AHA Lawsuit: Too Little, Too Late?

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Original story posted on: April 17, 2014

At a time when moviegoers are flocking to see the biblical epic “Noah,” in which the titular protagonist goes about collecting the world’s species by twos, the American Hospital Association (AHA) on Tuesday filed a pair of lawsuits against the U.S. Department of Health and Human Services (HHS), challenging the contentious “two-midnight” rule for determining inpatient status. Meanwhile, in a separate suit, the AHA indicated that it wants to halt a 0.2-percent payment reduction for Medicare beneficiaries discharged on or after Oct 1, 2013.

Both suits are related to provisions in the Centers for Medicare & Medicaid Services’ (CMS) 2014 Inpatient Prospective Payment System. The first suit includes three different issues challenging CMS’ overall authority on defining inpatient status and Part A versus Part B claims, and requiring a physician order for every inpatient admission. The second lawsuit challenges CMS’ decision to justify lower hospital payments for inpatient stays on the grounds that the new two-midnight rule would increase the number of inpatients’ hospital admissions.

Two Suits, Four Issues

“The suit seeks to declare the new rule invalid, asserting that CMS lacks the authority to define an ‘inpatient,’ because the decision must be left to the admitting physician,” wrote attorney David Glaser in an email to RACmonitor. “That suit also challenges the CMS policy of only permitting a hospital to rebill a Part A claim as a Part B claim within one year of the date of services, and says that CMS lacks the authority to require a physician order for every inpatient admission because the Medicare statute only requires certification for extended stays.”

Glaser believes that the four issues brought forth in the two lawsuits have different probabilities of success, contending that it is unlikely that the court would overturn the two-midnight rule. He thinks the lawsuit challenging the cut in inpatient reimbursement seems to have merit.

“There is a long line of court cases that require courts to defer to regulations issued by government agencies like CMS,” Glaser wrote. “Generally speaking, unless the agency’s regulation is clearly inconsistent with the law, courts will defer to the agency,” adding that AHA asserts that the physician, not CMS, should be able to define who is an inpatient.

In the lawsuit AHA asserts that the physician, not CMS, should define the status of an inpatient. On this point, Glaser holds out little hope for AHA prevailing.

“I am nearly certain that argument will fail,” Glaser said. “I agree that the physician must be empowered to make the determination for a patient, but it seems difficult to argue that CMS is prevented from establishing the standard the physician is to apply.”

As others have in the past and continue to do, Glaser said he would argue that the old CMS guidance was terribly unclear, faulting CMS for using “overnight” in one sentence and “24 hours” in another.

“Obviously those two standards are totally different (except during the winter north of the Arctic circle, when ‘overnight’ is 24 hours),” Glaser said. “Before the two-midnight rule I don’t believe that CMS had effectively defined the term ‘inpatient.’ I would not want to argue, however, that CMS lacks the authority to define the term, only that they hadn’t properly done so before the two-midnight rule was issued.”

Confusion and Contention

Even as CMS found itself stumbling over the parsing of its own words, hospitals were equally at a loss understanding how to comply with the two-midnight rule. And each attempt by CMS to clarify itself appears to have led to more confusion.

“While hospitals have been having difficulty understanding what they need to do to comply with the two-midnight rule, CMS has had as much difficulty explaining it,” wrote Steven J. Meyerson, MD, senior vice president at Accretive Physician Advisory Services. "Each 'clarification' has created more questions and some basic concepts remain unanswered, even as the Medicare Administrative Contractors (MACs) begin enforcement with their limited ‘probe and educate’ (and deny) program."

Nonetheless, hospitals forged ahead in implementation of the two-midnight rule. Many perhaps will view the lawsuits as too little too late.

"I can tell you that from my hospital's perspective, we have spent quite a bit of time over the past six to nine months preparing for the implementation of the two-midnight rule," wrote J. Paul Spencer, director of regulatory and coding compliance for Providence Hospital in Washington, D.C., in an email to RACmonitor. "We have gone as far as preparing forms, training our physicians, and getting all of our case management ducks in a row. I believe the AHA lawsuit is valid. I only wish it had happened sooner, prior to preparation."

Ambiguities in the rule forced CMS to delay general enforcement until April 1, 2015—a provision tucked into the HR 4307, the SGR doc fix bill that was signed into law on April 1 by President Obama. That same bill also delayed for at least one year the implementation of ICD-10.

