News & Insights


March 20, 2023

Health Headlines– March 20, 2023

CMS Issues Guidance for Medicare Contractors to Pay For Section 1115 Days--On March 16, 2023, CMS issued Change Request 12669, which contains instructions for Medicare Administrative Contractors (MACs) to begin the process of retroactively reimbursing DSH hospitals for inpatient days attributable to individuals whose care is covered by uncompensated care pools or who receive premium assistance approved by CMS in a Section 1115 Medicaid waiver.  This reimbursement is now required following CMS’s acquiescence in Bethesda Health v. Azar (D.C. Cir. 2020), which held that CMS “regards” such individuals as “Medicaid eligible” when it approves these waivers and provides matching federal payment.  The guidance directs MACs to settle the cost years of the hospitals that were plaintiffs in Bethesda Health v. Azar on an accelerated timetable.  King & Spalding represented the Florida Hospital Association and more than a dozen of its members in Bethesda Health.

The hospitals in Bethesda Health sought to claim the patient days covered by the Florida Low Income Pool (LIP), which is an uncompensated care (UCC) pool authorized by Florida’s Section 1115 waiver and funded with matching federal dollars.  At the time the Bethesda Health plaintiffs brought their claims, the express purpose of the LIP was to cover the cost of care provided to uninsured and underinsured individuals, and hospitals received LIP payments to compensate them for this care.  Despite receiving these benefits, CMS argued that inpatient days attributable to LIP individuals were not “regarded” as “Medicaid eligible” because they were not enrolled in a Medicaid health insurance plan. Therefore, according to CMS, their patient days could not be claimed for Medicare DSH.  The D.C. Circuit disagreed, holding that both the Medicare statute and regulations require CMS to regard patients whose care is covered in whole or in part by a Section 1115 UCC payment pool as Medicaid-eligible.  In addition to the hospitals in Bethesda Health, King & Spalding represents several other Florida hospitals and hospitals in Texas, Tennessee, California, Kansas, and New Mexico, each of which reimburses providers for care to the uninsured or charity care patients from an uncompensated care pool approved and funded by CMS.

Last year, King & Spalding negotiated a process with CMS, finalized in a Technical Direction Letter (TDL), that directed the MACs to accept original and amended cost reports of hospitals seeking to claim Section 1115 uncompensated care patient days for Medicare DSH and issue tentative settlements providing additional DSH reimbursement.  All of those cost reports—as well as cost report appeals before the Provider Reimbursement Review Board—await final settlement because CMS had not yet instructed MACs on how to implement the Bethesda Health decision when reviewing cost reports or resolving appeals before the Board.   

Change Request 12669 includes a transmittal which instructs MACs to begin the process to finalize retroactive payment for open cost reporting periods and appeals before the Board challenging CMS’s policy to exclude Section 1115 uncompensated care days struck down in Bethesda Health.  The instructions are generalized.  They require the MACs to review Section 1115 waivers to determine how to identify the uncompensated care population and their eligible inpatient days, accept a Section 1115 patient day log that includes such days and review documentation for a sample of patients to confirm patient “eligibility,” their length of stay and whether they were treated in an acute unit of the hospital.

What is missing from these instructions is detail about what waiver documentation identifies these individuals as “eligible” for coverage under the uncompensated care pool and what documentation CMS will accept to prove their eligibility.  CMS does not typically make public its MAC audit protocols at this level of detail.  As part of the process for negotiating last year’s TDL and resolving the claims of the Bethesda Health plaintiffs, CMS and its legal counsel sought King & Spalding’s assistance in answering these two questions.  As a result, we have gained a unique insight into the documentation the MACs will require to verify a hospital’s section 1115 inpatient days.  This task is challenging considering that these eligible individuals are typically uninsured or charity care patients.   

The audits for the Bethesda plaintiffs “shall be completed first by their applicable MAC prior to addressing any remaining impacted providers.”  Outside of the Bethesda Health plaintiffs, for hospitals that have “jurisdictionally valid pending Section 1115 Bethesda-like appeals” pending before the Provider Reimbursement Review Board, the MACs must audit and settle those years through the Administrative Resolution process by May of 2025.  As for all other cost years, the MACs are to audit Section 1115 days during the desk audit. 

