On April 28, 2010, the Centers for Medicare & Medicaid Services (CMS) issued CMS Ruling 1498-R (the Ruling), a major ruling affecting thousands of pending hospital claims for Medicare disproportionate share hospital (DSH) payments. The ruling effectively operates to remand "properly pending" DSH claims for three specific DSH issues (discussed below) to fiscal intermediaries for recalculation of new DSH payment amounts arising from revised CMS DSH policies. It will have a major impact on the docket of the Provider Reimbursement Review Board (PRRB), where currently thousands of disputed Medicare DSH claims are matriculating through its due process system.

  • The Medicare DSH payment is a statutorily mandated payment for hospitals serving a disproportionately large percentage (e.g., 15 percent or greater) of low-income patients. Congress established a proxy for determining a hospital's "disproportionate share patient percentage" (DPP) that ultimately is used to calculate a hospital's DSH payment. The DPP is calculated by adding the following two fractions:
  • The Medicare Fraction (or SSI Ratio). The numerator of the Medicare Fraction is the number of inpatient days for patients who are entitled to both Medicare Part A and to Supplemental Security Income (SSI) and the denominator is the total number of the inpatient days for patients who were entitled to Medicare Part A; and The Medicaid Fraction. The numerator of the Medicaid Fraction is the number of inpatient days for patients who were eligible for medical assistance under a state plan approved under Title XIX (Medicaid) and the denominator is the total number of inpatient days at the hospital.

The interpretation and/or application of these two fractions has been the source of significant litigation since the inception of the prospective payment system. The Ruling is a direct response to a major piece of litigation involving the accuracy of the Medicare Fraction, or SSI Ratio. In Baystate Medical Center v. Leavitt, the D.C. District Court required CMS to develop a methodology to more accurately calculate the SSI Ratio by, among other things, improving its data match processes. In its recently published proposed rule for the inpatient prospective payment system (IPPS), CMS explained the new match processes it is proposing to calculate the SSI Ratio based on the "global" application of its remedial efforts required by the Baystate court (for more information on the proposed IPPS rule, please see the April 29, 2010, issue of the Health Law Update). In the first of its three major DSH rulings, the Ruling requires that the final methodology adopted by CMS in the final rule for fiscal year 2011 (or the methodology that is applied to correct the Baystate Medical Center SSI Ratio) be applied to all open cost reports and "properly pending" appeals before the PRRB for hospitals that have preserved the issue of the accuracy of the SSI Ratio.

The second major DSH ruling adopted by the Ruling involves the remand of appeals before the PRRB involving the exclusion from the DPP of "non-covered inpatient hospital dates for patients entitled to Medicare Part A, and days for which a patient's Part A inpatient hospital benefits were exhausted" (collectively, No Part A Payment Days). The Ruling requires the remand and implementation of the policy adopted by CMS in fiscal year 2005, which purports to include No Part A Payment Days in the SSI Ratio (even though historically the agency has treated the term "entitled" to mean that a patient was actually entitled to receive payment, i.e., not simply eligible, or covered, by a program). The Ruling would require the recalculating of DPPs for all open and appealed cost reports for fiscal years prior to October 1, 2005 (and presumes that from that date forward such days already will be properly included in the Medicare Fraction). However, the policy set forth in the Ruling recently was rejected by a federal district court in Metropolitan Hospital, Inc. v. HHS, No. 1:09-cv-128 (W.D. Mich. Apr. 5, 2010) with respect to No Part A Payment Days for patients who were also eligible for Medicaid. That court, and a number of hospitals currently appealing the issue before the PRRB contend that such No Part A Payment Days belong in the Medicaid Fraction, and that their inclusion in the Medicare Fraction can operate to improperly reduce their DSH payments. For more information, please see the April 15, 2010, issue of the Health Law Update. Nevertheless, CMS did not address the Metropolitan Hospital case in the Ruling, except to note that hospitals with appeals similar to the Metropolitan Hospital case can appeal the revised DPP calculated as a result of the Ruling's remand and the application of the CMS policy to include such days in the Medicare Fraction. CMS may be hoping that justice delayed will mean justice denied for this particular issue.

Finally, the third major DSH issue addressed in the Ruling concerns the remand of appeals involving the exclusion from the DPP of labor/delivery room inpatient days. Previously, CMS had applied a policy excluding hours spent in labor rooms before the patient was admitted at the census taking hour under the erroneous theory that, since such costs represented ancillary services, they should not be included in the DSH payment calculation. CMS revised this policy in its final IPPS rule for fiscal year 2010 (74 Fed. Reg. 43,900, 43,997), which was effective for cost reporting periods beginning on or after October 1, 2009. The Ruling essentially grants retroactive application of the fiscal year 2010 rule change to all "properly pending" appeals before the PRRB (and open cost reports) on the issue of inclusion of labor and delivery days in the DPP. Like the other two DSH issues, the Ruling dictates that such appeals be remanded to the fiscal intermediaries to recalculate the hospital's DSH payment including such labor and delivery days.

The Ruling will require a massive shift of appeals from the PRRB to the fiscal intermediaries, and the process likely will be unwieldy. The Ruling proposes two alternatives for determining which appeals will result in a DSH recalculation based on the Ruling. In the first approach, the PRRB may evaluate each appeal and make a determination regarding whether such appeal is jurisdictionally proper and pending on an issue capable of receiving relief under the Ruling. If the PRRB makes such a finding, it will remand the case to the intermediary for application of the Ruling. If the PRRB determines that the case is not "properly pending" on an issue affected by the Ruling, it will process the appeal through its normal adjudicative process. Alternatively, hospitals may request on their own that their appeals be transferred to their fiscal intermediaries to make the "properly pending before the PRRB" determination instead of the PRRB. Many of the appeals involving these issues are being prosecuted as group appeals, and the Ruling provides for a similar process for group appeals, although each hospital within the group ultimately will have to prove it is eligible for relief under the Ruling. Hospitals will need to make certain that they have adequately compiled and submitted all jurisdictional materials in order to ensure that they are entitled to relief under the Ruling.  

The review process will be complex and there is no time limit given in the Ruling for completing the DSH recalculation process. One can only expect that it will be a lengthy process, and that those hospitals that have compiled the appropriate documentation relating to their appeal will be ahead of the ones for which the determination of jurisdiction, or the nature of the issue under appeal, is less clear. Ultimately, hospitals will have a right to appeal any final determination made as a result of the recalculated DSH payment arising from the remand forced by the Ruling. It is clearly CMS's hope that the Ruling will nevertheless substantially thin the massive herd of DSH cases pending in the administrative appeals process.