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`Disproportionate share' hospitals prevail over HHS.

THE MEDICARE PROGRAM PROVIDES FOR SUPPLEMENTAL PAYMENT TO `DISPROPORTIONATE SHARE' HOSPITALS. The issue in this unusual Kentucky case was whether or not two hospitals qualified as "disproportionate share" hospitals. Ordinarily, "disproportionate share" hospitals are defined as hospitals located in certain areas, which provide a qualifying percentage of their services to low-income patients. Whether a hospital is eligible for this payment is based in part on the number of beds the hospital has available for inpatient care. The plaintiffs in this case were two Kentucky hospitals, Clark Regional Medical Care Center (Clark Regional) and Pattie A. Clay Hospital (Clay). The hospitals alleged that HHS arbitrarily and capriciously violated its own regulations for counting beds when it denied the hospitals reimbursement based on the provisions of medical services to low-income patients. The department responded that it was entitled to deference in construing its own rules, especially when the construction is the result of an administrative hearing process, as it was in this case.

CLARK REGIONAL AND CLAY ARE TWO HOSPITALS LOCATED IN EASTERN KENTUCKY. The hospitals provide inpatient care for Medicare and low-income patients. Clark Regional is licensed by the State of Kentucky for 100 acute care beds. Clay is licensed for 105 acute care beds. Both facilities are also certified by HHS as "swing-bed" facilities, which means that they may, when necessary, use a designated number of acute care beds to provide post-hospital skilled nursing facility (SNF) care on a temporary basis. Both facilities also used their acute care beds for "observation" of patients to determine whether patients should be admitted to the hospital. The hospitals maintained that during the time at issue they used approximately 10 percent of their acute care beds for observation and SNF care patients. However, on any given day, the beds at issue were used for observation and for SNF care only when not in use for acute care. The hospitals qualified for DSH adjustment for fiscal years 1992 through 1995. However, in June of 1997, the HHS agent, known as the fiscal intermediary, concluded that the method by which the hospitals were counting beds was incorrect. The hospitals were informed that they no longer qualified for the DSH adjustment. The hospitals appealed. After a hearing before the Provider Reimbursement Review Board (PRRB), an administrative body established to hear disputes between providers and fiscal intermediaries, the board reversed the fiscal intermediary and found for the hospitals. The HHS appealed to the Health Care Financing Administration (HCFA). HCFA reversed the PRRB. The hospitals brought suit against HHS in the United States District Court for the Eastern District of Kentucky seeking a review of HCFA decision. After a hearing, the court reversed the decision of HCFA and found for the plaintiff hospitals. The court found that HCFA impermissibly shifted the burden of proof onto both hospitals that the beds in question should be included into the count. HHC appealed.

THE UNITED STATES COURT OF APPEALS SIXTH CIRCUIT HELD THAT THE HOSPITALS WERE ENTITLED TO THE DSH STATUS THEY SOUGHT. The court held, inter alia, that the department's decision not to count the disputed beds simply could not be recognized with the department's own regulations and interpreted rules. The plain language of the applicable law and the department's own interpretations of what constitutes "available beds" demonstrated that "swing" and "observation" beds should be considered "available" beds for the purposes of the DSH adjustment.

THE ISSUE IN THIS CASE WAS WHETHER HHS PROPERLY INTERPRETED AND APPLIED ITS OWN REGULATIONS. The court found that the HHS's findings in this case were "arbitrary, capricious, and an abuse of discretion," and otherwise contrary to law. The determination of the number of beds for the purpose involved should be determined by counting the number of available bed days during the course of the reporting period, not including beds or bassinets in the healthy newborn nursery or custodial care beds, and dividing that number by the number of days in the course of the reporting period. The court concluded that HHS's attempt to distinguish between a "bed" and an "available bed day" was at odds with the law. The law states with specificity that the number of beds should be determined by counting the number of available bed days during the cost reporting period. Clark Regional Medical Center v. United States Department of Health and Human Services, 2002 WL 31757426 S.W.3d--KY (2002)
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Author:Tammelleo, A. David
Publication:Hospital Law's Regan Report
Geographic Code:1U6KY
Date:Dec 1, 2002
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