Archives for January 2, 2013

Congress Passes Bill to Avoid “Fiscal Cliff,” With Medicare Doc Fix, Other Medicare/Medicaid Extensions

Congress on New Year’s Day passed the “American Taxpayer Relief Act of 2012,” the main purpose of which is stop the automatic tax increases and federal budget cuts that took effect on January 1, 2013. The legislation also includes several changes to the Medicare and Medicaid programs not directly related to the issues of tax increases and spending cuts, otherwise known as the “fiscal cliff.”

The bill passed by a vote of 89 to 8 vote in the Senate and 257 to 167  in the House.

The tax portion of the bill provides that income taxes will increase for families with income above $450,000 and individuals above $400,000, with increases also in the estate tax and capital gains tax for wealthier Americans.

Physician Medicare Reimbursement Fix

The legislation delays for one year a planned cut in Medicare payments for physicians. Physician Medicare payments are determined in part by the sustainable growth rate (SGR). The SGR was established by law in 1997 and is designed to limit the annual increase in physician payments to the annual increase in the U.S. gross domestic product. Each year, CMS announces a conversion factor that will increase payments if physician spending increases for that year are below the increase in GDP, or cut payments if physician spending increases are above the GDP increase. Every year since the SGR has been in effect physician payments have increased above the GDP increases, and every year CMS has announced cuts in physician payments for the next year. Only Congress can intervene to stop the payment cuts, which are cumulative and so have become potentially larger and larger each year.

The announced spending cut for physician payments was 26.5 percent for 2013 (77 FR 68891). Under this legislation, the conversion factor is set at zero, which means that physician Medicare payments will remain relatively unchanged for 2013. The extension of existing Medicare physician payments will cost about $25 billion over 10 years, according to the Congressional Budget Office.

For physicians providing multiple therapy services on or after April 1, 2013, and for which payment is made under the physician fee schedule, the 25 percent multiple procedure payment reduction is increased to 50 percent.

The floor for the geographic adjustment factors, which are used to modify the relative value of each procedure under the physician fee schedule, has been extended again until January 1, 2014.

For purposes of the mandatory physician quality reporting system, CMS shall treat an eligible professional as satisfactorily submitting data on quality measures if the eligible professional is satisfactorily participating in a qualified clinical data registry.

Documentation and Coding Adjustment For IPPS

The legislation amends the TMA, Abstinence Education, and QI Programs Extension Act of 2007 (P.L. 110-90) to make an additional adjustment to the standardized amounts used in determining payments made under the inpatient hospital prospective payment system (IPPS) based upon the HHS Secretary’s estimates for discharges occurring only during fiscal years 2014, 2015, 2016, and 2017 to fully offset $11,000,000,000 (which represents the amount of the increase in aggregate payments from fiscal years 2008 through 2013 for which an adjustment was not previously applied). The HHS Secretary shall not have authority to fully recoup past overpayments related to documentation and coding changes from fiscal years 2008 and 2009.


The legislation extends the period of time during which Medicare contractors can attempt to collect overpayments from providers from three years to five years.

Outpatient Therapy Services

The legislation extends the exceptions process relating to the cap on outpatient therapy services to December 31, 2013. It also extends the therapy cap to therapy furnished as part of outpatient critical access hospital services.

Radiology Services

The legislation limits Medicare payments for stereotactic radiosurgery, complete course of treatment of cranial lesions.

Diabetic Supplies

The legislation establishes new competitive prices for Medicare payment of diabetic supplies and eliminates overpayments for diabetic supplies.

Ambulance Services

Payments under the ambulance fee schedule for non-emergency transports for end-stage renal disease beneficiaries are reduced by 10 percent for services provided on or after October 1, 2013. The “temporary” increase in the ambulance fee schedule amounts for ground ambulance services originating in a rural or a rural census tract, added in 2004, are extended yet again until January 1, 2014. HHS also is required to prepare a study that analyzes data on existing cost reports for ambulance services furnished by hospitals and critical access hospitals, including variation by characteristics of such providers of services, and another study on the feasibility of obtaining cost data on a periodic basis from all ambulance providers of services and suppliers for potential use in examining the appropriateness of the Medicare add-on payments for ground ambulance services and in preparing for future reform of such payment system.

