News & Insights


April 5, 2021

Health Headlines - April 5, 2021

Federal Court Holds PRRB Definition of Provider-Operated Too Narrow and Awards South Carolina Hospital Pass Through Reimbursement for Pharmacy Residency Program – On March 29, 2021, Judge Margaret B. Seymour, in the United States District Court for the District of South Carolina, set aside a decision from CMS’s Provider Reimbursement Review Board (Board) denying reimbursement relating to a hospital’s pharmacy residency program.  The issue before the court was whether the Medical University Hospital Authority (MUHA) “operated” its pharmacy residency program under the requirements of 42 C.F.R. § 413.85(f)(1) such that MUHA was entitled to reimbursement for the pass-through costs of that program.  The court determined that the Board construed section 413.85(f)(1) “too narrowly” and that MUHA was entitled to Medicare reimbursement because it was the operator of the program. The hospital was represented by Dan Hettich of King & Spalding in conjunction with local counsel. 

The Medicare statute requires the Secretary to share in the reasonable costs of nursing and allied health education programs operated by providers, pursuant to 42 U.S.C. § 1395x(v) and 42 C.F.R. § 413.85(d)(1).  To be considered an “operator” of an allied health education program, the provider must:

  • Directly incur the training costs.
  • Have direct control of the program curriculum. 
  • Control the administration of the program.
  • Employ the teaching staff.
  • Provide and control both classroom instruction and clinical training.

42 C.F.R. § 413.85(f)(1).

After years of allowing the hospital to claim the costs of the pharmacy residency program, the Medicare contractor abruptly determined that MUHA did not meet all the requirements of 42 C.F.R. § 413.85(f)(1) and, thus, was not the operator of that program.  The Medicare contractor alleged that it was the Medical University of South Carolina, an affiliated medical education institution, that also partly operated the program.  The contractor therefore recouped the Medicare reimbursement MUHA received for its pharmacy program.

On appeal of the contractor’s determination, the Board found that MUHA had not met all requirements under 42 C.F.R. § 413.85(f)(1).  Specifically, the Board contended that because MUHA had not incurred all program costs in the first instance (in some cases it reimbursed MUSC for costs MUSC incurred initially), MUHA had failed to “directly incur” the costs of the program as required by the regulation.  In other words, the Board held that “directly incur” required that all costs be “incurred in the first instance.” The Board also determined that MUHA did not control the administration of the pharmacy residency program because, while the Board acknowledged that MUHA exercised day-to-day control over the program, an affiliation agreement between MUHA and MUSC stated that an MUSC employee, the Dean of the School of Pharmacy, had “ultimate” control over the program.   

MUHA appealed the Board’s decision to federal court, alleging that the Board’s narrow interpretation of the “directly incur” and “control” requirements were contrary to law, arbitrary and capricious, and created an unfair surprise on regulated hospitals.  The American Society of Health-System Pharmacists, an accrediting organization for pharmacy residency programs, filed an amicus brief with the court in support of MUHA, indicating that the unfair surprise of CMS’s interpretation of the “operator” regulation “could jeopardize the continued operation of pharmacy residency programs.”

Judge Seymour held that, under section 413.85(f)(1)(i), it was not necessary for MUHA to incur the reasonable costs of the pharmacy program in the first instance in order to satisfy the “directly incur” prong. Judge Seymour critiqued that the Board’s narrow interpretation “grossly underestimates MUHA’s entitlement to reimbursement and results in the shifting of costs to non-Medicare patients.” Additionally, Judge Seymour’s opinion held that MUHA’s day-to-day control of the pharmacy residency program satisfied the administrative control prong of the regulation and that the Board erred in “simply identifying the titular head of the organization.”  In sum, the court identified MUHA as the operator of the pharmacy residency program and eligible for pass-through Medicare reimbursement for those program costs.

Judge Seymour’s opinion is available here.

