May 28, 2008
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Court Rides to Public Hospitals' Rescue
By:
Brandy Schnautz Johnson
In a move hailed by public hospitals across the country, a federal district court last week thwarted the Department of Health and Human Services’ (DHHS) attempt to “outfox” Congress by rushing through a final rule intended to limit federal payments to public hospitals serving Medicaid patients. Judge James Robertson of the United States District Court for the District of Columbia issued a pointed memorandum opinion vacating and remanding the rule to the Centers for Medicare & Medicaid Services (CMS) at DHHS on May 23, just two days before the rule was scheduled to take effect. Judge Robertson held that the final rule, if enacted, would have blatantly violated a moratorium set by Congress on any actions on the part of CMS intended to decrease federal Medicaid reimbursement to public hospitals.
In the January 18, 2007, edition of the Federal Register, DHHS first published the proposed rule, which was estimated by its opponents to effectively reduce federal funding of public hospitals by billions of dollars. The proposed rule would have ended the federal government’s current practice of reimbursing hospitals participating in the Medicaid system through the use of an “upper payment limit” (UPL) system based on aggregate rather than provider-specific cost data. Congress had explicitly endorsed the UPL system with the passage of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA), and, in the last days of the Clinton Administration, DHHS issued a final rule implementing the UPL system.
The rule proposed by DHHS in January 2007 would have reestablished the cost-to-provider system that predated the UPL system for certain Medicaid providers. This cost-to-provider system would have ended the ability of hospitals to use UPL funds for non-Medicaid purposes such as to support graduate medical education or care for uninsured patients. Congress responded to the proposed rule in 2007 by passing a one-year moratorium on the issuance of the proposed rule or any similar rule. After initially vetoing the moratorium, President Bush eventually signed it into law on May 24, 2007, as part of the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act of 2007.
In the words of Judge Robertson, the “Executive Branch thought that it could have its war appropriation and its Medicaid rule too.” Specifically, on May 24, 2007, knowing that the moratorium had been passed but had not yet been signed by President Bush, the Secretary of DHHS rushed what the district court described as a “typo-ridden final rule to the Office of the Federal Register (OFR) for ‘emergency display and publication.’” The “emergency,” of course, was merely the president’s impending signature of Congress’ moratorium, which the Secretary hoped to avoid. Although the final rule was “published” on May 24 (and technically before the president’s approval of the moratorium as part of the war appropriations bill), it did not appear in the Federal Register until May 29, 2007.
In response, in March 2008, plaintiffs—including Alameda County Medical Center, the National Association of Public Hospitals and Health Systems, the American Hospital Association, and the Association of American Medical Colleges—filed suit against the Secretary of DHHS charging that (1) the promulgation of the final rule violated the prohibitions of Congress’ moratorium and (2) the substance of the rule was contrary to congressional intent. The Secretary of DHHS countered that he had not violated the moratorium because his involvement with the final rule ended on March 24—before the moratorium had been signed into law by the president.
Judge Robertson did not mince words in his dismissal of DHHS’ argument. He found that the Secretary had violated the moratorium by (1) notifying various Congressional committees of his placement of the rule in the Federal Register (as required by law) on May 25, the day after moratorium became effective; (2) calling for and receiving comments on the rule during the moratorium period, as the final rule expressly requested public comment on the definition of a “unit of government;” and (3) the ultimate publication of the rule on May 29, which the judge considered an act of DHHS and not the OFR. In short, the district court held that the Secretary had “treated an act of Congress seeking to control the substantive rules of Medicaid reimbursement as an 'emergency,' and prioritized issuance of his own rule over Congress’s plain intent to prohibit his actions.”
The district court, however, stopped short of ruling on the plaintiffs’ second complaint—that the provisions of the rule establishing reimbursement based on provider-specific data were contrary to congressional intent. According to Judge Robertson, since he had vacated the improperly promulgated rule, it would have been “improvident” of him to reach the merits of the plaintiffs’ second complaint.
Thus, those celebrating the plaintiff’s victory over DHHS can breathe more easily for now, but relief may only be temporary. Indeed, CMS has responded to the decision by asserting that the court only ruled against it on the moratorium issue and arguing that the final rule—and the end of aggregated UPL payments for many public hospitals—would ultimately be upheld on its merits. According to CMS, the rule is necessary to curb fraud and abuse in the current system.
Regardless of the district court’s ruling, the congressional moratorium expired on May 25, 2008. Both the House and Senate have included a new moratorium barring CMS’ rule in recent emergency supplemental appropriations bills, but President Bush has threatened to veto the legislation. Without a moratorium, CMS is free to republish the rule, although this would require a 60-day public comment period. With a moratorium, CMS would be forced to wait until 2009—and the beginning of a new administration—to consider republishing. In the meantime, the Secretary of DHHS has stated that CMS will "voluntarily refrain" from making the rule effective until August 1, 2008.
The text of the opinion, Alameda County Medical Center v. Leavitt, No. 1:08-CV-00422-JR (D.D.C., May 23, 2008) is available by CLICKING HERE. A link to the Secretary's statement is available by CLICKING HERE.
If you have any questions regarding this e-Alert, please contact Brandy Schnautz Johnson at 512.236.2310 or bjohnson@jw.com.
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