After just deciding a case last week regarding Medicare regulations, the Sixth Circuit will undertake the exercise again -- and this time against the backdrop of a circuit split.  A recent Eastern District of Michigan case interpreting the proper rate of reimbursement for inpatient hospital services between 2002 and 2010 under 42 U.S.C. § 1395ww(b)(3)(A) is currently pending before the Sixth Circuit.  Michigan Dep’t of Cmty. Health, et al. v. Sec’y of the Dep’t of Health and Human Servs., Case No. 11-1905.  Briefing is set to close in late October.

Plaintiffs in this case are inpatient hospitals providing psychiatric services to Medicaid and Medicare patients that were reimbursed until 2003 for their actual “operating costs” as long as those costs did not exceed a defined “target amount.”  The “target amount” was a cap defined as not exceeding the seventy-fifth percentile of target amounts for other hospitals in the same class and adjusted annually.  42 U.S.C. § 1395ww(b)(3)(A)(i); 42 U.S.C. § 1395ww(b)(3)(H)(i)-(ii).  In 2003, after the cap expired, psychiatric hospital services were supposed to join other medical care providers in the Prospective Payment System (“PPS”), but the Secretary did not begin to implement the PPS until 2006.

In their Complaint, Plaintiffs alleged that they were not fully reimbursed for services provided between 2003 and 2006 -- the time period when a cap had expired, but the Department of Health and Human Services (“HHS”) had not yet implemented the PPS for inpatient psychiatric care.  HHS has only reimbursed them for their capped target amount from 2002.  Plaintiffs alleged that because the cap had expired, they should be reimbursed for their “actual costs” under 42 U.S.C. § 1395ww(b)(3)(A)(i).

The Eastern District of Michigan held that when the implementation of the PPS was delayed, the agency was required to reimburse Plaintiffs under the statutory language that was in place from 2003 and 2006.  The court held that because it was unambiguous that the paragraph allowing reimbursement of “actual costs” applied only in the first year that the statute was in effect – which was in the early 1980s, paragraph (ii) applied instead.  The court held that under paragraph (ii), the target amount for 2003 must be based on the capped target of 2002, multiplied by the applicable update factor.  42 U.S.C. § 1395ww(b)(3)(A)(ii).

Two other circuits that have already considered the issue are split.  In Ancora Psychiatric Hosp. v. Sec’y of the U.S. Dep’t of Health & Human Servs., 417 Fed. Appx. 171, 176 (3d Cir. Feb. 17, 2011), the Third Circuit concluded, like the Eastern District of Michigan, that the statute was not ambiguous and the capped amount from 2002 was the appropriate figure to use when calculating the hospitals’ target amounts for fiscal year end 2004.  But in Hardy Wilson Mem’l Hosp. v Sebelius, 616 F.3d 449, 456–57 (5th Cir. 2010), the Fifth Circuit concluded that the statute was ambiguous after the expiration of the cap.  We’ll keep you posted as this case progresses in the Sixth Circuit.