Category Archives: DSH Hospitals

COA Dismisses AHA 340B Lawsuit!

The 340B drug program is a topic that needs daily updates. It seems that something is happening constantly. Like a prime time soap opera or The Bachelor, the 340B program is all the talk at the water cooler. From lawsuits to legislation to executive orders – there is no way of knowing the outcome, so we all wait with bated breath to watch who will hold the final rose.

On Tuesday, July 17, 2018, the metaphoric guillotine fell on the American Hospital Association (AHA) and on hospitals across the country. The Court of Appeals (COA) dismissed AHA’s lawsuit.

The Background 

On November 1, 2017, the US Department of Health and Human Services released a Final Rule implementing a payment reduction for most covered outpatient drugs billed to Medicare by 340B-participating hospitals from the current Average Sales Price (ASP) plus 6% rate to ASP minus 22.5%, which represents a payment cut of almost 30%.

Effective January 1, 2018, the 30% slash in reimbursement rates became reality, but only for locations physically connected to participating hospitals. CMS is expected to broaden the 30% reduction to all 340B-participating entities in the near future.

What is the 340B drug program? The easiest explanation for the 340B program is that government insurance, Medicare and Medicaid, do not want to pay full price for medicine. In an effort to reduce costs of drugs for the government payors, the government requires that all drug companies enter into a rebate agreement with the Secretary of the Department of Health and Human Services (HHS) as a precondition for coverage of their drugs by Medicaid and Medicare Part B. If a drug manufacturer wants its drug to be prescribed to Medicare and Medicaid patients, then it must pay rebates.

The Lawsuit

The American Hospital Association (“AHA”) filed for an injunction last year requesting that the US District Court enjoin CMS from implementing the 340B payment reduction. On the merits, AHA argues that the HHS’s near-30% rate reduction constitutes an improper exercise of its statutory rate-setting authority.

The US District Court did not reach an opinion on the merits; it dismissed the case, issued December 29, 2017, based on lack of subject matter jurisdiction. The District Court found that: Whenever a provider challenges HHS, there is only one potential source of subject matter jurisdiction—42 U.S.C. § 405(g). The Medicare Act places strict limits on the jurisdiction of federal courts to decide ‘any claims arising under’ the Act.

The Supreme Court has defined two elements that a plaintiff must establish in order to satisfy § 405(g). First, there is a non-waivable, jurisdictional requirement that a claim for benefits shall have been “presented” to the Secretary. Without presentment, there is no jurisdiction.

The second element is a waivable requirement to exhaust administrative remedies. I call this legal doctrine the Monopoly requirement. Do not pass go. Go directly to jail. Do not collect $200. Unlike the first element, however, a plaintiff may be excused from this obligation when, for example, exhaustion would be futile. Together, § 405(g)’s two elements serve the practical purpose of preventing premature interference with agency processes, so that the agency may function efficiently and so that it may have an opportunity to correct its own errors, to afford the parties and the courts the benefit of its experience and expertise, and to compile a record which is adequate for judicial review. However, there are ways around these obsolete legal doctrines in order to hold a state agency liable for adverse decisions.

Following the Dec. 29, 2017, order by the District Court, which dismissed the lawsuit on jurisdictional grounds, the plaintiffs (AHA) appealed to the U.S. Court of Appeals (COA), which promptly granted AHA’s request for an expedited appeal schedule.

In their brief, AHA contends that the District Court erred in dismissing their action as premature and that their continued actual damages following the Jan. 1 payment reduction’s effective date weighs heavily in favor of preliminary injunctive relief. More specifically, AHA argues that 30% reduction is causing irreparable injury to the plaintiffs “by jeopardizing essential programs and services provided to their communities and the vulnerable, poor and other underserved populations, such as oncology, dialysis, and immediate stroke treatment services.”

By contrast, the government’s brief rests primarily on jurisdictional arguments, specifically that: (1) the Medicare Act precludes judicial review of rate-setting activities by HHS; and (2) the District Court was correct that no jurisdiction exists.