Reporter, Michael L. LaBattaglia, Washington, D.C., +1 202 626 5779,

King & Spalding Client Alert - Florida Passes Law Limiting COVID-19 Lawsuits – On Monday, March 29, 2021, Florida Governor Ron DeSantis signed into law a bill that limits COVID-19 liability for Florida health care providers, health care facilities, and other businesses.  The new law addresses claims arising from or related to COVID-19 against health care providers, health care facilities, educational institutions, governmental entities, religious institutions, and other businesses.  To maintain a COVID-19-related lawsuit, a plaintiff must file a complaint pled with particularity.  This means that a plaintiff must specifically identify the acts or omissions causing the alleged damages as well as the time, place, and manner in which they occurred. Unlike claims against other types of businesses, claims against health care providers do not require a supporting affidavit.  Click here to access the full King and Spalding Client Alert. 

Federal Court Affirms Denial of Medicare Payment for Inpatient On-Call Services to Critical Access Hospital – On March 31, 2021, Judge Carl Nichols of the United Stated District Court for the District of Columbia issued a decision upholding CMS’s denial of reimbursement to a California Critical Access Hospital (CAH) for compensation it paid to physicians for being on call to provide inpatient services. St. Helena Clear Lake Hospital v. Becerra, No. 19-00141 (D.D.C. 2021). In so holding, the court rejected the hospital’s argument that these services were “necessary and proper” to comply with the Emergency Medical Treatment and Labor Act (EMTALA) and state licensing requirements.

Medicare reimburses most acute care hospitals for inpatient and outpatient services through prospective payment systems, whereby hospitals receive fixed payments for services notwithstanding actual costs.  Congress has carved out an exception for CAHs, which are generally small and remote rural hospitals. CAHs receive 101 percent of the “reasonable costs” they incur furnishing inpatient and outpatient services to Medicare beneficiaries. CMS has defined reasonable costs as those that are “necessary and proper” in maintaining the operation of a hospital. 

In 1998, CMS (then known as the Health Care Financing Administration) adopted implementing regulations for CAHs. A commenter to that rule inquired whether CAHs could claim reimbursement for compensation paid to physicians for being available to come to the hospital when their services are required. CMS answered in the negative, stating that Medicare does not recognize costs of on-call physicians. 

Congress intervened in the Consolidated Appropriations Act, 2001, which says that Medicare will reimburse CAHs for the reasonable cost of compensation paid to physicians for being on call to provide outpatient emergency room services.  Soon thereafter, CMS amended the CAH regulations to reflect this Congressional mandate. 

St. Helena Clear Lake Hospital (St. Helena) contracted with surgeons, obstetricians, pediatricians and cardiologists to provide on-call coverage for inpatient hospital services, and attempted to claim reimbursement from Medicare for the compensation it paid under those agreements.  The Medicare Administrative Contractor (MAC) denied reimbursement for those costs on the grounds that CMS’s regulations only permit on-call reimbursement for emergency outpatient services.

St. Helena appealed the MAC’s decision to the Provider Reimbursement Review Board (Board).  St. Helena argued that its inpatient on-call costs should be allowed because they were “necessary and proper” to operate the hospital.  In particular, St. Helena contended that it needed these on-call services to comply with the mandate of EMTALA, which requires hospitals to stabilize patients before they can be transferred to another facility.  St. Helena also claimed that it needed to have on-call surgeons, obstetricians, pediatricians and cardiologists to meet California state licensing requirements. 

The Board affirmed the MAC’s decision denying reimbursement. The Board reasoned that by permitting on-call reimbursement only for emergency outpatient services, CMS’s regulations denote the agency’s intent to exclude reimbursement for inpatient on-call services.  Furthermore, the Board was not persuaded that St. Helena’s on-call costs were necessary and proper.  While the Board acknowledged that EMTALA requires hospitals to stabilize patients before transferring them, it found that St. Helena had existing contracts with emergency room physicians who were qualified to meet that mandate.  The Board also found that California’s licensing laws did not require St. Helena to have on-call contracts with surgeons, obstetricians, pediatricians and cardiologists.  And even if they did, the Board ruled that “state laws that conflict with clear federal Medicare payment regulations would not change the outcome of this appeal.”