“But as much as they dislike the two-midnight rule, going back to 'the old way' with arbitrary denials is not an attractive alternative for hospitals, either,” Meyerson wrote. “That being said, it is unlikely that CMS would consider reforming its newly created admission rules unless the current version is jettisoned—something they are very unlikely to do unless forced to do so by federal court.”

Making the Case

Meanwhile, Glaser believes the other portions of that suit have a stronger basis in law. While recognizing the difficulty to prevail in litigation with the government, Glaser feels that when an agency such as CMS is acting inconsistently with a statute, it is possible to prevail in court.

“The AHA’s complaint makes an interesting argument that CMS lacks the authority to require a physician order for every hospital admission,” Glaser contends. “That will be a complicated question, with one issue being whether an ‘order’ and a ‘certification’ are the same.”


 

On the other hand, the AHA claim that the one-year limit on Part B rebilling is improper also stands some chance of success, Glaser believes.

“Personally, I think that policy is terribly unfair,” Glaser said. “Since the appeals process regularly extends more than a year, there must be a mechanism to allow hospitals to recover payment for the valid services they provided. I hope the court agrees.”

Meyerson would agree. He noted CMS has shown that it has the power to waive timely filing, as it did when it released the administrative ruling that allowed hospitals to rebill, and it has continued that policy for discharges prior to October 1, 2013.

“Refusing to allow hospitals to rebill has deprived them of payment for medically necessary services based on inconsistent application of the timely filing restriction, a policy that only makes sense in a case where the hospital has failed to submit a bill for a year following the date of service,” Meyerson argued.

Staving Off the 0.2 Percent Cut

The other lawsuit filed by AHA regarding the cut in inpatient reimbursement also seems to have merit, according to Glaser. Under old CMS policy, if the physician expected that the patient would be in the hospital overnight, it was proper to categorize the patient as an inpatient.

“The new rule requires that physicians anticipate a stay last two midnights to be considered an inpatient stay,” Glaser said. “Common sense tells you that increasing the minimum length of stay from one night to two will lower the number of inpatients.”

In this case, Glaser takes issue with the CMS assertion that the new rule would increase the number of inpatients.

“(This) defies logic,” Glaser wrote. “CMS asserted that since there was so much confusion about the old policy, some hospitals only admitted patients as inpatients when a stay was going to last many nights. That assertion strikes me as disingenuous.”

Glaser contends that if hospitals were, in fact, not admitting patients who were expected to stay two midnights, that was because recovery auditors were applying an improper standard, and, in his words, “terrorizing hospitals into following suit.” Glaser believes the new rule will lower the number of inpatient admissions.

The AHA complaint said that CMS claimed, "without setting forth its actuaries" reasoning or calculations—that the two-midnight rule and other related policy changes would result in a net increase in the number of inpatient hospital stays that Medicare covers under Part A.

Meyerson said that CMS implemented the 0.2 percent DRG reduction to maintain revenue neutrality based on what he described as the “unproven actuarial assumption” that inpatient admissions would increase, but which seems to have been erroneous based on early reports of increased observation rates, not increased admissions, at many hospitals.

“There is no allowance in the final rule for reassessment of the DRG penalty nor a mechanism to reconcile the predicted effects with real-world experience,” Meyerson said. “A policy that impacts hospital revenues to this extent should be carefully considered and adjusted according to experience."

Even though the AHA has a compelling case in the second lawsuit, there is no certainty it will prevail, according to Glaser.

In summing it up the two lawsuits, healthcare attorney Andrew B. Wachler, partner in the law firm of Wachler Associates, applauded the action taken by the AHA.

"The AHA doesn’t litigate frivolously," Wachler told RACmonitor. "It’s important to their members who have been audited for so many years to get it right."

Glaser would agree with Wachler’s comment.

"If I were sitting as the judge in that case, I would rule for the AHA," Glaser said. "But it is always important to remember what my then-six-year-son, Zachary, said after asking if I was 'on offense or defense' in some litigation with the government: 'Dad, when you are fighting the government, you are always on defense.'"

He was young, but wise.

About the Author

Chuck Buck is publisher of RACmonitor.

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Chuck Buck

Chuck Buck is the publisher of RACmonitor and is the program host and executive producer of Monitor Monday.

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