This is an update on the hospital lawsuit challenging CMS’s fiscal year 2014 “Two-Midnight” rule and the agency’s corresponding 0.2% reduction to inpatient prospective payment rates, in Shands Jacksonville Medical Center v. Burwell. As previously reported, the court ruled that CMS had violated mandatory notice and comment requirements regarding key information the agency had used to rationalize its 0.2% payment reduction. The court ordered CMS to disclose the missing information to the public and to reopen the issue for further comment, following which the court would evaluate if CMS’s actions were lawful. After publishing the missing information and receiving many comments, in April 2016, CMS proposed both to eliminate the 0.2% payment reduction and to make up for the reductions in fiscal years 2014-2016 with a one-time 0.6% increase to hospital inpatient rates in 2017.

The hospital plaintiffs and CMS were to have filed a status report with the court, by May 23, 2016, addressing the parties’ positions as to the impact of CMS’s proposal. Instead, however, the court has allowed the parties to delay filing their status report until two-weeks after the agency publishes its final rule governing hospital inpatient payments for fiscal year 2017. The parties explained that CMS’s final rule “could affect the nature of, or need for, any further proceedings . . . .” The final rule will be published in early August.

We will continue to monitor and to provide updates with any breaking developments in the Shands Jacksonville case. As it currently stands, the agency’s action in fiscal year 2014 (carried forward to fiscal years 2015 and 2016 ) is in serious jeopardy. Thus, as we have previously mentioned, hospitals should continue to take actions to preserve their appeal rights as to underpayments caused by the Two-Midnight rule and the 0.2% payment reduction.