News & Insights


July 29, 2019

Health Headlines – July 29, 2019

Florida Hospitals Prevail in Litigation Challenging the Exclusion of Low Income Pool Days from the Medicare Disproportionate Share Hospital Payment Calculation – On July 23, 2019, Judge Rosemary Collyer of the United States District Court for the District of Columbia issued an opinion ruling in favor of ten Florida hospitals in their case challenging the calculation of their Medicare Disproportionate Share Hospital (DSH) payments.  Bethesda Health v. Azar, No. 18-875, 2019 WL 3297061 (D.D.C. 2019).  Attorneys from King & Spalding represented the hospitals.  The question before the court was whether inpatient days attributable to individuals who received care for which the hospitals were reimbursed by Florida’s Low Income Pool (LIP)—established under a CMS-approved section 1115 waiver—should be included in Medicare DSH payments.  Judge Collyer agreed with the hospitals that the Medicare statute and regulations unambiguously regard such individuals as “Medicaid eligible” and, therefore, CMS must count Florida LIP days in the so-called Medicaid fraction of the Medicare DSH formula. 

The Medicare program makes an upward adjustment in inpatient rates for hospitals that treat a “disproportionate share” of low-income patients.  Whether a hospital qualifies for Medicare “DSH” payments, and the amount it receives, depends in part on the number of Medicaid-eligible inpatients it serves.  Specifically, the Medicare statute requires CMS to calculate a fraction for each hospital, the numerator of which consists of all inpatient days attributable to individuals who are “eligible under” an approved Medicaid state plan.  The denominator consists of all inpatient days for all patients.  42 U.S.C. Sect. 1395ww(d)(5)(F).  The more Medicaid eligible days, the larger the hospital’s fraction, and the higher the hospital’s DSH payments.  The Medicare statute also allows CMS to include in the numerator of the Medicaid fraction the inpatients days of individuals who, although not “eligible under” a state plan, are “regarded as such” because they receive benefits under a waiver approved by CMS under Section 1115 of the Social Security Act.  Id. Sect. 1395ww(d)(5)(F).  Relying on this authority, CMS adopted a regulation in 2000 that allows hospitals to count the inpatient days of individuals who are “eligible to receive inpatient benefits” pursuant to a Section 1115 waiver.  42 C.F.R. Sect. 412.106(b).  Therefore, all demonstration populations that are eligible for matching funds under a Section 1115 waiver may be counted as “Medicaid eligible” for purposes of calculating the Medicaid fraction.  Id. Sect. 412.106(b).  Depending on the state waiver, such “waiver” days can significantly increase a hospital’s DSH payments.  

The dispute in Bethesda concerned whether inpatient days covered under Florida’s section 1115 waiver should be counted in the numerator of the Medicaid fraction.  Section 1115 of the Social Security Act authorizes CMS to relax certain federal Medicaid requirements to establish demonstration projects that promote the objectives of the Medicaid program.  For example, CMS can use its section 1115 authority to waive Medicaid eligibility requirements, thereby creating a population of individuals who receive benefits from the Medicaid program under the waiver despite not being eligible for Medicaid.  In 2006, CMS exercised its section 1115 waiver authority to approve a demonstration project for Florida Medicaid.  Among other things, the project established a LIP consisting of $1 billion to be distributed to Florida hospitals for providing uncompensated medical services to the uninsured, also referred to as the LIP eligibility group.     

The plaintiff hospitals in Bethesda attempted to include in their Medicaid fractions all days attributable to inpatients for whom they received reimbursement under the LIP (LIP days).  But when CMS’s Medicare Administrative Contractor (MAC) settled the plaintiffs’ cost reports, it removed all LIP days from the hospitals’ Medicaid fractions.  The hospitals retained King & Spalding to file appeals with the Provider Reimbursement Review Board (PRRB) to challenge the MAC’s adjustments.  After the PRRB upheld the MAC’s adjustments, the hospitals brought their appeal to federal court. 

Before Judge Collyer, the hospitals argued that both the Medicare statute and DSH regulation unambiguously require CMS to credit hospitals for inpatient days attributable to Florida LIP recipients.  Such patients, they argued, are “eligible” for inpatient benefits in the sense that they are “capable” of receiving them (and in fact do) under the LIP program.  Further, the federal government under the Terms and Conditions of Florida’s waiver considers LIP expenditures to be “medical assistance” and matches the State’s LIP expenditures relying on its authority under Section 1115. 

