The United States District Court’s 2021 ruling in Milton S. Hershey Medical Center v. Becerra is one example of a successful legal challenge to federal agency action, but a number of more recent cases reaffirm that lower federal courts may not hesitate to overturn agency action deemed outside the bounds of the agency’s legislative authority. This is an important trend for hospitals to note when considering potential challenges of reimbursement determinations made by the Centers for Medicare & Medicaid Services.

In Hershey, a number of teaching hospitals challenged one of the elements that the Secretary of Health and Human Services (HSS) used in fiscal years dating back to 2005 to determine a hospital’s direct Graduate Medical Education (DGME) payment: specifically, each hospital’s weighted number of full-time equivalent (FTE) residents. After students graduate from medical school, they often continue their training in an initial residency period (IRP) which, by statute, is defined to last five years. Some residents additionally complete a fellowship which typically occurs outside the 5-year IRP. Under the Medicare statute, the rules for calculating the weighted average number of FTEs are required to provide a weighing factor of 1.00 for a resident who is in the resident’s IRP, and a weighing factor of .50 for a resident who is not in the resident’s IRP. Thus, the Medicare statute requires that a resident’s time be fully counted but only one-half of a fellow’s time be counted for purposes of the FTE calculation.

In addition, in 1997, Congress amended the Medicare statute to set a limit on how many FTEs a hospital may factor into its count before application of the weighing factors. That limit was capped at the hospital’s 1996 levels.

In 1998, the HHS Secretary amended the agency’s regulation which effectively reduced the weighted number of FTEs a hospital may claim for reimbursement when the hospital’s unweighted FTE count exceeds its 1996 cap. When a hospital exceeds the cap, its weighted FTE count is reduced commensurate with the amount by which the hospital exceeds the cap.  As the Hershey Court explained, assuming a hospital’s cap of 100 which is met by employing 90 residents and 10 fellows, after weighing the fellows at 0.5, the hospital’s post-weighted FTE count is 95. The math is as follows:

100/100   x   95   =   95

 

 

However, if that hospital adds ten more fellows (for a total of 90 residents and 20 fellows), thereby exceeding the cap, its post-regulation weighted FTE count is reduced to 90.91. The math is as follows:

100/110   x   100   =   90.915

 

 

Recognizing, under the rules of statutory construction set forth in Chevron v. Nat’l Resource Defense Council, that it owed no deference to the Secretary’s interpretation of the Medicare statute because the statutory language speaks to the precise issue and is clear, the Court held that the express text of the Medicare statute did not give the Secretary the latitude to decide, when a hospital exceeds its cap or not, to change the weights that Congress assigned to residents and fellows when calculating the FTE residents for each hospital. Consequently, the Hershey Court struck down the agency’s regulation, and thus, the DGME calculation because it violated the express language of the Medicare statute.

Over the past year-and-a-half, we have seen a number of lower federal courts not hesitate to overturn federal agency action when an agency acted outside the bounds of the authority granted to it by Congress in its enabling legislation. The Hershey case is one such example. However, more recently, the United States Supreme Court reinforced this approach in American Hospital Association v. Becerra (Case No. 20-1114 and decided on June 15, 2022), in which the Court limited HHS’s authority to set two separate hospital reimbursement rates under the 340B drug program where Congress spoke clearly in the Medicare statute as to how the rates are to be determined. Further, in West Virginia v. Environmental Protection Agency (Case Nos. 20-1530, 20-1531, 20-1778 and decided June 30, 2022), the Court struck down as not authorized by the Clean Air Act EPA’s sweeping rules to devise carbon emissions caps based on a generation shifting approach away from coal-powered plants, thereby opening the door for more robust challenges to agency action.

The lesson? Aggrieved hospitals are in as good a position as they have ever been to challenge the methodology and calculations made by CMS when determining hospitals’ Medicare rates, DSH and GME payments, or 340B reimbursement.

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Photo of James A. Robertson James A. Robertson

Partner and Chair, Healthcare Department

Mr. Robertson’s healthcare practice is reflective of his significant expertise across a wide range of legal disciplines, enabling him to effectively counsel clients on a myriad of healthcare regulatory, corporate and litigation matters. He represents a diverse array…

Partner and Chair, Healthcare Department

Mr. Robertson’s healthcare practice is reflective of his significant expertise across a wide range of legal disciplines, enabling him to effectively counsel clients on a myriad of healthcare regulatory, corporate and litigation matters. He represents a diverse array of healthcare industry clients including for-profit and not-for-profit healthcare and hospital systems, academic medical centers, nursing homes, home health agencies, medical device manufacturers, pharmaceutical companies, integrated delivery networks, physicians and physician practice groups, and healthcare private equity funds.

Mr. Robertson provides comprehensive representation in connection with all types of healthcare transactions, including corporate mergers and acquisitions, joint ventures, and divestitures. He assists clients with the structuring and creation of clinically integrated networks (CINs), organized delivery systems (ODSs), accountable care organizations (ACOs), multiple employer welfare arrangements (MEWAs), and health insurance companies. He oversees the establishment and purchase/sale of individual physician and group practices, ambulatory surgery centers, nursing homes, and assisted living facilities. He structures and negotiates compensation arrangements with physicians in connection with employment and exclusive contracting arrangements, medical directorships, physician recruitment initiatives, hospital department management, office and equipment leases, and management services arrangements. He also negotiates managed care agreements and risk-sharing arrangements with payors and represents healthcare clients in payor litigation.