Advanced Imaging Services

Currently, Medicare payments for advanced diagnostic imaging services are reduced by 75 percent to reflect higher presumed utilization of imaging equipment. Under the legislation, this reduction increases to 90 percent.

Medicare Advantage

The coding adjustment applied to Medicare Advantage (MA) plan adjustments to better align MA payments with Medicare fee-for-service payments is changed from 1.3 to 1.5 percentage points for 2014, and from 5.7 to 5.9 percentage points for 2015 to 2018. The provision allowing specialized MA plans for special needs individuals to restrict enrollment is extended until January 1, 2015. The deadline after which CMS will no longer approve of any new cost plans under MA also has been extended to January 1, 2014.

ESRD Bundled Payments

The legislation requires CMS, for services furnished on or after January 1, 2014, to adjust payments relating to the end stage renal disease (ESRD) bundled payment rate to reflect changes in utilization of certain drugs and biologicals. In making reductions, CMS must take into account the most recently available data on average sales prices and changes in prices for drugs and biological reflected in the ESRD market basket percentage increase factor. The legislation also delays until January 1, 2016, implementation of oral-only ESRD-related drugs in the ESRD prospective payment system. HHS also must conduct an analysis by January 1, 2016, of the case mix payment adjustments relating to ESRD bundled payments, and make appropriate revisions to such case mix payment adjustments. The Government Accountability Office (GAO), no later than December 31, 2015, must prepare a report to Congress on how HHS has addressed implementation of payments for oral-only ESRD-related drugs in the bundled ESRD prospective payment system.

Medicare-Dependent Hospitals and Low-Volume Hospitals

The legislation extends the Medicare-dependent hospital program, which provides extra payments to certain rural hospitals, until October 1, 2013. It also extends through fiscal year 2014 the Medicare adjustment for payments to low-volume hospitals.

Medicare Improvement Fund

The Medicare Improvement Fund, established in 2008, has been defunded completely.

Medicaid Changes

The legislation adjusts the calculations for amounts that states receive for disproportionate share hospitals under Medicaid for fiscal years 2021 and 2022. Several programs under Medicaid have been further extended for one year. These include the Qualifying Individual program (through 2013), Transitional Medical Assistance (through 2013), and the “express lane” option for enrollment under both Medicaid and the Children’s Health Insurance Program (through 2014).

PRRB—2012 Year In Review

Appeals of Medicare cost report determinations must follow specific administrative procedures found at 42 C.F.R. §405.1801 et seq. This administrative review process follows this course: (1) hearings by Medicare administrative contractors, (2) Provider Reimbursement Review Board (PRRB) hearings, (3) CMS Administrator review; and (4) review by the courts. The administrative review process prevents unnecessary intervention into CMS’s decision-making authority, provides CMS with an opportunity to correct its errors, affords district courts the benefit of CMS’ expertise, and establishes a factual record for the courts.

Below are highlights from 2012 regarding decisions of the Provider Reimbursement Review Board (PRRB) and 2012 reviews by the CMS Administrator and courts related to PRRB decisions from 2012 or previous years.

Judicial Decisions

Grossmont Hospital Corp.v. Sebelius, D.D.C. Nov. 9, 2012.  Providers who believed that a state Medicaid agency failed to pay all of the dual-eligible inpatient claims for which it was responsible could not bill Medicare by writing the claims off as bed debts because the providers did not first bill Medicaid and receive an official determination from the state agency. The Secretary of HHS did not act arbitrarily and capriciously when she determined that the providers’ claims were not reimbursable because they failed to bill the California state Medicaid agency, Medi-Cal, and receive an official determination on Medi-Cal’s liability for dual-eligible claims before billing Medicare for bad debts. The district court thus granted the Secretary’s motion for summary judgment.

