News & Insights


September 29, 2014

Health Headlines – September 29, 2014


Federal District Court Vacates Decision of Medicare Appeals Council on Inpatient Rehabilitation Coverage – In its recent decision in Teche Specialty Hospital v. Sebelius, the District Court for the Western District of Louisiana vacated two inpatient rehabilitation (IRF) coverage denials by the Medicare Appeals Council (MAC). The court concluded that the MAC improperly required actual improvement (rather than expected improvement) and improperly discounted the treating physician’s testimony. Teche represents one of the relatively few cases that have worked through all five levels of the Medicare appeals framework.  

Because both beneficiaries at issue received care prior to CMS’s significant IRF coverage changes in 2009, the court applied the older IRF coverage standards contained in Health Care Financing Administration (HFCA) Ruling 85-2. The MAC had interpreted Ruling 85-2 as requiring “significant practical improvement . . . in a reasonable period of time” as a condition for coverage and denied the hospital’s claims because neither beneficiary had made significant progress toward their rehabilitation goals. The district court strongly disagreed with this interpretation and noted that the MAC had essentially rewritten the applicable language by omitting the phrase “can be expected” from its citation of the relevant language in Ruling 85-2. The court noted that the full text of Ruling 85-2 states “Hospitalization after the initial assessment is covered only in those cases where the initial assessment results in a conclusion by the rehabilitation team that a significant practical improvement can be expected in a reasonable period of time.” (Emphasis added.) Thus, the court concluded that it was improper to deny coverage on the basis that the beneficiaries did not actually improve as long as the rehabilitation team reasonably expected significant practical improvement.

Additionally, the court took issue with the MAC’s dismissal of the treating physician’s testimony. Before the administrative law judge (ALJ), the treating physician testified in both cases on the various reasons IRF care was medically necessary. Although noting that a physician’s testimony is not always controlling, the court found that the MAC improperly discounted the physician’s testimony without pointing to any evidence inconsistent with the physician’s testimony or to evidence supporting a contrary conclusion.

The court’s opinion is available here.

Reporter, Isabella Edmundson, Atlanta, GA., + 1 404 572 3527,

Pennsylvania Hospitals Challenge Medicare Advantage Plan’s Sequestration Adjustment – On September 22, 2014, twelve hospitals filed a complaint in a Pennsylvania state court against a Medicare Advantage plan, Highmark, Inc., along with its HMO subsidiary, for implementing a two-percent reduction to the hospitals’ contracted payment amounts pursuant to the Federal budget sequestration that went into effect in April, 2013. The hospitals allege that the two-percent cuts required under the Budget Control Act of 2011 only apply to Medicare’s per-member per-month payments to Medicare Advantage plans and not directly to the plans’ payments to providers.

The hospitals cite CMS guidance stating that “whether and how sequestration might affect” a provider’s Medicare Advantage payments is “governed by the terms of the contract” between the provider and the Medicare Advantage plan. The hospitals claim that their contracts with the Medicare Advantage plan do not incorporate sequestration adjustments into provider payment rates nor permit the Medicare Advantage plan to unilaterally amend payment terms to incorporate the adjustment.

The case is Butler Healthcare Providers v. Highmark, Inc., (Pa. Ct. C.P., No. GD-14-016452), and the complaint is available here.

Reporter, Christopher Kenny, Washington, D.C., +1 202 626 9253,


CMS To Hold National Provider Call On Medicare Appeals Settlement Process – CMS has scheduled a “national provider call” on October 9, 2014, from 1:30 p.m. to 3:00 p.m. ET, to update providers on the global settlement offer to resolve appeals of patient status denials for acute care hospitals and critical access hospitals. To participate in the call, providers must register here and are encouraged to submit questions in advance of the call. Please note that registration will close at 12:00 p.m. ET on October 9, or when available space has been filled. We previously reported on CMS’s global settlement offer here and here.

King & Spalding Partners to Speak at IMI Hospital & Healthcare Services Forum – Sara Kay Wheeler and Paul Quiros will address an audience of Hospital CEOs and CFOs on regulatory and affiliation issues facing Hospitals. The conference will be held at the Westin Atlanta Airport Hotel October 5-7, 2014. IMI pays most of the costs for attendees. For more information on the conference, please contact Rosa McCoy, or call her at 203 622 5851.

The content of this publication and any attachments are not intended to be and should not be relied upon as legal advice.

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