Oral arguments in this appeal were May 4, 2018.

AHA posted in its newsletter that the COA seemed most interested in whether Medicare law precludes judicial review of CMS’ rule implementing the cuts. AHA says it hopes a ruling will be reached in the case sometime this summer.

In a completely different case, the DC District Court is contemplating a request to toll the time to file a Section 340B appeal.

AHA v. Azar, a case about RAC audits and the Medicare appeal backlog. During a March 22, 2018, hearing, the COA asked AHA to submit specific proposals that AHA wishes the COA to impose and why current procedures are insufficient. It was filed June 22, 2018.

In it proposal, AHA pointed out that HHS is needlessly causing hospitals to file thousands of protective appeals by refusing to toll the time for hospitals to file appeals arising out of the reduction in reimbursement that certain 340B hospitals. In order to avoid potential arguments from the government that 340B hospitals that do not administratively appeal the legality of a reduced rate will be time barred from seeking recovery if the court holds that the reduction in payments is unlawful, AHA proposed that the Secretary agree to toll the deadline for such appeals until resolution of the 340B litigation—an arrangement that would preserve the 340B hospitals’ right to full reimbursement in the event the 340B litigation is not successful. HHS has refused to toll the time, meaning that Section 340B hospitals will have to protect their interests in the interim by filing thousands upon thousands of additional claim appeals, which will add thousands upon thousands of more appeals to the current ALJ-level backlog.

The Decision

In a unanimous decision, three judges from the COA sided with HHS and ruled the hospitals’ suit was filed prematurely because hospitals had not formally filed claims with HHS because they were not yet experiencing cuts.

Basically, what the judges are saying is that you cannot ask for relief before the adverse action occurs. Even though the hospitals knew the 30% rate reduction would be implemented January 1, 2018, they had to wait until the pain was felt before they could ask for relief.

The lawsuit was not dismissed based on the doctrine of exhaustion of administrative remedies. The Decision noted that in some cases plaintiffs might be justified in seeking judicial review before they have exhausted their administrative remedies, but that wouldn’t be the solution here.

Hindsight is always 20-20. I read the 11 page decision. But I believe that AHA failed in two ways that may have changed the outcome: (1) Nowhere in the decision does it appear that the attorneys for AHA argued that the subject matter jurisdiction issue was collateral to the merits; and (2) The lawsuit was filed pre-January 1, 2018, but AHA could have amended its complaint after January 1, 2018, to show injury and argue that its comments were rejected (final decision) by the rule being implemented.

But, hey, we will never know.

Possible Hospital RAC Audits in 2014: Pow! Right in the Kisser!

Muhammad Ali said, “Everybody has a plan until they get punched in the face.”

Whew…it’s a new year.  While I thoroughly enjoyed 2013, I am excited and hopeful for 2014.  Work is so busy that it seems like I’ve barely had time to breathe this January….that’s a good thing, right?  Hey, anyone see me on TV? 🙂  Check out WRAL.

Hospitals, on the other hand, may be anxious and doubtful about their 2014s.  Hospitals have good reason to wonder about the future.  Our NC General Assembly was fairly harsh on hospitals in the last session, passing numerous session laws that directly or indirectly negatively affect hospitals.

But to be fair, the 2013 NC General Assembly didn’t ONLY affect hospitals…see Stephen Kobert’s report on North Carolina legislature.  Kobert’s graphic simulation is hilarious!

Senate Bill 4 entitled “No NC Exchange/No Medicaid Expansion,” was one of the first bills out of the gate.  While I am not necessary an advocate for expanding Medicaid (see my blog “Medicaid Expansion: Bad for the Poor“), I understand that Medicaid expansion would greatly benefit the hospitals, as well as Medicaid recipients. 

