June 18, 2024

Justice for Gemmel

Stellar business, nonpareil

Hospitals get shut down in Medicare outlier payment case, again

Photo by RUNSTUDIO/Getty Images

Last week, a federal appeals court rejected a group of hospitals’ latest attempt to get higher reimbursements for the Medicare outlier payments they received between 2008 and 2011.

The U.S. Court of Appeals for the District of Columbia issued the ruling against the group of more than a dozen hospitals represented by Lee Memorial Hospital and Billings Clinic, saying their latest attempt to appeal fell short.


Back in 2013, the hospitals first claimed that the Centers for Medicare and Medicaid Services underpaid them for caring for patient cases that incurred extraordinarily high costs. They charged that the agency’s methodology for determining the threshold for outlier payments was “arbitrary and capricious” and brought its legality into question.

In these situations, hospitals can challenge the amount of their Medicare outlier payments by either having the claim reviewed by the Provider Reimbursement Review Board or asking the Department of Health and Human Services for an expedited judicial review, which sends the case to a federal court.

The group of appealing hospitals were a part of a group that requested an expedited judicial review, arguing that the Board lacked authority to resolve their claims, but were denied for failing to comply with certain agency filing procedures.

Following the dismissal for expedited judicial review, the hospitals filed a suit against HHS in district court, contending the ruling was a “final decision” subject to judicial review. They asked the court not to give the case back to the board and to make a ruling on the outlier payments instead. The court agreed but ultimately ruled that the calculations for the outlier threshold were not arbitrary or capricious.

In their most recent appeal, the hospitals reversed their previous claims that both the district and federal courts had jurisdiction to make a ruling on the challenge. Instead, they now contend that the previous ruling should be void because the courts supposedly didn’t have the authority to issue it.

The new ruling aligns with that of the lower court and rejects the hospitals’ appeal.

“The district court declined to give effect to the hospitals’ about-face, and so do we,” the ruling said.

“In order for the hospitals to prevail in showing that the now-final judgment against them was void because the district court ostensibly lacked jurisdiction to enter it, they would need to show that there was not even an arguable basis for that court’s conclusion — at the urging of the hospitals themselves — that jurisdiction existed over their challenge. The hospitals fail to make that showing.”


Medicare outlier payments are designed to protect hospitals from financial losses when they care for patients with extraordinary high-cost cases. To qualify for outlier payments, a case must have costs above a fixed-loss cost threshold amount that’s based on both operating and capital costs and DRG payments.

In 2003, CMS made changes to its outlier payment methodology to improve accuracy in determining whether cases are high-cost and to ensure that outlier payments are made only for truly expensive cases. These changes were made after it was discovered that some hospitals were increasing their charges to get higher outlier payments.

Despite those changes, the Office of Inspector General found that between 2011 and 2014, CMS overpaid $502 million in outlier payments. It said that CMS could have saved $125 million per year had it reconciled its payments against hospital cost reports.

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