Last month, we reported that CMS proposed to change the Medicare DSH regulation to specify that patients covered by Section 1115 UC pools are not regarded as Medicaid eligible.  That regulation, if finalized, will only be applicable to discharges occurring on or after October 1, 2023, and Change Request 12669 will continue to be used for Section 1115 UC pool patient encounters occurring prior to that date. 

A copy of Change Request 12669 is available here

Reporters, Christopher Kenny, Washington D.C., +1 202 626 9253, ckenny@kslaw.comMark Polston, Washington D.C., +1 202 626 5540,, and Alek Pivec, Washington D.C., +1 202 626 2914,

CMS Issues Transmittal Waiving Cap on Prior Year Payments for Nursing and Allied Health Education for Medicare Advantage Enrollees—On March 16, 2023, CMS issued Transmittal 11904, directing its contractors to adjust hospitals’ nursing and allied health education (NAH) payments associated with services furnished to Medicare Advantage (MA) enrollees.  Transmittal 11904 implements Section 4143 of the Consolidated Appropriations Act of 2023 (CAA 2023), which waived the $60 million per year cap on MA nursing and allied health education payments for calendar years (CYs) 2010 through 2019.  Medicare contractors are instructed to recalculate eligible hospitals’ NAH MA payments for cost reporting periods occurring between CYs 2010 and 2019 that are still open or within the 3-year reopening period as of March 16, 2023.

As background, Section 541 of the Balanced Budget Refinement Act (BBRA) of 1999 established additional payments to hospitals for costs of NAH education associated with services to MA enrollees. Hospitals that operate approved NAH programs and receive Medicare reasonable cost reimbursement for these programs receive additional payments associated with services furnished to MA enrollees. Section 541, however, limits total spending under the provision to no more than $60 million in any CY—also known as the $60 million payment “pool.”  In addition, section 541 of the BBRA of 1999 provides that Direct Graduate Medical Education (DGME) payments for MA utilization will be reduced to the extent that these additional payments are made for NAH programs.

Section 4143 of the CAA 2023, entitled “Waiver of Cap on Annual Payments for Nursing and Allied Health Education Payments,” directs CMS that for cost reporting periods in CYs 2010 through 2019, the $60 million payment pool shall not apply to the total amount of additional payments for NAH education to be distributed to hospitals.  For FY 2019, for instance, the uncapped pool amount is over $140 million.  Accordingly, eligible hospitals should expect to receive an upward adjustment in their NAH MA payments.

Medicare contractors will make a two-step assessment to determine a hospital’s payment adjustment.  First, the contractor will assess eligibility by determining whether the hospital received initial payments subject to the $60 million payment pool and is still currently receiving NAH MA payments for its NAH program(s).  Second, contractors will recalculate an eligible hospital’s NAH MA payment for cost reporting periods occurring between CYs 2010 and 2019 that are still open or within the 3-year reopening period as of March 16, 2023. For reopenings, contractors shall identify payments owed on those cost reports, and issue adjustment reports and revised Notice of Program Reimbursement letters within one year of the effective date of Transmittal 11904. 

Transmittal 11904 is available here

Reporter, Michael L. LaBattaglia, Washington, D.C., +1 202 626 5579,

CMS Issues Initial Guidance for Medicare Drug Price Negotiation for 2026 –  On March 15, 2023, CMS released initial guidance detailing the requirements and parameters on key elements of the new Medicare Drug Price Negotiation Program for 2026, which is the first year that negotiated prices will apply under the Inflation Reduction Act of 2022. The Inflation Reduction Act authorizes Medicare to directly negotiate drug prices for certain high expenditure, single source Medicare Part B or Part D drugs, meaning only those drugs for which there is no generic or biosimilar competition.  The initial guidance explains how Medicare intends to use its new authority to negotiate with drug companies for lower prices on selected high-cost drugs.

The negotiation process will focus on key questions, including but not limited to, the selected drug’s clinical benefit, the extent to which it fulfills an unmet medical need, and its impact on people who rely on Medicare. In the initial guidance, CMS details the requirements and procedures for implementing the new Medicare Drug Price Negotiation Program for the first set of negotiations, which will occur during 2023 and 2024 and result in prices effective in 2026. Among other things, the initial guidance details how CMS intends to identify selected drugs, consider factors in negotiation, conduct the negotiation process, and establish the requirements for manufacturers of selected drugs.