Nazareth Hospital v. Sebelius, E.D. Pennsylvania, October 16, 2012. A challenge to the regulations governing the calculation of the disproportionate share hospital (DSH) adjustment will proceed. The court rejected HHS Secretary Sebelius’ argument that the court had no jurisdiction to consider the validity of the regulations and ordered her to produce the agency’s record of the rulemaking process.

Abraham Lincoln Memorial Hospital v. Sebelius, 7th Cir. October 16, 2012. The district court was correct in finding that the Secretary’s decision to adjust the cost reports of a group of Illinois hospitals to take into account payments the hospitals received from the state just days before paying a health care tax which the hospitals claimed in full as a Medicare cost was proper. The Secretary’s decision (1) was not arbitrary or capricious, or contrary to law; (2) correctly applied Medicare law to the term “actually incurred”; (3) was not inconsistent with her decision in the state plan amendment (SPA); (4) was not a reversal of a long-standing policy; and (5) did not create a new rule in violation of the Administrative Procedures Act. The district court’s decision, which granted summary judgment in favor of the Secretary, was affirmed.

Waterbury Hospital v. Sebelius, D. Connecticut, September 29, 2012. The court sustained a decision by the CMS administrator that program days covered by the State- Administered General Assistance (SAGA) must be excluded in the count of Medicaid-related days in calculating the providers’ disproportionate share hospital (DSH) percentages to the extent that these SAGA days were associated with individuals who were not eligible for medical assistance under a state Medicaid plan.

Columbia St. Mary’s Hospital Milwaukee, Inc. v. Sebelius, D.D.C., September 28, 2012. The court vacated a CMS Administrator decision that a PRRB decision that an intermediary had improperly calculated 365 disproportionate share hospital (DSH) Long Term Respiratory Unit patient days was incorrect.

Cove Associates Joint Venture v. Sebelius, D.D.C., March 26, 2012.  The Secretary properly denied bad debt claims made by a skilled nursing facility and a long-term care hospital (facilities) for failure to prove that the debt was uncollectable. The Secretary denied reimbursement because the facilities failed to comply with the agency’s must-bill policy. The policy required facilities to bill its state Medicaid program before claiming payment for costs associated with dual eligibles as Medicare bad debt.

Hospital of the University of Pennsylvania v. Sebelius, D.D.C., March 20, 2012. The Secretary improperly denied supplemental medical education payments to three hospitals for failing to comply with the requirements for filing the reimbursement of claims. The hospitals challenged the denial of reimbursement for graduate medical education (GME) and indirect medical education (IME) costs arguing that they never received notice of the requirements for filing the claims, that they mailed the claims for the GME/IME payments to the intermediary, and that the deadlines were improper. The district court found that the Secretary was obliged to give fair notice to the parties where, as here, there is a tension between the regulatory text and the statute. The Secretary failed to show that it provided the hospitals adequate notice that the deadlines in 42 C.F.R. § 424.44 applied to the filing of the claims for GME/ IME payments.

Swedish American Hospital v. Sebelius, D.D.C., February 29, 2012. A hospital’s motion for relief upon reconsideration was denied because it failed to present new evidence or arguments. The hospital, a Medicare provider, previously sought administrative review of a Department of Health and Human Services ruling requiring it to repay Medicare nearly $5 million for the training of its medical residents.

Adirondack Medical Center v. Sebelius, D.D.C., January 31, 2012. The Provider Reimbursement Review Board’s (PRRB) decision regarding whether it had jurisdiction over several hospitals’ challenge of the calculation of hospital specific Medicare payment rates after January 1, 2009, stands as the final decision of the agency because the CMS Administrator did not take any action on the decision within 60 days.