Here is an interesting scenario:

Bradford Regional Medical Center and Olean General Hospital sit only 20 miles apart on opposite sides of the Pennsylvania/New York border. (See “Hospitals Facing Big Divide In Pro- and Anti- ACA States” by Beth Kutscher).  New York expanded Medicaid and Pennsylvania did not.  New York also opted to set up its own health exchange, which is working.  Pennsylvania is floundering with  Olean projects billions in lost revenue due to non-Medicaid expansion.  I bet Olean wishes it could move the border of New York!  Or its hospital!

House Bill 998 capped the sales tax refund that non-profit organizations, which was largely aimed at non-profit hospitals. 

House Bill 834 and Senate Bill 473 require certain hospitals and health care facilities to publicize the costs many health care procedures.  So when you need a CAT scan, you can see what UNC’s costs are for a CAT scan versus WakeMed’s and make an individual choice as to which hospital to present yourself.  Sounds like a fair and reasonable request, but imagine the administrative cost for the hospitals to abide by the requirements.

Furthermore, the budget reduced hospital outpatient payments from 80% to 70% of costs. The budget further instituted a 3% Medicaid reimbursement “withhold” that the states calls a “shared savings plan.” The budget changed the hospital provider assessment state retention formula.  Now the state can collect 25.9% of total assessment, instead of the cap of $43 million.

Not just the NC General Assembly affects hospitals.  On the federal level, the Center for Medicare and Medicaid Services CMS) also took a stab.  A new CMS rule converts the current Medicare 5-level, intensity-based payment system for clinic visits to one, single outpatient visit code.  Prior to this change, a hospital could be reimbursed for a Medicare patient visit anywhere from $56.77 for a level 1 new patient to $175.79 for a level 5 new patient.  Now all Medicare clinic visits are reimbursed at $88.31.  You can see that some hospitals would not like this change.

But, as Ali said, “Everyone has a plan until they get punched in the nose.”

The possible punch to NC Hospitals?

Medicaid RAC audits…

For two years, we have been required to sign up Medicaid recovery audit contractors (RACs).  But we have been slow.  HMS, the RAC with contracts in 28 states, including North Carolina says that it has been slow getting started with Medicaid RACs because the state-by-state data have been scant and the procedural hurdles were difficult.  But, according to “Report on Medicare Compliance,” Medicaid RAC audits will be in full swing for hospitals this year.

According to the same article, in North Carolina, two targets are tonsillectomies/adenoidectomies and ambulance services.  Also, at issue in NC, are the DRGs and the medical necessity of inpatient admissions vs. outpatient services.  While RACs are only to audit going back 3 years, the RACs can get permission to go back 5 years.

Medicaid RACs collect contingency fees anywhere between 9.5% to 12.5%, so they have the incentive to find problems. 

HMS boasts that in two mid-Atlantic states, the Medicaid RAC recovered over $12.5 million through credit balance audits of inpatient facilities.

Pow!! Right in the kisser!

New CMS Proposal Will Reduce Hospitals’ DSH Allotments: Less Incentive for Hospitals to Treat the Uninsured

The Centers of Medicare and Medicaid (CMS) put forth a new proposal setting forth aggregate reductions to state Medicaid disproportionate share hospital (DSH) allotments from 2014 – 2020.

First of all, what is DSH? (DSH) are payments to hospitals that serve a significantly disproportionate number of low-income patients; eligible hospitals are referred to as DSH hospitals. (Click here for a link to DSH hospitals in NC). States receive an annual DSH allotment to cover the costs of DSH hospitals that provide care to low-income patients that are not paid by other payors, such as Medicare and Medicaid.  For example, in fiscal year 2011, North Carolina received $295,314,187.00 in DSH allotments. Almost 300 billion in allotments would make any hospital less reluctant to treat the uninsured.

Think of DSH this way, in North Carolina, according to a recent article in the News and Observer, we have approximately 1.5 million uninsured in NC, roughly 1 out of every 5 NC residents. When a person without health insurance gets sick, they cannot go to the doctor (since they do not have doctor because of not having insurance).  Instead, the uninsured are forced to go to the emergency room.

