Friday, September 25, 2015

Judge rules against CMS policymaking style - too unclear for informed public comment

September 25, 2015

Several trade press articles have picked up on a judge's ruling this week in Shands Jacksonville Medical Center re Burwell (Advisory Board, here; case online at AHA, here; subscription article at Law360, Sept. 21 here ).

Because the case involves the controversial Two Midnight Rule and a potential (though small) refund to the hospital industry, the broader implications of the case haven't received much attention.   [Addendum: Law360 picked up on this on September 29: here).   I believe that many stakeholders should be interested in this slap against CMS policymaking methods.

Addendum; CMS published a court-ordered explanation of its earlier reasoning, on November 30, 2015: here.


Several years ago, CMS proposed that the default assumption for observation vs. hospitalization would be whether the patient passed 2 midnights in the hospital.  Thus, the policy would endorse a single overnight stay after an "outpatient" surgery as being an "observation" stay.  The difference is important because of copay and other policy factors.  CMS determined there would be a net classification shift tallying 40,000 outpatient and inpatient admission events such that 0.2% or $220M should be withheld from inpatient DRG payments in the next fiscal year.

What happened?

Shands does not challenge the 2-midnight policy, but made three challenges against its implementation via a pay cut calculated by CMS accountants and policymakers.

First, they argued that the statute in question did not allow CMS to make this across-the-board pay adjustment.  The judge ruled that CMS acted within reasonable bounds, given the wording of the statute.

Second, they argued that CMS had provided inaccurate, misleading, or incomplete information in the proposed rule as to why a 0.2% and $220M pay cut should be doled out.   Shands Medical Center won on this count.  The judge ruled that "the Secretary’s failure to disclose the critical assumptions relied upon by the HHS actuaries deprived Plaintiffs and other members of the public of a meaningful opportunity to comment..."

Third, Shands recited a serious of factual concerns re various CMS accounting or policy assumptions, and CMS had not commented on them in its final rule, thus invalidating the final rule.  The judge ruled that he did not need to address this issue, as the case had already been decided favorably for Shands.

What is next?

After a long discussion "what to do next" the judge remanded the case with special instructions to CMS.  The judge thus avoided more drastic solutions such as vacating the pay cut and requiring an immediate refund, since it was at least possible that with more data and a clearer explanation, the pay cut would prove correct.  (As Law360 stated on Sept. 21, HHS asserted that “it would not be difficult [for it] to correct any alleged defects in [its] explanation of [its] actuaries’ methodology.”)   I assume CMS has the right to appeal the District Court decision.

Why is the case far-reaching?

Many stakeholders find that with one rule or another, CMS has not provided enough detail, facts, data, or algorithms in its draft rules to allow stakeholders to show errors in CMS calculations, or rebut CMS assertions in a conclusion and winning way.  A paranoid person might fear that a Kafkaesque CMS could choose to hide features or data that would allow its proposal to be rebutted.

These diverse stakeholders - under physician, outpatient, inpatient, and other types of complex "big data" rulemaking - will surely be looking to the Shands decision as leverage for their dissatisfactions and arguments at CMS.

On September 29, 2015, Law360 (subscription) published an article by Polston & Kenney of King & Spalding LLP, one of the law firms involved in the case.  They also emphasize the wider ranging implications of the case: "an important victory... also has implications for future changes to Medicare payment rates. As discussed in this article, the Shands decision sets a baseline for what information the secretary must disclose when proposing rate changes — the secretary cannot simply make cursory statements with little explanation to justify how she calculates her rates. Rather, she must show her work."   Polston and kenney go on to write that "because the agency typically benefits from offering only cursory and vague justifications for its payment decisions: providers are less likely to challenge CMS' rate calculations if they are unaware of how CMS derived them. This decision should make the secretary think twice before cloaking her decision making."

Addendum 2.
As of mid November, 2015, various hospitals are still filing cases asking courts to vacate the CMS decision; trade journal Law360, here.

To discuss how the changing healthcare system and Medicare policy affects your company, association, or investments, contact Dr Quinn through FaegreBD Consulting