Catholic Health Initiatives – Iowa, Corp. d/b/a Mercy Medical Center – Des Moines v. Sebelius, D.D.C., January 30, 2012. The Secretary’s current interpretation of payments to disproportionate share hospitals (DSH) represents a substantive change from her prior policy and practice of including dual-eligible exhausted benefit days in the “Medicaid fraction” when calculating DHS payments. Accordingly, the Secretary’s interpretation may not be retroactively applied to a hospital’s 1997 cost reporting period. The hospital’s motion for summary judgment is granted.

CMS Administrator Decisions

In the Case of: Ober Kaler DSH Charity Care Groups v Blue Cross Blue Shield Association Highmark Medicare Services and Cahaba Government Benefit Administrators, (Review of PRRB Decision No. 2012-D17), August 15, 2012. The exclusion of days of care provided under the New Jersey Charity Care Program (NJCCP) from the numerator of the Medicaid fraction for calculating the Medicare disproportionate share hospital (DSH) adjustment was correct. The decision of the Provider Reimbursement Review Board (PRRB) was correct and is affirmed by the CMS Administrator.

In the case of: QRS 1991-2006 Colorado DSH/General Assistance Days Group, (Review of PRRB Decision No. 2012-D23), November 6, 2012. The Provider Reimbursement Review Board (PRRB) properly concluded that the intermediary properly excluded Colorado Indigent Care Program (CICP) days from the numerator of the provider’s Medicaid proxy of the Medicare disproportionate share hospital (DSH) calculation. The CMS Administrator found that the days related to patients eligible for CICP do not fall within the legal meaning of patient days attributable to patients who were eligible for a medical assistance under a state plan approved under the Medicaid program. Therefore, those days are not properly included in the numerator of the Medicaid patient percentage fraction in calculating the Medicare DSH adjustment.

Canon Healthcare Hospice v. CMS (Review of PRRB Decision No. 2012-D15), June 6, 2012. There was no legal basis on which the Provider Reimbursement Review Board (PRRB) could permit or approve a waiver of recoupment from a hospice of payments exceeding the hospice cap during the cap period ending October 31, 2006. Therefore, the PRRB erred when it waived the recoupment of the portion of the overpayment attributable to the hurricane. The waiver granted by Secretary Leavitt did not affect conditions for payment or any requirements related to reimbursement.

Norwalk Hospital v. BCBS/ National Government Services Inc., (Review of PRRB Decision No. 2012-D14), May 21, 2012.The Provider Reimbursement Review Board (PRRB) did not have jurisdiction to adjust the number of Medicaid days in the provider’s disproportionate share hospital (DSH) calculation. The provider failed to demonstrate that it was dissatisfied with the intermediary’s determination of the number of Medicaid days, and as such the PRRB did not have jurisdiction. There was no practical impediment to the provider to make it impossible for the provider to obtain the necessary data in time to file a claim for these days on its cost report, and as such the possible jurisdiction provided by the U.S. Supreme Court in the Bethesda Hospital Association v. Bowen case did not exist. The decision of the PRRB was reversed.

Research Medical Center v. Wisconsin Physician Service (Review of PRRB Decision No. 2012-D12), May 14, 2012.  An intermediary properly disallowed additional 1998 data to be considered for a provider’s fiscal year 2001 for nursing and allied health (N&AH) education payments for Medicare + Choice (M+C) enrollees. Under CMS payment methodology, the provider was only permitted to submit additional N&AH days data for the period ending December 31, 1998 if it submitted it by December 31, 2000.

Alameda Hospital SNF v. BCBS/First Coast Service Options, Inc. (Review of PRRB Decision No. 2012-D10), April 10, 2012. The decision of the Provider Reimbursement Review Board (PRRB) to remand the case so that the intermediary can examine the hospital-based skilled nursing facility’s (SNF) alternative proposal for application of the low occupancy adjustment to its routine cost limits (RCLs) is appropriate. The United States District Court for the District of Columbia’s decision that CMS changed its policy for determining the 112 percent reimbursement gap that affects atypical service exception requests without proper notice and comment period does not apply to the provider’s low occupancy issue.

