing blended rate methodology. The providers

argued that the statute gave CMS no authority to extend the blended rate

methodology beyond January 1, 1999, and that CMS should have paid for the

services on the basis of reasonable cost from then until August 2000. Ober|Kaler's Thomas W. Coons discusses two

recent judicial decisions that have rejected those arguments.