Hospitals from the Banner Health (AZ), Einstein Healthcare Network (PA), Wake Forest University Baptist Medical Center (NC), and The Mount Sinai Hospital (NY) health systems (collectively referred to as the “Appellants”), with the support of the American Hospital Association, filed appeals with the Provider Reimbursement Review Board (PRRB) as first steps to bringing a federal court challenge to the “two-midnight” rule that was issued last year by the Centers for Medicare and Medicaid Services (CMS). Under the new “two midnight” rule, a Medicare beneficiary is generally considered appropriate for inpatient hospital admission and eligible for payment under Medicare Part A when the physician (1) expects the beneficiary to require a hospital stay that spans at least two midnights and (2) admits the beneficiary to the hospital based upon that expectation.

Interestingly though, the challenge does not involve the new “two midnights” rule itself. Rather, the Appellants challenge the Inpatient Prospective Payment System (IPPS) Fiscal Year 2014 final rule 0.2 percent reduction in hospital base operating diagnosis related group payment amount that CMS implemented in order to offset projected spending increases associated with hospitals applying the two midnight rule.

In their challenge to the final rule, one Appellant argued that the reduced inpatient payment that hospitals will receive under the IPPS final rule “is arbitrary and capricious because CMS relied on indefensible assumptions and offered no reasoned explanation for those assumptions.” That Appellant also argued that the “reduction is invalid because CMS failed to comply with notice and comment procedures required by the Administrative Procedure Act (APA) and “because CMS failed to codify it in the Code of Federal Regulations as required by statute and the APA.” The Appellants have sought relief in the form of expedited judicial review “[b]ecause the (PRRB) lacks the power to grant the [Appellant’s] requested relief . . . . " Read a copy of one of the Appellants’ request for expedited judicial review that was filed with the PRRB here.

Bricker & Eckler will continue to monitor this case and report on important developments as warranted.

On a related legislative front, AHA is supporting H.R. 3698 that would delay enforcement of the two midnights rule until October 1, 2014 and develop a new Medicare hospital payment methodology for short inpatient stays in fiscal year 2015.