Rush University Medical Center v. BCBS/ National Government Services Inc. (Review of PRRB Decision No. 2012-D9), April 4, 2012. The Provider Reimbursement Review Board (PRRB) incorrectly reversed the Intermediary’s finding that certain beds were available for inpatient care. The provider, Rush University Medical Center (Rush), did not present adequate documentation of its claims regarding either of the two contested groups of beds. The PRRB’s determination that research time could not be counted in determining indirect medical education costs was correct.

Rush University Medical Center v. BCBS/ National Government Services Inc., (Review of PRRB Decision No. 2012-D8), April 4, 2012. The Provider Reimbursement Review Board (PRRB) erred when it accepted the contentions of the Provider, Rush University Medical Center (Rush) that certain beds should be excluded from the resident-to-bed ratio because they had been removed from service or were used for observation services. The Administrator found that Rush had not submitted adequate documentation to support the unavailability of the beds. However, the Administrator upheld the PRRB’s determinations disallowing claimed costs for resident time spent in elective rotations or in research activity.

Lifespan SWC 2003 DSH Medicare+Choice Days Group v. National Government Services Blue Cross Blue Shield Association (Review of PRRB Decision No. 2012-D6), February 29, 2012.  The fiscal intermediary (FI) is ordered by the Administrator to revise the payment determination of the Provider Reimbursement Review Board (PRRB) to include the disputed Medicare+Choice (M+C) days in the Medicaid fractions. Although the Administrator believes that Medicare policy has always been to exclude M+C days from the Medicaid fraction numerator, the Administrator is bound by the decision in Northeast Hospital Corp. v. Sebelius that concluded that while the statute does not foreclose the Secretary’s interpretation that a Medicare beneficiary enrolled in Medicare Part C still qualifies as a person “entitled to benefits” under Medicare Part A, and that the days should be included in the numerator of the Medicare fraction, the Secretary could not apply this interpretation to patient discharges prior to October 1, 2004.

Youngstown-Warren 02 Wage Index v. BlueCross BlueShield Association/National Government Services, Inc. (Review of PRRB Decision No. 2012-D5), February 29, 2012. The intermediary properly used total hours paid in the computation of the wage index. The Provider Reimbursement Review Board (PRRB) determined that the intermediary should use the hours actually worked. The PRRB should have referred to the Adventist GlenOaks Hospital case which stated that the Secretary has provided sufficient justification for the policy of counting hours paid as a opposed to hours worked. That policy avoids the slippery slope that comes with trying to exclude certain types of paid leave but not others and conforms with CMS’ longstanding policy to use paid hours because paid hours more appropriately reflects the basis of salary.

Lakeland Regional Medical Center v. Blue Cross Blue Shield Association/National Government Services(Review of PRRB Decision No. 2012-D3), February 16, 2012. The fiscal intermediary (FI) properly disallowed a provider’s uncollected Medicare accounts as bad debts since they were still held at a collection agency. The Provider Reimbursement Review Board’s held that the FI had improperly disallowed the provider’s bad debts.  The Administrator reasonably expects that a provider demonstrate it has completed its collection effort including outside collection, before claiming debts as worthless.

PRRB Decisions

Pennsylvania General Assistance Days Group v BlueCross BlueShield Association/Novitas Solutions, Inc., Decision No. 2013-D1, November 20, 2012. The patient days for which two hospitals were compensated under Pennsylvania’s state-run charity care program may not be included in the patient days used in the numerator of the “Medicaid fraction” under Soc. Sec. Act sec. 1886(d)(5)(F)(vi)(II) to calculate the hospitals’ Medicare disproportionate share hospital (DSH) adjustment. The patients represented by these days were not eligible for medical assistance under the state medical plan. Although the charity care program is identified in the state plan, it receives no federal Medicaid funding, and patients who are eligible for Medicaid under the state plan are, by definition, not eligible for the charity care program.

