Another Group of Hospitals Challenge Medicare Payment Rates for Outlier Patients

On Friday, a group of three hospitals filed a case in District of Columbia District Court against the Department of Health and Human Services. The suit alleged systemic underpayment of inpatient stays by Medicare according to the Inpatient Prospective Payment System (IPPS).

According to the complaint, filed by Sharp Chula Vista Medical Center, Grossmont Hospital, and Sharp Memorial Hospital, the IPPS reimburses hospitals according to a formula that determines reimbursement without regard to the amount the facility actually charges for the service. The formula includes factors such as a preset difficulty level or Diagnosis Related Group, a base line cost factor, adjustments for cost of living in the area where the hospital is located, modifiers for teaching facilities, and other factors, resulting in a payment that can be reasonable for the average patient.

However, the hospitals explained, there are patients for whom extraordinary services are required, known as “outlier” cases and the Medicare IPPS is designed to reimburse the cost of treating those patients at a higher rate. These outlier payment rates are set annually by HHS as a set percentage of the total IPPS payment budget.

For fiscal years 2004 and 2005, the hospitals alleged that the outlier thresholds were set too high and that outlier claims were underpaid. They cited two D.C. Circuit decisions that have remanded the thresholds to the Secretary for additional explanation and further payment. The hospitals claimed that the outliers remain underpaid even after the second case remanded the thresholds are seeking a further recalculation of these outlier payments, specifically stating that both the original and later calculations were arbitrary and capricious with no factual underlayment for the amounts paid.

The plaintiffs are seeking review by the court, indicating that the decisions by the Secretary of Health and Human services were contrary to the law, that the process was arbitrary and capricious, that the decision was lacking in substantial evidence, and seeks review and payment of the underpaid amounts. The hospitals are represented by Hooper, Lundy, and Bookman, who also represented a different group of hospitals in a suit against HHS last week.