Favorable Opinion Issued in Cape Cod v. Sebelius

We are pleased to report the D.C. Circuit Court of Appeals issued an opinion this morning in Cape Cod Hospital, et al. v. Sebelius, Case No. 09-5447, a case that impacts the IHA Rural Floor Budget Neutrality Adjustment Group Appeal Initiative. The D.C. Circuit’s opinion vacates the district court’s grant of summary judgment in CMS’s favor, and it remands the case back to CMS. The remand requires CMS to explain why it did not reverse all prior rural floor budget neutrality adjustments (RFBNA) as part of its RFBNA overhaul in 2008 and justify that this decision was budget neutral. If the agency cannot do that, the D.C. Circuit requires CMS “to recalculate the payments due the hospitals under a formula that removes the effects of the prior rural floor budget neutrality adjustments.”

Summary of Opinion

This opinion from the D.C. Circuit is about as favorable as could be expected. It succinctly captures the atypical litigation in a manner that suggests the court understands the crux of the issue. One key finding by the court is that a comment on the FFY 2007 Inpatient PPS Proposed Rule, which brought to light the RFBNA calculation error and was submitted by a consultant working with the appellant-hospitals, should have been considered in that rule-making. The court requires CMS “to provide a reasoned response to this ‘relevant and significant public comment'” that was missing from the FFY 2007 Inpatient PPS Final Rule. By the time the FFY 2008 Inpatient PPS rule was under consideration, the court points out there were numerous comments on the record concerning this issue. However, CMS’s failure was not that the comments failed to be considered, but rather that CMS failed to provide enough justification for its decision not to reverse the prior adjustments. The court goes so far as to call CMS’s defense a “Mark McGwire defense” because the court felt CMS made repeated assertions that they were “not here to talk about the past.” More seriously, the court states CMS’s interpretation of the statute that initially created the RFBNA is not entitled to deference by the courts.

Additionally, the court is not persuaded by CMS’s defense that PPS payments are final once they are set and cannot be retroactively fixed. To prove their disagreement with this defense, the court cited a case in which CMS argued and got a retroactive fix of “final” payments when the fix benefited Medicare. The court said CMS cannot pick and choose when it will or will not make retroactive corrections when a need for such corrections are identified.

What does this mean for our hospitals?

While this is a favorable decision, it does not mean that the Fiscal Intermediary will send you a check in the mail today. First, CMS will have to produce justifications for its RFBNA calculation for the five hospitals covered by the D.C. Circuit’s decision. If CMS does not prove sufficient justification, the court will require the agency to recalculate the RFBNA. Prior to that, however, CMS could petition the Supreme Court to review the case.

If the Cape Cod hospitals are still “winners” after all litigation scenarios have played out, we have the benefit of excellent precedent for our cases. Very possibly, CMS may issue a Ruling similar to the one the agency issued last spring concerning DSH issues, including SSI, in which they agreed to settle the certain DSH cases pending at the Provider Reimbursement Review Board by remanding them to the Fiscal Intermediary for recalculation. While this would lead to reduced litigation effort and costs, there will still be a lapse of undetermined time before a hospital would realize dollars, due to the additional workload placed upon already busy Intermediaries. If no CMS Ruling materializes, we would likely push for a settlement.

However, this opinion from the D.C. Circuit is a good one. We are cautiously optimistic that the hospitals in Cape Cod will prevail and that hospitals in our appeals will reap the effects of today’s decision in one manner or another.

If you have any questions concerning today’s opinion or the Group Appeal in general, please do not hesitate to contact us.