The government countered that the DSH regulation only requires CMS to count inpatient days attributable to populations that receive a specific set of benefits under an identifiable benefit package.  Because the LIP program benefits the hospitals that provide the uncompensated care, not the uninsured individuals themselves, the government argument, the DSH statute and regulation did not require CMS to count LIP inpatient days in the hospitals’ Medicaid fractions. 

Judge Collyer concurred with the plaintiffs’ interpretation of the relevant authorities.  She interpreted the Medicare statute and DSH regulation to mean that any day in which a patient is eligible for inpatient hospital services under a section 1115 demonstration project is a waiver day that should be counted in the Medicaid fraction.  She disagreed with the government’s position, concluding that CMS was adding conditions that did not appear in the plain language of the regulation.  Judge Collyer also found ample evidence in the Florida waiver that CMS had intended to designate uninsured patients as an expansion population.

Bethesda is the latest decision to hold that hospitals may count in their Medicaid fractions inpatient days attributable to individuals whose inpatient care is paid for, in full or in part, by payments that a hospital receives through a funding pool approved and match by the federal government under section 1115.  Last month, the United States Court of Appeals for the Fifth Circuit ruled that days paid under Mississippi’s uncompensated care pool are waiver days that should be counted in the Medicaid fraction.  Forrest General Hospital v. Azar, 926 F.3d 221 (5th Cir. 2019).  These decisions are significant for a few reasons.  Not only do higher Medicare DSH percentages mean higher DSH payments, but a higher DSH percentage could make the difference as to whether a hospital will qualify for the 340B drug discount program.  Finally, some states that did not expand Medicaid under the Affordable Care Act elected to provide “uncompensated care pool” funding to hospitals instead, matched by the federal government.  These decisions may help level the playing field between hospitals in those states and hospitals in states that expanded Medicaid.  CMS has allowed expansion-state hospitals to include expansion populations, like childless adults, in their DSH formulae.  But until now, CMS has refused to include inpatient days for uninsured individuals whose care is covered by an uncompensated care pool.  

A copy of the Bethesda decision is available here and a copy of the Forrest General decision is available here

Reporters, Mark Polston, Washington D.C., + 202 626 5540,, Alek Pivec, Washington, D.C., +1 202 626 2914,

OIG Releases Study on Accountable Care Organizations And Their Strategies for Increasing Value Based Care – In a July 2019 Report entitled ACOs’ Strategies for Transitioning to Value-Based Care: Lessons From the Medicare Shared Savings Program the OIG shares its findings from a study conducted of 20 high-performing ACOs. Each of the ACOs was selected for the study because the ACO showed a reduction in Medicare spending while continuing to provide high quality care. The study was prompted by continued efforts to shift the Medicare reimbursement system from fee-for-service models to value based care.

OIG conducted structured onsite or telephone interviews with key officials from each of the ACOs to learn about the challenges, successes, and strategies of each organization, and analyzed supplemental documentation provided by the ACOs. Following the study, the OIG recommended the following actions to CMS to support efforts to reduce unnecessary spending and improve quality of care for patients:

1.   review the impact of programmatic changes on ACOs’ ability to promote value-based care;

2.   expand efforts to share information about strategies that reduce spending and improve quality among ACOs and more widely with the public;

3.   adopt outcome-based measures and better align measures across programs;

4.   assess and share information about ACOs’ use of the skilled nursing facility 3-day rule waiver and apply these results when making changes to the Shared Savings Program or other programs;

5.   identify and share information about strategies that integrate physical and behavioral health services and address social determinants of health;

6.   identify and share information about strategies that encourage patients to share behavioral health data; and

7.   prioritize ACO referrals of potential fraud, waste, and abuse. 

CMS concurred with each of these recommendations. A complete copy of the OIG Report can be found here.

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

OIG Highlights Top 25 Unimplemented Recommendations to Reduce Fraud, Waste, and Abuse in HHS Programs OIG recently released its annual publication of Solutions to Reduce Fraud, Waste, and Abuse in HHS Programs: OIG’s Top Recommendations (July 2019 Edition).  In the July 2019 Edition, OIG focused on the top 25 unimplemented recommendations that, in OIG’s view, “would most positively affect HHS programs in terms of cost savings, program effectiveness and efficiency, and public health and safety if implemented.” 