QRS 93 DSH/Iowa Indigent Patient/Charity Care (GA) Group v. BlueCross BlueShield Association/Wisconsin Physicians Service, Decision No. 2013-D2, November 21, 2012. Charity care beneficiaries were not eligible for Medicaid and the services that were provided under that program would not be matched with federal funds except under the Medicaid disproportionate share hospital (DSH) provisions. Acute care hospitals located in Iowa and Nebraska, appealed the Intermediary’s decision not to include Iowa Charity Care Program days in the numerator of the providers’ Medicaid proxy for the cost reporting periods of 1996 to 2007. The hospitals participated in the Iowa State Plan which provides medical assistance to uninsured low-income patients not eligible for other medical assistance programs, including Medicaid.

Bergen Regional Medical Center (Paramus, NJ) v. BlueCross BlueShield Association/Novitas Solutions Inc., Dec. No. 2012-D25, September 25, 2012. The Provider Reimbursement Review Board (PRRB) had no jurisdiction to hear an appeal of the intermediary’s determination of the redistribution of the provider’s 1996 resident cap amounts. Section 422 of the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) ( P.L. 108-173) required CMS to redistribute resident slots and specifically barred review of the reductions or distributions.

Swedish American Hospital (Rockford, IL) v. Wisconsin Physicians Service- (formerly Mutual of Omaha Insurance Co.), Dec. No. 2012-D24, September 6, 2012. The intermediary properly adjusted the provider’s graduate medical education (GME) and indirect medical education (IME) full-time equivalent (FTE) counts for the years in question. The provider, which had assumed residency slots from a hospital that closed its residency program failed to seek a redistribution of unused IME/GME resident FTE positions by the deadline for doing so. The Provider Reimbursement Review Board (PRRB) also determined that the provider was not eligible to assume the residents of a hospital that had terminated its residency program because all of those residents would have completed their residency before the provider sought the increase.

San Joaquin Community Hospital v. BCBS/First Coast Service Options Inc., Dec. No. 2012-D21, August 8, 2012. The skilled nursing facility (SNF) based at San Joaquin Community Hospital (SJ SNF) did not establish that CMS’ allegedly inappropriate methodology affected the amount of the exception to routine cost limits. Although CMS constructed the peer group used to determine average costs without addressing the effects of the variation among SNFs in their assignment of direct and indirect costs to cost centers, SJ SNF’s sample was not representative of the SNFs across the nation and could not be substituted.

HCR Manor Care 1999 Laundry and Central Supply Statistics Group v. BCBS/Highmark Medicare Services, Dec. No. 2012-D19, July 19, 2012. A new intermediary properly adjusted the cost reports for a group of skilled nursing facilities (SNF) that inappropriately apportioned their costs for laundry and linen as well as central services and supplies costs. The SNFs did not demonstrate that their method of appropriating these costs using patient day weighting was more accurate or sophisticated than the allocation bases required by the cost reporting instructions.

Doctors Hospital Columbus Ohio v. BCBS CGS Administrators, Dec. No. 2012-D18, July 18, 2012. The intermediary’s disallowance of bad debts because of the hospital’s inability to produce a copy of the patients’ applications for charity care was incorrect. The use of comprehensive documentation in patient account files regarding income information acquired by the provider’s representatives during telephone conversations with patients is adequate to support the provider’s determination of indigency.

Alegent Health Immanuel Medical Center v. Wisconsin Physician Service, Dec. No. 2012-D16, June 15, 2012. The intermediary’s reduction of the provider’s graduate medical education (GME) reimbursement was appropriate. The provider and the other hospital participating in the affiliation agreement to share GME full time equivalent (FTE) positions failed to extend their existing agreement beyond its original expiration date and therefore did not have an agreement in place for fiscal years (FYs) 2004 and 2005.

