In a much-anticipated decision, the U.S. Court of Appeals for the District of Columbia Circuit last month affirmed the lower court’s ruling in favor of the hospital plaintiffs inAllina Health Services, et al. v. Sebelius (D.C. Cir., No. 13-5011, Apr. 1, 2014). The otherwise good news for providers, however, was called into question by the appellate court’s instructions as to the proper remedy in the case.
Allina involved a Part C/Part A issue challenge to the method that the Department of Health and Human Services (HHS) used to calculate the plaintiffs’ DSH payments for the 2007 cost year. Specifically, in undertaking the DSH calculation, HHS treated inpatient days for which Part C beneficiaries had exhausted their Medicare Part A benefits (Part C Exhausted Benefits Days) as days for which those patients were nonetheless “entitled to benefits under Part A” of Medicare. HHS did so pursuant to a final rule it issued in 2004 (the 2004 Final Rule) and codified in a 2007 regulation.
Previously, the D.C. District Court had held in its Allina decision that the 2004 Final Rule was procedurally defective, and HHS was therefore required to treat Part C Exhausted Benefits Days as days for which those patients were notentitled to benefits under Part A. That approach would generally have led to additional DSH reimbursement for hospitals. On appeal, the D.C. Circuit affirmed the lower court’s finding that the 2004 Final Rule was improper, but remanded the case for the secretary to decide again, this time without relying on the 2004 Final Rule.
While the D.C. Circuit’s ruling nominally favored the hospital plaintiffs, it also effectively invited HHS to reach the same policy announced in the 2004 Final Rule, but this time through an administrative adjudication rather than a rulemaking. This is a troubling possibility for providers because adjudicatory findings, unlike most rulemakings, can be retroactively applied to previous cost years. In short, the D.C. Circuit’s Allina opinion is unlikely to be the last word on the Part C/Part A Issue in particular, or on the fate of the many other pending DSH issue appeals in general.