As we discussed in a Payment Matters article dated December 13, 2012, providers have enjoyed repeated success in challenging the Secretary’s position regarding Medicare Part C days and where those days belong in the Medicare DSH calculation. In 2011 in Northeast Hospital Corp. v. Sebelius 657 F.3d 1 (D.C. Cir. 2011), the United States Court of Appeals for the District of Columbia Circuit upheld, at least in part, the providers’ challenge to the Secretary’s position that Part C days should be excluded from the numerator of the Medicaid fraction. The Northeast Court ruled that the Secretary’s interpretation of the statute as allowing the inclusion of Part C days in the Medicare, as opposed to the Medicaid, fraction was permissible. The court then concluded, however, that the Secretary’s policy placing those days in the Medicare fraction was impermissibly retroactive when applied to providers’ fiscal years 1999-2002.
Allina Health Services v. Sebelius [PDF] then presented the issue of how Part C days should be treated in later years. The hospitals in Allina, like those in Northeast, challenged the Secretary’s refusal to include Part C days in the Medicaid fraction, but their argument focused on the contention that the Secretary’s policy regarding the Part C day issue — a policy first announced by the Secretary in a 2004 rule — was not a “logical outgrowth” of the 2003 Notice of Proposed Rulemaking. The District Court agreed with this argument, and the Secretary, not surprisingly, appealed. In a decision handed down on April 1, 2014, however, the United States Court of Appeals for the District of Columbia largely affirmed the District Court’s ruling.
In its decision, the Court of Appeals discussed the history of the DSH Part C days issue in some detail. According to the court, the Secretary had treated Medicare Part C patients as not entitled to benefits under Part A prior to 2003...