On the regulatory and compliance fronts, Mr. Robertson regularly provides guidance on issues related to fraud and abuse laws, including the federal Anti-Kickback Statute and Stark Law, the New Jersey Codey Law, the certificate of need statute and Community Healthcare Asset Protection Act (CHAPA), as well as other regulatory compliance issues associated with healthcare transactions and physician-integration arrangements. He develops, implements, and maintains corporate compliance programs for hospitals and other providers in the healthcare industry and is well-versed in the compliance issues associated with, and the implementation of requirements under, the Health Insurance Portability and Accountability Act (HIPAA), the Emergency Medical Treatment and Labor Act (EMTALA), and the Affordable Care Act (ACA).

In the area of information privacy and data security, Mr. Robertson advises healthcare clients on issues arising under HIPAA and the Health Information Technology for Economic and Clinical Health Act (HITECH). This includes the drafting and negotiation of HIPAA compliant business associate agreements with third party vendors, drafting and assisting in the enforcement of privacy and security policies within client organizations, and providing guidance on record retention requirements and the physical or electronic storage of medical records. In addition, he represents healthcare clients in investigating, reporting, and remediating information breaches and the liability such breaches create under various information privacy and security laws.

Mr. Robertson assists clients in seeking advisory opinions from federal and state regulatory agencies, and regularly represents healthcare entities in Medicare, Medicaid, charity care, graduate medical education (GME) and disproportionate share hospital (DSH) reimbursement matters before state administrative agencies and the federal Provider Reimbursement Review Board. His work also encompasses internal audits and investigations, responding to government inquiries, investigations, subpoenas and search warrants, and providing advice in connection with voluntary self-disclosures and corporate integrity agreements (CIAs).

Mr. Robertson is a resource for addressing medical staff matters, providing counsel on fair hearing requirements and designing state-of-the-art medical staff bylaws. He also provides guidance in connection with strategic initiatives on system affiliations including the establishment of outpatient health care offices, diagnostic imaging facilities and ambulatory surgery centers.

Contact information:

jrobertson@greenbaumlaw.com | 973.577.1784 | vCard | LinkedIn

For more information visit the Greenbaum, Rowe, Smith & Davis LLP website.

Photo of John W. Kaveney John W. Kaveney

Partner, Healthcare and Litigation Departments

Mr. Kaveney focuses his practice in the area of healthcare law, representing a range of clients that includes for-profit and non-profit hospitals and health systems, academic medical centers, individual physicians and physician groups, ambulatory surgery centers, ancillary service…

Partner, Healthcare and Litigation Departments

Mr. Kaveney focuses his practice in the area of healthcare law, representing a range of clients that includes for-profit and non-profit hospitals and health systems, academic medical centers, individual physicians and physician groups, ambulatory surgery centers, ancillary service providers, medical billing companies, skilled nursing and rehabilitation facilities, behavioral health centers and pharmacies.

His practice in the healthcare field encompasses advising healthcare clients on corporate compliance matters, including the implementation of new, and the assessment of existing, corporate compliance programs. He also assists healthcare clients with compliance audits and investigations, as well as guiding clients through the self-disclosure and repayment processes. Finally, he provides general legal advice concerning compliance and regulatory matters under state and federal healthcare laws.

In the area of information privacy and data security, Mr. Kaveney advises healthcare clients on issues arising under the Health Insurance Portability and Accountability Act (HIPAA) and the Health Information Technology for Economic and Clinical Health Act (HITECH). This includes the implementation and assessment of privacy and security policies and procedures to ensure the proper protection and utilization of protected health information both by healthcare providers and the business associates with which they contract. In addition, he represents healthcare clients in investigating, reporting, and remediating information breaches and the liability such breaches create under various information privacy and security laws.

Additionally, Mr. Kaveney provides counsel on Medicaid and Medicare reimbursement matters before the Division of Medical Assistance and Health Services and the Provider Reimbursement Review Board, as well as assisting clients in civil litigation and with professional licensing and medical staffing concerns.

Contact information:

jkaveney@greenbaumlaw.com | 973.577.1796 | vCard | LinkedIn

For more information visit the Greenbaum, Rowe, Smith & Davis LLP website.

Photo of Paul L. Croce Paul L. Croce

Counsel, Healthcare Department

Mr. Croce focuses his practice in the field of healthcare. His work includes representing clients in hospital reimbursement matters before the Department of Health and the Division of Medical Assistance and Health Services. He provides counsel on issues related to…

Counsel, Healthcare Department

Mr. Croce focuses his practice in the field of healthcare. His work includes representing clients in hospital reimbursement matters before the Department of Health and the Division of Medical Assistance and Health Services. He provides counsel on issues related to contracting, civil litigation and professional licensing matters, and represents a variety of healthcare industry clients including physicians, dentists, hospitals and for-profit and non-profit healthcare systems.

Mr. Croce also has substantial experience defending attorneys and other licensed professionals against claims of malpractice and ethics grievances.

Contact information:

pcroce@greenbaumlaw.com | 973.577.1806 | vCard | LinkedIn

For more information visit the Greenbaum, Rowe, Smith & Davis LLP website.