Home Health & Hospice Week

Appeals court lets RHHI go back on approval of cost report methodology.

If you rely on your intermediary's word, you could be making an expensive mistake.

That's what home health agency Mercy Home Health in Springfield, PA found out when the U.S. Court of Appeals for the Third Circuit handed down a Feb. 3 decision in Mercy Home Health v. Leavitt.

In 1994, Mercy received approval from then-intermediary Independence Blue Cross for an alternative cost report methodology used through fiscal year 1996. When regional home health intermediary Wellmark (later Cahaba GBA) took over after IBC withdrew, it revoked the approval for the alternate methodology and disallowed nearly $770,000 in costs for FYs 1995 and 1996.

This case is very unusual because an incoming intermediary usually honors the prior approvals of a previous RHHI, notes consultant Jim Plonsey with Medicare Training & Consulting in Lansing, IL. RHHIs tend to make changes from that point forward, rather than retroactively enforcing new rules, says Plonsey, who formerly trained intermediary auditors.

A win: Mercy appealed the disallowance to the Provider Reimbursement Review Board and won on the two years' disallowances that were retroactively revoked (see Eli's HCW, Vol. XII, No. 32). "The Board is not convinced that the Intermediary's caveat 'subject to verification at audit' leaves the door open for the current Intermediary to retroactively rescind the prior Intermediary's approval," the August 2003 decision said.

A loss: The HHS Administrator overturned the PRRB decision and Mercy appealed it to the federal district court. But the U.S. District Court for the Eastern District of Pennsylvania last year ruled in favor of HHS, noting that Congress clearly gives HHS "the ability to take retroactive actions to remedy incorrect Medicare reimbursements" (see Eli's HCW, Vol. XIV, No. 12).

While it might seem unfair to Mercy, the court looked ultimately at what was fair to the Medicare program, Plonsey observes. "If the intermediary makes the mistake, it's the provider that suffers"--not the Medicare program.

When courts let intermediaries renounce prior cost-allocation methodology approvals, "the providers are then asked to produce documents to prove the equity of their allocations for periods of time during which they did not maintain such documentation because it was unnecessary in light of the approvals," laments attorney Joel Hamme with Powers Pyles Sutter & Verville in Washington, DC. That's "a neat Catch-22, and one that courts don't seem to understand."

Next step: Mercy appealed the decision to the appeals court, which dealt the agency a final blow. "Just as Medicare cost principles take priority over the absence of prior approval, so, too, do the same cost principles take priority over the presence of prior approval," the appeals court maintained in its decision favoring HHS.

The decision is "bitterly disappointing and disheartening," says attorney Mark Gallant with Cozen & O'Connor in Philadelphia. "The government has double-crossed this entity, and the appeals court has given it the weapons to do so," insists Gallant, who represented Mercy in the case and is former Deputy Chief Counsel to the Health Care Financing Administration (the Centers for Medicare & Medicaid Services' former name).

CMS violated its own rules by saying in the Provider Reimbursement Manual that it wouldn't retroactively change reimbursement rules, then allowing the intermediary to take back the cost report methodology approval, Gallant tells Eli.Mercy won't pursue the issue any further because the U.S. Supreme Court wouldn't hear such a case and a rehearing from the appeals court would be "a waste of time," Gallant says.

Beware Looming Intermediary Switch

As often happens, the court deferred to CMS without giving the matter much thought, says attorney Liz Pearson with Pearson & Bernard in Covington, KY. "Courts are not receptive to providers' arguments that intermediaries do not play fair," Pearson says. "If CMS says it is so ... the court will likely enforce the new CMS rule," even retroactively.

Watch out: This decision shows providers they can't rely on guidance from their intermediaries, even when it's in writing, advises consultant Tom Boyd with Boyd & Nicholas in Rohnert Park, CA. "Time and time again [relying on intermediary approval] has come back to bite the provider," warns Boyd, a former intermediary auditor. "Intermediaries have given incorrect determinations before and not been held accountable for it."

Agencies must be ready to defend their actions at all times, even after receiving approval for them, Pearson counsels.

The fact that HHAs are now under the prospective payment system helps shield them from the effect of this decision, experts agree. But intermediaries can still go back and reopen cost reports for years under cost-based reimbursement, Gallant notes.

And the Medicare cost report still has a bottom-line effect in states that base Medicaid reimbursement on what's allowed by Medicare, notes Plonsey.

Providers should realize that revoking intermediary approval can apply to any RHHI guidance, including billing and policy instructions, Plonsey cautions. Even compliance with Medicare conditions of participation could be affected, Pearson adds.

Looming danger: Mercy's disallowances came about when it had to switch intermediaries and the new intermediary didn't agree with the old one, experts note. Many HHAs could face that same tricky situation in 2009, when CMS will switch the RHHIs to new Medicare Administrative Contractors (MACs).

Example: Lots of durable medical equipment suppliers must switch contractors come July 1. CMS chose only two of the four existing DME regional carriers to become the new DME MACs (see Eli's HCW, Vol. XV, No. 2). And many suppliers will have to switch regions in the reshuffle, so their contractor will be new to them if not new to the program.