Now think of hospitals as a business, which is what they are. We all would like to think that hospitals are there for everyone.  That everyone is welcome in a hospital.  (At least, I would like to think that).  However, the reality is that hospitals are a business.  Each procedure, each test, each exam costs a certain amount of money. If the person receiving the service cannot pay, what incentive does a hospital have to continue to service the person?

Well, there ARE federal requirements to treat.  For example, under the Emergency Medical Treatment and Labor Act (EMTALA), part of the 1985 Consolidated Omnibus Reconciliation Act (COBRA), a hospital cannot turn away or unnecessarily discharge any uninsured person with an emergency condition.  Anyone who shows up in a hospital emergency room will be screened to determine the severity of his or her condition. If the condition is deemed an emergency, the hospital is obligated to stabilize the patient.  But for non-emergency conditions, what incentives do hospitals have to continue treatment for non-emergency condition? Hence, the DSH payments.

Going back to CMS’ proposed DSH reductions, the thought process behind these aggregate reductions is (in my opinion): Because of Medicaid expansion under the Affordable Care Act (ACA), more people with be insured by Medicaid and less uninsured people will be admitting themselves into ERs.  In other words, if a state opted to expand Medicaid, then, supposedly, more people are insured; thus the hospitals need less DSH.

But what about the states that did not opt to expand Medicaid (i.e., North Carolina)?

CMS’ proposal sets forth 5 factors to determine each state’s DSH allotments. Whether the state expanded Medicaid will be considered.  The proposal states, in pertinent part:

“Consequently, hospitals in states implementing the new coverage group [Medicaid expansion] that serve Medicaid patients may experience a deeper reduction in DSH payments than they would if all states were to implement the new coverage group.”

Here are the official statutory factors:

  • Factor 1 – Low DSH Adjustment Factor (LDF)
  • Factor 2 – Uninsured Percentage Factor (UPF)
  • Factor 3 – High Volume of Medicaid Inpatients Factor (HMF)
  • Factor 4 – High Level of Uncompensated Care Factor (HUF)
  • Factor 5 – Section 1115 Budget Neutrality Factor (BNF)

The proposal also provides an illustrative chart of potential reductions.  Here’s the warning: “Table 1 and the values contained therein are provided only for purposes of illustrating the application of the DHRM and the associated DSH reduction factors described in this proposed rule to determine each states’ DSH allotment reduction for FY 2014. Note that these values do not represent the final DSH reduction amounts for FY 2014.”

Here’s the illustrative chart: (which can also be found here since the below picture is so small…or I need new contacts)


So how much will North Carolina hospitals’ DSH allotments go down under this CMS proposal?

According to the Kaiser Foundation, North Carolina’s hospitals’ DSH payments will be reduced by $500 million in FY 2014, $600 million in FYs 2015-2016, $1.8 billion in FY 2017, $5 billion in FY2018, $5.6 billion in FY2019, and $4 billion in FY 2020.

Possible consequences?

Hospitals Treat Less Uninsured:  It is only logical that if a hospital will no longer be allotted as much money to treat uninsured patients, the hospitals will want to treat less uninsured.  One possible way a hospital could legally limit the number of uninsured is to determine less conditions as an “emergency condition.”  Obviously, what constitutes an “emergency condition” has some subjective wiggle-room.

Less Hospitals Opt to be DSH Hospitals: If the amount of money is so greatly reduced so as NOT to provide an incentive for a hospital to treat uninsured, some hospitals may opt to not meet the standard of a DSH hospital.

More Transfers for the Uninsured: If hospitals are not receiving the incentive to treat uninsured, hospitals may transfer the uninsured patients to other hospitals in instances in which the hospital would not transfer an insured patient.

You can provide your comments to CMS regarding this proposed DSH reduction.

Send comments to:  Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-2367-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850