Summary of Baystate Hospital System v. Leavitt
Barbara Straub Williams & Mary Susan Philp
July 2005
On July 1, 2005, the District of Columbia Circuit Court of Appeals (“D.C. Circuit”) issued a decision in Baystate Health System v. Leavitt, ordering the Department of Health and Human Services (“HHS”) to reopen cost reports to include eligible Medicaid days in the disproportionate share hospital (“DSH”) calculation for cost reports that were within the three-year reopening period on February 29, 1997, the date of the issuance of HCFA Ruling 97-2. The Baystate case is the lead case for approximately 600 hospitals that have brought the same cause of action.
BACKGROUND
Prior to HCFA Ruling 97-2, HHS policy was that Medicaid eligible, but unpaid, days should be excluded from the DSH calculation. After four circuit courts held that the Medicare statute required HHS to include all eligible Medicaid days, whether or not paid, HHS issued HCFA Ruling 97-2, stating that it would count those days prospectively, and retrospectively only if a valid appeal was pending. HCFA Ruling 97-2, specifically prohibited intermediaries from reopening cost reports to include eligible but unpaid days.
In Monmouth Medical Center v. Thompson, 257 F.3d 807 (D.C.Cir. 2001), the D.C. Circuit held that HHS must reopen cost reports for hospitals that had sought reopening on the issue of eligible but unpaid days within the three-year reopening period, despite the fact that HCFA Ruling 97-2 prohibited reopenings. The Monmouth hospitals sought reopening under 42 CFR § 405.1885(b) (later modified), which stated that an intermediary determination “shall” be reopened if CMS notifies the intermediary that “such determination or decision is inconsistent with the applicable law, regulations, or general instructions” issued by CMS. (The Supreme Court had previously ruled that reopenings under 42 CFR § 405.1885(a), which states that intermediaries “may” reopen if requested by the provider, was a purely discretionary decision of the intermediary and not subject to judicial review. Your Home Visiting Nurse Service v. Shalala, 119 S. Ct. 930 (1999)).
THE BAYSTATE CASE
The 26 Baystate hospitals filed suit eight months after the Monmouth decision, seeking to compel reopening of NPRs issued during the three years preceding issuance of HCFA Ruling 97-2. The Baystate hospitals contended that 42 CFR § 405.1885(b) required HHS to reopen cost reports even though the hospitals had not requested reopening. The D.C. Circuit rejected all of HHS’s arguments, holding that the hospitals were not required to exhaust their administrative remedies by seeking reopening or filing appeals because such efforts would have been futile. The Court also found that the hospitals had not waited too long to file suit, stating that HHS had not shown that it would suffer any prejudice by the hospitals’ delay. Lastly, the Court stated that the amount at stake in the lawsuits (purportedly about $1 billion) was not a reason to deny payment.
FUTURE IMPLICATIONS
The Baystate case is undoubtedly a significant decision for the Medicare providers. There are several factors, however, that should be considered in trying to assess its implications for future litigation.
First, the D.C. Circuit’s decision may not be the final word on this issue. The government may seek rehearing or review by the Supreme Court. There is a contrary decision in the 10th Circuit (Bartlett Memorial Medical Center v. Thompson, 347 F. 3d 828 (10th Cir. 2003)), and the Supreme Court is more likely to take a case if the government seeks review based on a split in the circuits.
Second, HHS amended the reopening regulations at 42 CFR § 405.1885(b) and (e) as of October 1, 2002, to try to preclude future cases under a Monmouth theory. CMS states in the regulatory preamble that the changes simply clarify its longstanding interpretation of the reopening regulations. The revised regulation, however, is quite different from the provision relied upon in Monmouth and Baystate.
Lastly, relief under Baystate is likely limited to those hospitals that filed suit within six years of the issuance of HCFA Ruling 97-2 (i.e., by February 27, 2003). Although some observers have speculated on creative ways to surmount the general six-year statute of limitations on suits against the government, it is likely to be a considerable hurdle for any newcomer to this litigation.
If you have any questions, call Barbara Straub Williams, Mary Susan Philp or any attorney with whom you normally work at (202) 466-6550.
Powers, Pyles, Sutter and Verville, P.C. is a nationally-recognized law firm located in Washington, D.C. The firm specializes in all aspects of health care, including long term care, and represents a wide variety of clients on industry issues and problems.
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