In particular, the initial guidance describes how CMS intends to implement the Medicare Drug Negotiation Program for initial price applicability year 2026 (January 1, 2026 to December 31, 2026). It also specifies the requirements that will be applicable to manufacturers of Medicare Part D drugs that are selected for negotiation and the procedures that may be applicable to manufacturers of Medicare Part D drugs, Medicare Part D plans (both Prescription Drug Plans (PDPs) and Medicare Advantage Prescription Drug Plans (MA-PDs)), and providers and suppliers (including retail pharmacies) that furnish Medicare Part D drugs.

Key dates for implementation include the following:

  • By September 1, 2023, CMS will publish the first 10 Medicare Part D drugs selected for initial price applicability year 2026 under the Medicare Drug Price Negotiation Program.
  • The negotiated maximum fair prices for these drugs will be published by September 1, 2024, and prices will be in effect starting January 1, 2026.
  • In future years, CMS will select for negotiation up to 15 more Part D drugs for 2027, up to 15 more Part B or Part D drugs for 2028, and up to 20 more Part B or Part D drugs for each year after that, as outlined in the Inflation Reduction Act.

CMS is seeking comment on several key elements in the initial guidance. Comments are due by April 14, 2023. CMS anticipates issuing revised guidance for the first year of negotiation in summer 2023. 

Due to timing considerations, CMS is not soliciting comments on certain aspects of the initial guidance, including the identification of selected drugs for initial price applicability year 2026.  CMS intends to publish the selected drug list for initial price applicability year 2026 no later than September 1, 2023. The list will include the ten (or all, if such number is less than ten) drugs selected for negotiation for initial price applicability year 2026.   

The CMS fact sheet on the Medicare Drug Negotiation Program Initial Guidance is available here, and the full version of the initial guidance is available here.

Reporter, Dennis Mkrtchian, Los Angeles, + 1 213 218 4046,

Also in the News

CMS Issues Revised IDR Process Guidance and Resumes All Payment Determinations

On February 6, 2023, a federal judge in the Eastern District of Texas vacated portions of the rulemaking implementing the Independent Dispute Resolution (IDR) Process under the No Surprises Act. In response, and shortly thereafter, CMS ordered IDR entities to immediately halt the resolution of all pending disputes to await further guidance. On Friday, March 17, 2023, CMS issued revised informal guidance to IDR entities and disputing parties formally removing the prior guidance that conflicted with the Eastern District of Texas judgment and reopened all disputes for resolution. IDR entities are now instructed to resolve disputes in accordance with the factors set forth in the No Surprises Act, without giving preference to any one of them. The revised guidance for disputing parties is available here.

King & Spalding Roundtable:  Restructuring Takeover – A Crash Course on Hot Topics in Healthcare Restructurings

Please join an experienced cross-panel of our restructuring and healthcare colleagues on April 5, from 1:30 pm – 2:30 pm ET for a review of hot topics in the healthcare restructuring space. Learn the issues that have been key in recent out of court workouts and chapter 11 bankruptcies, as well as other important legal and regulatory developments, and what these could mean for this coming year, including:

  • Influence of the proposed rules by the FTC regarding Non-Compete on Financing and Valuations
  • Debt Defaults, Forbearance and Impacts on Providers
  • Navigating Licensure and other Change of Control provisions
  • Bankruptcy Treatment of Medicare and Medicaid Provider Agreements
  • Jurisdiction over Medicare and Medicaid Disputes


Rick Zall


Lindsay Henrikson

Please register here. You do not have to be a client to attend, and there is no charge.  For questions, contact Caroline Wendt at

King & Spalding Hosts Reception at AHLA Institute on Medicare & Medicaid Payment Issues

Join us on Thursday, March 23, 2023 for cocktails and conversation at the Baltimore Marriott Waterfront Hotel.  

  • Reception from 7:00 P.M. to 9:00 P.M.
  • Laurel Room, 4th Floor
  • 700 Aliceanna Street, Baltimore

To register, please click here