St. Helena filed suit in the D.C. District Court challenging the Board’s decision after CMS declined to reverse it.  In its motion for summary judgment, St. Helena assailed the Board’s decision on three principal grounds: (1) the Board erred in interpreting CMS’s regulations permitting reimbursement for outpatient on-call services as prohibiting reimbursement for inpatient on-call services, (2) the Board’s ruling that the on-call costs in question were not necessary and proper was arbitrary and capricious, and (3) CMS cannot disallow inpatient on-call costs until it adopts a regulation to that effect through notice-and-comment rulemaking. 

The court disagreed with St. Helena on all three counts.  First, the court deferred to the Board’s interpretation of the regulation permitting on-call reimbursement for emergency outpatient services, finding it was reasonable to infer that the regulation prohibited reimbursement for inpatient on-call services.  The court also found that the Board articulated rational reasons for concluding that neither EMTALA nor California licensing laws required St. Helena to have on-call surgeons, obstetricians, pediatricians and cardiologists.  Lastly, the court ruled that it was not necessary for CMS to adopt a rule prohibiting payment for inpatient on-call services because it was entitled to deny payment through the adjudicatory process.  Accordingly, the court denied St. Helena’s motion for summary judgment and affirmed the Board’s decision. 

A copy of the court’s decision is available here.  A copy of the underlying Board decision is available here

Reporter, Alek Pivec, Washington, D.C., +1 202 626 2914,

Round Two: FCC Approves Process for Distributing Nearly $250 Million More for Telehealth Services – On March 29, 2021, the Federal Communications Commission (FCC) unanimously approved the process for distributing $249.95 million in additional funding to healthcare providers to help cover the costs of telecommunication services and connected devices during the COVID-19 pandemic (Round Two). The money was appropriated by Congress in December 2020, as part of the Consolidated Appropriations Act, with the FCC now approving the process for distribution which will employ a single application deadline for all new applicants.

The Round Two funding follows an initial $200 million that was appropriated by Congress as part of the CARES Act in April 2020 (Round One). The Round One funding was awarded to 539 applicants between April 16 and July 8, 2020. The Round One application and distribution process proceeded on a rolling basis whereas the Round Two distribution process will use a single application deadline so that all the applications can be evaluated together before funding decisions are made. The FCC directed the Bureau to issue a public notice announcing the opening and closing dates of the Round Two application filing window as soon as possible.

The FCC report states that Round Two applications must contain, at a minimum, the following information:

  • The name, physical address, county, and the healthcare provider number, for the lead health care provider seeking funding from the COVID-19 Telehealth Program application;
  • Contact information for the individual who will be responsible for the application (telephone number, mailing address, and email address), as well as the contact information for the project manager;
  • A list of the telecommunications services, information services, or connected “devices necessary to enable the provision of telehealth services” requested, the cost for each service or connected device, and the total amount of funding requested; and
  • Supporting documentation for the costs indicated in the application, such as a vendor or service provider quote, invoice, or similar information.

The Round Two distribution program will be administered by Universal Service Administration Company, with oversight by the FCC’s Wireline Competition Bureau and the Office of Managing Director.

A copy of the FCC Report and Order on Reconsideration addressing this matter can be found here.

Reporter, Amy L. O’Neill, Sacramento, +1 916 321 4812,

CMS Announces Repayment of COVID-19 Accelerated and Advance Payments – On April 1, 2021, CMS announced that it began recovering COVID-19 Accelerated and Advance Payments (CAAPs) from Medicare providers and suppliers as early as March 30, 2021.  Repayments begin one year from the date CMS initially issued the CAAPs. CMS requested that providers and suppliers ensure their billing staff are aware that the recovery has begun or will begin soon.

