Recent Court Decision May Affect Hospitals’ 340B Eligibility

by admin | April 22, 2014 3:48 pm

April 22, 2014—A federal appellate court has left open the possibility that the Secretary of Health and Human Services may calculate Medicare disproportionate share adjustment percentages going back 10 years in a way that disqualifies some hospitals for 340B drug discounts. [ms-protect-content id=”2799″]

On April 1, the District of Columbia U.S. Circuit Court of Appeals issued its long-awaited decision in Allina Health Services v. Sebelius[1] addressing the post-2004 treatment of Medicare managed care (i.e. Medicare Part C) days for purposes of calculating DSH adjustment percentages and payments. The appeals court agreed with a 2012 lower court ruling that HHS’s final 2004 rule, which required inclusion of Part C days in the Supplemental Security Income (SSI)/Medicare fraction of the DSH adjustment percentage, should be vacated. However, it disagreed with the remedy ordered, thus creating uncertainty about the decision’s ultimate impact.

Medicare compensates so-called DSH hospitals (those that incur high costs treating a large number of low-income patients) through a system of supplemental adjustment payments. The DSH adjustment percentage is the sum of two calculations: a hospital’s SSI/Medicare fraction and its Medicaid fraction. The SSI/Medicare fraction is a proxy for low-income Medicare patients and the Medicaid fraction is a proxy for low-income non-Medicare patients. To participate in 340B, public, private-nonprofit, children’s, and free-standing cancer hospitals must have a DSH adjustment percentage greater than 11.75 percent. For rural referral centers and sole community hospitals, the threshold is 8 percent. There is no DSH requirement for critical access hospitals.

At issue in the Allina case was how days attributable to Medicare Part C enrollees should be handled in the DSH adjustment percentage calculation. In general, including Part C days in the SSI/Medicare fraction reduces a hospital’s DSH adjustment percentage. On the other hand, including Part C days attributable to dual-eligible patients (i.e., those eligible for both Medicare and Medicaid) in the Medicaid fraction will increase the DSH adjustment percentage.

In a September 2011 decision[2] in a related case, Northeast Hospital Corp. v. Sebelius, the D.C. Circuit Court ruled that HHS could not include Medicare Part C days in the DSH formula’s SSI/Medicare fraction for pre-2004 cost reporting periods.  But it did not rule on whether HHS could include Part C days in the SSI/Medicare fraction from 2004 forward. That was the central issue in the Allina case, and in late 2012, the U.S. District Court for the District of Columbia invalidated the provision in the 2004 regulation that required Medicare Part C days to be included in the SSI/Medicare fraction of a hospital’s DSH percentage after 2004.

In its April 1 decision, the D.C. Circuit Court upheld the lower court’s decision to vacate the final 2004 rule.  But it also found that the lower court went too far in directing HHS to recalculate DSH payments by including dual-eligible Part C days in the Medicaid fraction. It said the correct action was simply to vacate the rule and send the matter back to the agency.

Although the Allina ruling vacated the 2004 regulation, it does not appear to provide a final resolution as to the proper treatment of Part C days for purposes of the DSH calculation. It seems likely that this issue will be the subject of further litigation.  At this time, it is not known whether either party will request a rehearing or seek U.S. Supreme Court review of the decision.

In related litigation, in its June 11, 2013 decision[3] in Catholic Health Initiatives v. Sebelius, the D.C. Circuit Court upheld HHS’s position that days for dual-eligible patients who have exhausted their Medicare Part A benefits must be included in the SSI/Medicare fraction of a hospital’s DSH adjustment percentage, rather than in the Medicaid fraction. In general, as with Part C days, including dual-eligible exhausted benefit days in the SSI/Medicare fraction, rather than the Medicaid fraction, reduces a hospital’s DSH adjustment percentage.

The Catholic Health Initiatives case involved the pre-2004 treatment of dual-eligible exhausted benefit days. In Metropolitan Hospital v. HHS[4], the U.S. Court of Appeals for the Sixth Circuit upheld the prospective application of the 2004 regulation that includes dual-eligible exhausted benefit days in the SSI/Medicare fraction of a hospital’s DSH adjustment percentage.

Although the Catholic Health Initiatives case involved a pre-2004 cost reporting period, and thus turned on the legality of retroactive application of the 2004 regulation, the court’s decision strongly suggested that it would uphold HHS’s policy of including dual-eligible exhausted benefit days in the SSI/Medicare fraction for post-2004 periods as well. Specifically, as part of its analysis, the D.C. Circuit Court concluded that HHS’s interpretation of the DSH statute was permissible and entitled to deference, a conclusion that seemingly would also apply to the prospective application of the 2004 regulation.

For periods beginning October 1, 2013, CMS readopted its rule to include Part C days in the SSI/Medicare fraction in an effort to cure any defects in the rulemaking at issue in the Allina case. Assuming that this rule was properly issued, CMS has the authority to include Part C days in the SSI/Medicare fraction for current periods.

In March 2012, CMS posted final SSI percentages for 2006 through 2009 that included Part C and exhausted benefit days.  In October 2012, it published final SSI percentages for 2010 that also included Part C and exhausted benefit days. These data are available through the CMS website[5].  For 340B eligibility purposes, the Office of Pharmacy Affairs uses the most recent SSI percentages. [/ms-protect-content]

Source URL: https://340bemployed.org/recent-court-decision-may-affect-hospitals-340b-eligibility/

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