Another Blow to Medicare “Self-Disallowance” Rule

You can tell by its name that you won’t like the Medicare “self-disallowance” rule.   The federal district court for D.C. didn’t like it, either, and gave a group of Banner Health hospitals summary judgment that the rule was invalid as applied to the group’s appeal.

Medicare pays hospitals under the prospective-payment system: essentially a flat fee based on the patient’s primary diagnosis.  But there’s an “outlier” exception entitling a hospital to extra payment for an unusually costly case.  The Banner hospitals wanted to challenge a substantive Medicare regulation that limited the outlier payments they thought they deserved.

A Medicare procedural regulation imposed an exhaustion-of-remedies requirement: a hospital must either list the claim on its annual cost report to the fiscal intermediary, knowing that it will be disallowed, or “self-disallow” it by following procedures for filing under protest.  Otherwise, all appeal rights are lost.

Knowing that neither the fiscal intermediary nor the Provider Reimbursement Review Board (PRRB) (i.e., the agency for appeal of intermediary determinations) had the authority to question a regulation, the Banner group didn’t note the outlier claims on their cost reports.  Instead, after receiving the intermediary’s determinations for the relevant years, they appealed to the PPRB requesting that it grant expedited judicial review.  The PRRB is empowered to do that when it lacks the authority to decide a challenge to a regulation relevant to the appeal.  The PRRB rejected the request, ruling that it lacked jurisdiction because of failure to meet the exhaustion requirement.

The group appealed to the district court, challenging the PRRB’s denial of the request.  On August 19 the court granted the group summary judgment, ruling that the exhaustion requirement was invalid as applied to a purely legal challenge.  The court reasoned that because the intermediary lacked authority to question the outlier regulation, submitting the issue to it would have been futile.

So Banner won a clear victory on the issue of the PRRB’s jurisdiction and the invalidity of the exhaustion rule as applied to its appeal.  But it lost on the remedy issue.  It argued that remanding to the PRRB was a waste of time and would only delay eventual judicial review.  The court didn’t dispute that consideration but ruled that when a court disagrees with an agency action on appeal, the only proper remedy is remand to the agency.  So the case goes back to the PRRB.

Although Health & Human Services rescinded the self-disallowance rule as of January 1, 2016, the Banner decision is important to providers with pending appeals dating back before the rescission.

The case is Banner Heart Hospital v. Burwell, No. 14-cv-01195 (APM) (D.D.C. 2016).

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