Accelerated and advance payments are intended to provide necessary funds to Part A providers and Part B suppliers when there is a disruption in claims submission or processing due to national emergencies or natural disasters. As previously reported here and here, CMS made advance Medicare payments during the COVID-19 public health emergency (PHE), with the goal of alleviating the financial burden and cash flow issues providers and suppliers faced during the initial stages of the PHE. Enacted on October 1, 2020, Title V (Section 2501) of the Continuing Appropriations Act, 2021 and Other Extensions Act (the Act) amended the CAAPs repayment terms for all providers and suppliers who requested and received CAAPs during the PHE. Under the Act, CMS will recoup the accelerated and advance payments at a rate of 25 percent, beginning one year from the date of issuance and continuing for eleven months. After the end of this initial period, CMS will continue to recover remaining CAAPs at a rate of 50 percent for six months. At the end of the six-month period, the Medicare Administrative Contractor (MAC) for each provider or supplier will issue a demand letter for full repayment of any remaining balance of the payments. If CMS does not receive payment from the provider or supplier within 30 days, interest will accrue at the rate of four percent from the date the MAC demand letter was issued. Interest will then be assessed for each full 30-day period.

In its April 1, 2021 announcement, CMS indicated it will alert providers and suppliers as more information becomes available and also noted that the MACs may have more information.  

The April 1, 2021 MLN Matters article announcing the recovery date is available here. CMS’s overview of the payment program is available here. The CAAPs FAQs are available here. The CAAPs fact sheet is available here.

Reporter, Rebecca Gittelson, Atlanta, +1 404 572 4679,

HHS Releases New Frequently Asked Questions Regarding CARES Act Provider Relief Funds – Last week, HHS released eleven modified Frequently Asked Questions (FAQs) regarding payments distributed to providers via the CARES Act Provider Relief Fund. The FAQs cover audits and overpayments, sharing funds with subsidiaries, and more.

The modified FAQs broadly discuss the following general categories: (1) Terms and Conditions; (2) Ownership Structures and Financial Relationships; (3) Use of Funds; and (4) Phase 3.  Notably, the FAQs remind providers that HHS reserves the right to audit Provider Relief Fund recipients now or in the future and is authorized to collect any Provider Relief Fund amounts that were overpaid or not used in a manner consistent with program requirements or applicable law.  Providers must also remember that Provider Relief Fund payments must be expended no later than June 30, 2021, and HHS will provide directions about how to return unused funds at a later date. Additionally, the FAQs clarify that a parent organization can allocate Provider Relief Fund General Distribution payments to subsidiaries that do not report income under their parent’s employee identification number.

Furthermore, it appears HHS deleted an FAQ on how Medicaid disproportionate share hospitals (DSHs) can use Provider Relief Fund General and Targeted Distribution payments. As we previously reported here, the FAQ explained that if a hospital had received Medicaid DSH payments for the uncompensated costs of furnishing inpatient and/or outpatient hospital services to Medicaid beneficiaries and individuals with no source of third party coverage for the services, those expenses would be considered reimbursed by the Medicaid program and would not be eligible to be covered by money received from a General or Targeted Distribution payment.  With the removal of this FAQ, HHS no longer has any public guidance on the relationship between Provider Relief Fund payments and Medicaid DSH payments.  

The complete FAQ document is available here.

Reporter, Ahsin Azim, Washington, D.C., +1 202 626 9262,


Congressional Advisory Panel Calls for Fewer Advance Payment Models – At a meeting on April 1, 2021, the Medicare Payment Advisory Commission (MedPAC) adopted a policy recommendation that would encourage CMS to implement a more harmonized portfolio of fewer alternative payment models (APMs) that are designed to work together to support the strategic objectives of reducing spending and improving quality. MedPAC had raised concern that while CMS’s APMs have generated some promising impacts, the crowded APM landscape may be diluting their strength and thus affecting their ability to generate larger savings and quality improvements. MedPAC’s recommendation to streamline CMS’s APM portfolio will appear in its June 2021 Report to Congress.

Temporary Claims Hold Pending Congressional Action to Extend 2% Sequester Reduction Suspension – In anticipation of possible Congressional action to extend the 2% sequester reduction suspension, CMS instructed the Medicare Administrative Contractors (MACs) to hold all claims with dates of service on or after April 1, 2021, for a short period without affecting providers’ cash flow. This temporary hold is intended to minimize the volume of claims the MACs must reprocess if Congress extends the suspension; the MACs will automatically reprocess any claims paid with the reduction applied if necessary.  The CMS press release concerning the suspension is here.