Fort Wayne (Ind.) FFY 2002 MSA Wage Index Group v. BlueCross BlueShield Association/National Government Services, Dec. No. 2012-D13, March 16, 2012. The intermediary and CMS appropriately included certain paid hours not actually worked by hospital employees in calculating a wage index. The provider filed a timely request to correct the exclusion of these hours from the calculation of the wage index and included supporting documentation. At the time of the provider’s request, no guidance existed as to what constituted adequate documentation. The provider and the intermediary both understood, however, that the provider’s pay distribution report was necessary to make a correct calculation when determining the correct wage index. Because that report was not included in the request nor made available prior to the deadline, the supporting documentation was considered insufficient, and the request was not considered timely.

Doctors Medical Center of Modesto (Modesto, Calif) v. Wisconsin Physician Services, Dec. No. 2012-D11, February 24, 2012. The intermediary properly eliminated all direct medical education and indirect medical education payments for the hospital’s family practice residency program for cost reporting periods ending May 31, 2001 to May 31, 2007.

Alegent Health—Immanuel Medical Center (Omaha, Neb.) v. Wisconsin Physicians Service, Dec. No. 2012-D7, January 20, 2012. The written affiliation agreement between a hospital without previous participation in graduate medical education and a hospital with an existing residency program met the requirements of the regulations then in effect because it specified that residents would work in both hospitals and the number of resident full-time-equivalent (FTEs) that each hospital would claim.


Significant Medicaid Cases—2012 Year in Review Part 2

The following is a continued look at judicial decisions released in 2012, this time involving Medicaid, with a brief glimpse at 2013.  Join us again tomorrow for the third installment in our Year In Review case analyses series.


Mayhew v. Sebelius, 1st Cir., September 5, 2012. A motion by Maine’s Medicaid agency (MaineCare) to require the Secretary of HHS to expedite consideration of its application to amend its Medicaid eligibility requirements on or before October 1, 2012 was denied by the U.S. Court of Appeals for the First Circuit. Maine claimed it would suffer irreparable damage if expedited consideration of its application was not granted. Specifically, it would not be able to balance its budget as required by law and it would not be able to retroactively recoup from the federal government additional amounts it would pay out under the Medicaid Maintenance of Effort (MOE) requirements.


Lewis v. Alexander, 3rd Circuit, June 20, 2012. Several requirements for special needs trusts (SNT) added by a Pennsylvania statute were invalid because they were preempted by federal Medicaid law. Congress enacted a comprehensive scheme governing the treatment of trust property for purposes of Medicaid eligibility. It left no room for states to legislate with respect to SNTs. The following requirements were invalidated: (1) that beneficiaries be under age 65; (2) that the beneficiaries have specified needs that would not otherwise be met; (3) that expenditures be related to the treatment of the beneficiary’s disability; and (4) that at a beneficiary’s death, the trust repay the state for its expenditures–up to 50 percent of the beneficiary’s remaining balance.

Center for Special Needs Trust Administration, Inc. v. Olson, 8th Cir., April 16, 2012. The district court was not in error when it dismissed a special needs trust’s challenge to a state’s regulations regarding the administration of the Medicaid Act and pooled “C” trusts.

Hutcherson v. Arizona Health Care Cost Containment System, 9th Cir., January 27, 2012. The Arizona Medicaid agency properly claimed the remainder interest in an annuity owned by a community spouse who predeceased the institutionalized spouse, and applied the income from the annuity toward the ongoing expenses of the institutionalized spouse.

Morris v. Oklahoma Department of Human Services, 10th Cir., July 9, 2012. The Oklahoma Medicaid agency’s determination that the purchase of an annuity by the applicant’s husband rendered the applicant ineligible was erroneous. The seeming contradiction between the unlimited transfers between spouses in Soc. Sec. Act §1917(c), and the community spouse resource allowance limitation in Soc. Sec. Act §1924 is reconciled when viewed in the context of the eligibility determination process, and Congress is presumed to be aware of the potential for couples to convert countable assets to exempt income.

