Hospitals Under the Microscope [Part I]

The nation’s hospitals are under scrutiny by all branches of the Federal government. Adverse court decisions, pending draft legislation and possible new regulations all could result in more regulation and less revenue for hospitals.

The RAC appeals process has been a nightmare. The case backlog is at least two years and counting. Appeals have been suspended while the Office of Medicare Hearings and Appeals tries to clean up the problem. Last February, OMHA held a Medicare Appellant Forum intended to communicate about the operation of Medicare appeals process. But nothing emerged to improve the situation. Meanwhile, in May the American Hospital Association (AHA) filed suit over the sluggish appeals process.

In an attempt to alleviate the appeals backlog, CMS has offered an administrative agreement to any hospital willing to withdraw its pending appeals. In exchange, the hospital would receive a partial payment–68% of the allowable amount. Eligible claims are those in which admissions occurred prior to October 1, 2013 and have been denied by a Medicare contractor on the basis that an inpatient admission was not necessary. Any hospitals which accept the deal would agree to withdraw pending appeals. Claims covered by the settlement would not be included in the hospital’s inpatient day count, which is a factor for disproportionate share hospital payments and 340B eligibility (discussed below). Hospitals may not settle some claims while continuing to appeal others. Finally, all claims would continue to be subject to Office of the Inspector General (OIG) review.

AHA released a cautionary statement saying it was reviewing the proposal. Small hospitals, feeling a cash flow squeeze, may opt for the settlement because they can’t wait three years for settlement nor can they afford the legal fees necessary to continue an appeal. Rep. Kevin Brady [R-TX], House Ways and Means Subcommittee on Health Chairman, sent a letter to the Department of Health and Human Services questioning the department’s authority to pursue the settlement process.

Medicaid expansion is another area of concern to hospitals. Twenty-seven states and the District of Columbia have expanded Medicaid under the Affordable Care Act. In the states where Medicaid did not expand, hospitals are feeling a budgetary pinch. With DSH payments scheduled for reduction under the ACA, hospitals in non-expansion states are facing a significant decline in revenue. Particularly hard hit will be safety net hospitals.

Hospitals participating in the 340B program are also nervous about pending program regulations. The Health Resources and Services Administration (HRSA) has had a draft rule pending at OMB’s Office of Information and Regulatory Affairs for months. The so-called “Mega Rule” has been held up due to an adverse U.S. District Court for the District of Columbia ruling which concluded HHS lacked the authority to engage in rulemaking with regard to orphan drugs under the 340B program. HHS later responded by issuing an interpretive rule. On October 9, 2014, the Pharmaceutical Research and Manufacturers of America filed suit against HHS challenging the interpretive rule claiming the rule violates the statutory orphan drug exclusion.

Meanwhile, two recent negative studies have been published highly critical of the 340B program.

A RAND Corp study concluded there is a need to clarify the purpose and scope of the program. A separate study published in Health Affairs concluded the program is serving a wealthier and better insured clientele. The authors claimed the program “enriched” hospitals. Both studies questioned the size of the program and its increased costs. There is an expectation that HRSA will seek to reduce the number of hospitals participating in the program.

Ebola has the potential of also driving up hospital costs. Emergency departments may see an influx of patients nervous about showing any symptoms. Hospitals within a 15 to 25 mile radius of the five international airports where stepped up screening will take place may fair even worse. They could see non-American patients who lack health insurance. These patients could be present for the 21-day observation period or may actually have the disease. Either way, there is a cost involved.

Congress may soon review legislation which addresses the 2-midnight rule, hospital readmissions, and the RAC audit review and appeals process. However, there does not appear to be enough time to consider the bill prior to the end of the 113th Congress.

Other issues to be covered later include regulations governing the 2-midnight rule and hospital readmissions, and graduate medical education. All of these issues will keep hospitals under the microscope while simultaneously squeezing their margins.

Julius W. Hobson, Jr. is Senior Policy Advisor at Polsinelli P.C. and Adjunct Professor of Political Management, Graduate School of Political Management, George Washington University, where he teaches courses on Lobbying, Electoral and Legislative Processes, and Legislative Writing and Research.


Morning Consult