FEDERAL COURT UPHOLDS ONE-TIME .06 % INCREASE IN MEDICARE PROSPECTIVE PAYMENT REIMBURSEMENT RATES IN TWO MIDNIGHT RULE LITIGATION

On December 28, 2018, Federal Judge Randolph D. Moss of the United States District Court of the District of Columbia upheld the Department of Health and Human Services’ (HHS) one-time .06% increase in Medicare prospective payment reimbursement rates for Fiscal Year 2017.

The case arose out of the Two Midnight Rule Litigation: When HHS finalized its rules to provide that a patient is considered an inpatient if admitted to a hospital with the expectation that he or she will require hospital care spanning at least two midnights, it simultaneously imposed a .02 percent decrease in Medicare prospective inpatient payments beginning in Fiscal Year 2014. The rationale for the .02 percent decrease was HHS’ assumption that the Two Midnight Rule would result in more patients admitted as inpatients as opposed to being treated under observation status, with concomitant increases in Medicare expenditures.

Over 1000 hospitals appealed the .02 percent decrease and the cases were consolidated. In an earlier ruling, the Court found that HHS had failed to provide a meaningful opportunity for public comment and remanded the case. On remand, HHS changed its mind and decided to remove the .02 percent decrease beginning in Fiscal Year 2017. In addition, to address the effect of the decrease for Fiscal Years 2014 through 2016, HHS approved the one-time .06 percent increase for Fiscal Year 2017.

The issue before the Court was whether HHS violated the Administrative Procedures Act in approving the one-time .06 percent increase. Two groups of hospital plaintiffs challenged the increase. One hospital group argued that the Court didn’t have jurisdiction to consider the new rule, that HHS should have repealed the rule establishing the initial decrease, and that the .06 percent increase did not adequately compensate them for their losses. The other hospital group argued that the .06 percent increase was a step in the right direction, but did not go far enough. They asked the Court to remand the case, directing HHS to consider additional data. The Court disagreed with both sets of plaintiffs and found that the Secretary of HHS did not violate the APA, allowing the one-time increase to take effect.

The case is Shands Jacksonville Med. Ctr., Inc. v. Azar, No. 1:14-cv-00263 pending in the United States District Court for the District of Columbia. The opinion is linked here.