Family Planning Services

Planned Parenthood of Hidalgo County Texas v. Suehs, 5th Cir., August 21, 2012. The state of Texas can withhold funding to Planned Parenthood received under the Women’s Health Program (WHP) because Planned Parenthood communicates a message that is opposite to the goals of the state’s program. A state may limit what an organization communicates about a state program for which they receive state funds. The district court erred when it applied the constitutional conditions doctrine in this case. The temporary restraining order prohibiting the enforcement of the regulations was vacated and the case was remanded to the district court to consider the constitutionality of the restrictions on affiliating with entities that perform elective abortions, especially the elements defining affiliation based on franchise and common ownership, management, or control. The right to obtain an abortion and any accompanying right to perform an abortion were not issues in this case. This case is about the right to free speech and due process.

Planned Parenthood of Indiana, et al v. Commissioner of the Indiana State Department of Health, 7th Cir., October 23, 2012. An Indiana law prohibiting state contracts with, and any payment of state funds to, any entities that perform abortions could not be applied to Planned Parenthood’s participation in Medicaid. The statutory guarantee that all Medicaid beneficiaries have free choice of their Medicaid providers preempted the state law prohibiting the payment. However, the federal block grant statute supporting other activities did not limit the state’s authority to restrict the grant program to entities that did not perform abortions. The trial court’s injunction was affirmed as to the Medicaid funding but reversed as to the block grant funds.


Martes v. South Broward Hospital District, 11th Cir., June 15, 2012. Federal Medicaid law gave beneficiaries no standing to sue providers or the Florida Medicaid agency to stop unlawful “balance billing” because the statute did not provide such a remedy. The beneficiaries based their lawsuit on Soc. Sec. Act §1902(a)(25)(C), which provides that state Medicaid plans must require the agency to ascertain whether any third parties may be liable for the cost of a beneficiary’s care and, if so, pursue the third party. The language prohibiting providers from billing beneficiaries was used only in the context of the state’s responsibilities to pursue third parties for reimbursement.

Federal Financial Participation

Virginia Department of Medical Assistance Services v. HHS, D.D.C., May 8, 2012. A district court properly granted summary judgment in favor of the Department of Health and Human Services because the disputed Medicaid claims were not eligible for federal financial participation (FFP) under the plain language of the federal statutes.

AFDC Overpayments

Commonwealth of Pennsylvania Department of Public Welfare v. Sebelius, 3rd Cir., March 15, 2012. The district court’s decision to sustain an HHS directive requiring the Pennsylvania Department of Public Welfare (DPW) to remit more than $5.6 million in overpayments it received under the Aid to Families with Dependent Children (AFDC) program was proper. Following the close-out of the AFDC program, HHS instructed the states to remit the federal share of recovered AFDC overpayments. The HHS Office of Inspector General conducted a nationwide audit, and pursuant to the audit, sent the directive to DPW. DPW challenged the authority of HHS to conduct its own audit on the grounds that §116(b)(3)(A) of the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) prescribed a single audit procedure under the Single Audit Act of 1984 for the close-out of the AFDC program. However, the language of §16(b)(3)(A) of PRWORA did not apply to federal claims for recovered AFDC payments; the section focused on state claims for federal reimbursement. The district court’s judgment was affirmed.

The Future

  • The June 2012 decision by the U.S. Supreme Court upheld most of the Affordable Care Act, but it did provide states the option to opt out of the expansion of Medicaid. As of December, 14 states had indicated they definitely would, or were likely to, opt out. Nineteen states had decided they definitely would or were likely to expand their Medicaid programs. Seventeen states were undecided.
  • Physicians and providers will continue reaping the benefit of incentive payments provided by states through Medicaid to adopt meaningful use of electronic health record systems.
  • Effective January 1, 2013, state Medicaid programs must pay at least 100 percent of the rate Medicare would have paid for specified primary care service furnished by or under the supervision of qualifying physicians. States will receive 100 percent reimbursement for the difference between the rate payable under the state plan as of July 1, 2009, and the rate required by the rule.
  • The first demonstration projects to test integration of Medicare and Medicaid services for dual eligibles will begin in 2013, with a capitated payment model in Massachusetts and a fee-for-service managed care model in Washington.