This alert discusses actions that hospitals should take to preserve appeal rights, if they have not already done so.

As previously reported, on April 27, 2016, CMS proposed both to eliminate a 0.2% payment reduction implemented in federal fiscal year 2014 and to make up for the reductions in fiscal years 2014-2016 with a one-time 0.6% increase to IPPS rates in 2017. CMS had implemented the 0.2% payment reduction to offset a projected net increase in IPPS cases occasioned by CMS’s “Two Midnight” rule.

CMS’s proposed corrective action is in response to the remand order issued by the US District Court for the District of Columbia in Shands Jacksonville Medical Center v. Burwell (Shands). The court in Shands ruled that CMS had violated mandatory notice and comment requirements regarding key information the agency had used to rationalize its 0.2% payment reduction – specifically, the agency had failed to provide the data and details underlying CMS’s actuarial assumptions that the Two Midnight rule would yield a net increase in IPPS cases.

With its recent proposal, CMS no longer appears interested in trying to defend its 0.2% payment reduction in the Shands case. On May 2, 2016, the parties in Shands filed a status report with the court stating they intend to “meet and confer . . . regarding next steps” and will be filing another status report by May 23, 2016.

All of the above is good news for hospitals. However, the Shands case has yet to be decided and CMS’s proposal is not yet final or intended to fully compensate for any past underpayments. Therefore, we stress again that hospitals should continue to preserve their appeal rights. As to any cost reports yet to be filed (e.g., for fiscal years ending in 2015 and 2016), they may do so by including the 0.2% payment reduction and related policies as protest items on their cost reports. As to previously filed cost reports, other strategies are available through the PRRB appeal process.