OIG’s top 25 unimplemented recommendations come from OIG audits and evaluations performed under the Inspector General Act.  The July 2019 Edition highlighted the following unimplemented recommendations, which OIG grouped by HHS operating division:

CMS – Medicare Parts A & B

  1. CMS should analyze the potential impacts of counting time spent as an outpatient toward the three-night requirement for skilled nursing facility services so that beneficiaries receiving similar hospital care have similar access to these services.
  2. CMS should implement the statutory mandate requiring surety bonds for home health agencies that enroll in Medicare and consider implementing the requirement for other providers.
  3. CMS should continue to ensure that medical device-specific information is included on claim forms and require hospitals to use certain condition codes for reporting device replacement procedures.
  4. CMS should seek statutory authority to establish additional remedies for hospices with poor performance.
  5. CMS should seek legislative authority to comprehensively reform the hospital wage index system.
  6. CMS should reevaluate the inpatient rehabilitation facility (IRF) payment system, which could include seeking legislative authority to make any changes necessary to more closely align IRF payment rates and costs.
  7. CMS should periodically review claims for replacement positive airway pressure device supplies and take remedial action for suppliers that consistently bill improperly.
  8. CMS should consider seeking legislative authority to implement least costly alternative policies for Part B drugs under appropriate circumstances.

CMS – Medicare Parts C & D

  1. CMS should collect comprehensive data from plan sponsors, including data on potential fraud and abuse, to improve its oversight of their efforts to identify and investigate potential fraud and abuse.
  2. CMS should require Medicare Advantage plans to include ordering and referring provider identifiers in their encounter data.
  3. CMS should strengthen oversight of Part D payments for compounded topical drugs to prevent fraud, waste, and abuse while maintaining appropriate access.

CMS – Medicaid

  1. CMS should ensure that national Medicaid data are complete, accurate, and timely.
  2. CMS and the Health Resources and Services Administration should ensure that states can pay correctly for 340B-purchased drugs billed to Medicaid, by requiring claim-level methods to identify 340B drugs and sharing the official 340B ceiling prices.
  3. CMS should require states to either enroll personal care services (PCS) attendants as providers or require PCS attendants to register with their state Medicaid agencies and assign each attendant a unique identifier.
  4. CMS should facilitate state Medicaid agencies’ efforts to screen new and existing providers by ensuring the accessibility and quality of Medicare’s enrollment data.
  5. CMS should improve managed care organizations’ identification and referral of cases of suspected fraud or abuse.
  6. CMS should develop policies and procedures to improve the timeliness of recovering Medicaid overpayments and recover uncollected amounts identified by OIG’s audits.
  7. CMS should re-evaluate the effects of the healthcare-related tax safe-harbor threshold and the associated 75/75 requirement to determine whether modifications are needed.

Administration for Children and Families (ACF)

  1. ACF should develop a comprehensive strategy to improve states’ compliance with requirements related to treatment planning and medication monitoring for children prescribed psychotropic medication.

Food and Drug Administration (FDA)

  1. FDA should ensure effective and timely processes related to food facility inspections and food recalls.

Indian Health Services (HIS)

  1. IHS should implement a quality-focused compliance program for IHS hospitals.
  2. IHS should assess the continuity of operations programs for all IHS facilities and ensure that each facility has a tested and viable program to respond to and recover from a range of disasters.

National Institutes of Health (NIH)

  1. NIH should require security training and security plans for principal investigators and entities and verify that they have fulfilled these requirements before granting them access to genomic data.

General Departmental

  1. HHS should address issues of non-compliance with the Improper Payments Information Act, as amended, for various programs deemed susceptible to significant improper payments.
  2. HHS should ensure that all future web application developments incorporate security requirements from an industry recognized web application security standard.

For each of the top 25 unimplemented recommendations above, the July 2019 Edition outlined key OIG findings and reported progress made by the applicable HHS operating division in implementing the recommendations.  The July 2019 Edition also highlighted top 25 recommendations from OIG’s 2018 edition of Solutions to Reduce Fraud, Waste, and Abuse in HHS Programs: OIG’s Top Recommendations that were implemented after OIG published that edition. 

A copy of OIG’s July 2019 Edition is available here

Reporter, John Whittaker, Sacramento, +1 916 321 4808,


Atlanta Life Sciences & Healthcare Group Event – The Atlanta Life Sciences & Healthcare Group is an educational, networking and social resource for professionals working in or serving the life sciences and healthcare industry. We invite you to join us for our summer event on July 31 from 5:30 – 7:30 PM to network with others working in this growing area of our economy. The event will be hosted by Parker Hudson at 303 Peachtree Street NE, Suite 3600. Please register here.