Eighth Circuit Rejects Teaching Hospitals That Sought $4.1 Million in Medicare Funds
Two teaching hospitals lost in their bid for $4.1 million in Medicare reimbursements when a federal appeals court July 28 held the health and human services secretary properly interpreted the law (St. Mary’s Hospital v. Leavitt, 8th Cir., No. 03-3905, 7/28/05).
The U.S. Court of Appeals for the Eighth Circuit affirmed the denial by the district court of the claims by two Minnesota teaching hospitals, St. Mary’s Hospital and Rochester Methodist Hospital. The hospitals claimed they were deprived of reimbursement for diagnosis-related group (DRG) expenses, capital expenses, and indirect medical education (IME) expenses they incurred for cost reporting years 1984 through 1986. The payments were reduced during the cost reporting periods by Medicare’s payments to the Mayo Clinic for the reasonable cost of ancillary services it provided to patients at the two hospitals.
The appeals court found that the IME reimbursement was meant to compensate teaching hospitals because the DRG payment system, calculated on a region-wide basis that includes nonteaching hospital, does not recognize the higher costs of teaching hospitals. However, when some services are not provided by the teaching hospital, then it makes little sense to reimburse the nonproviding teaching hospital for its inefficiencies, the court determined.
Services Delivered
Under the DRG system, Congress required hospitals to bundle expenses associated with patient care, including the costs of services furnished by outside providers. When that posed significant problems, Congress provided a waiver provision (42 U.S.C. §1395y) giving the health and human services secretary power to allow hospitals and their ancillary providers to continue separately billing unbundled charges, but only for cost reporting periods before Oct. 1, 1986.
St. Mary’s and Rochester Methodist applied for and received the waiver, and from 1984 through 1986, the Mayo Clinic received direct payments under Medicare Part B for ancillary services furnished to the hospitals’ inpatients. When the Part B payments were deducted from the hospitals’ DRG payments under Part A as required by the waiver, St. Mary’s and Rochester Methodist complained to their fiscal intermediary.
When the intermediary–based on a decision by a Centers for Medicare & Medicaid Services official–found the hospitals did not incur indirect medical education costs where ancillary services were provided by the Mayo Clinic, the hospitals appealed to the Provider Reimbursement Review Board. The board concluded that a 1986 amendment to the waiver provision showed a congressional intent to leave in place the secretary’s interpretation of how the waiver affected the IME reimbursement scheme for the cost reporting periods beginning before Jan. 1, 1986–the effective date of the amendment–and the U.S. District Court for the District of Minnesota agreed.
A copy of the decision is available at http://www.ca8.uscourts.gov/opndir/05/07/033905P.pdf on the Web.