Part C Final Rule To Release Revised NPRs and SSI Realignments.

Posted on June 15, 2023

Client Alert by: Healthcare Reimbursement Services, Inc.

On June 7, CMS issued the long-awaited final rule on DSH Part C days, which, as anticipated, (1) places Part C days in the Medicare Fraction, and (2) is given retroactive effect. However, whereas it was anticipated, based on the 2020 proposed rule, that the retroactive effect would extend to discharges occurring on or before October 1, 2004 (and prior to October 1 2013 as discharges after that date are already governed by the 2013 rule placing such days in the Medicare Fraction), the final rule gives retroactive effect to all pending DSH determinations no matter how old. The rule states that, upon the rule becoming effective (which is 60 days after publication in the Federal Register), CMS will commence issuing initial and revised NPRs that have been held pending the issuance of the final rule.

The final rule takes the position that the “clear” reading of the statutory language “entitled to benefits under part A” means that inpatient days associated with Part C enrollees belong in the Medicare Fraction. The rule repeats the legal arguments and policy justifications that CMS has previously made, and cites the 2022 Supreme Court decision in Becerra v. Empire Health Foundation (Empire) for the proposition that the statute is clear.

CMS justifies the retroactive effect on two, independent bases. First, it notes that, despite that retroactive rulemaking is generally disfavored, the Social Security Act allows the Secretary to give rules retroactive effect when required by statute or when in the public interest. CMS notes that, in Azar v. Allina Health Services (Allina II), the Supreme Court held that CMS’s effort to place Part C days in the Medicare Fraction through a policy statement or interpretive rule was invalid for lack of following notice and comment procedures that are required by the rulemaking provisions of the Social Security Act. It then claims that Allina II held that any determination regarding the proper placement of Part C days must be done by rulemaking, and therefore such rulemaking must be given retroactive effect to address the pending determinations for discharges prior to October 1, 2013. CMS also claims that it is in the public interest to have a retroactive rule. Second, CMS claims that because (in its view) the statute is clear that Part C days must be placed in the Medicare Fraction, there is no impermissible retroactivity with respect to any period, because placing Part C days in the Medicare Fraction for discharges prior to October 1, 2013 is merely doing what the statute commands.

Some commenters on the proposed rule argued that upon the D.C. Circuit’s invalidation of the 2004 final rule that would have placed Part C days in the Medicare Fraction, the 1986 final rule that provided that only “covered” days are counted in the Medicare Fraction continued in force and effect and that CMS has no authority to retroactively displace that rule. CMS answers that Part C days are covered days and that it has never contended otherwise, and that therefore the 1986 rule is not on point. Other commenters contended that the retroactive nature of the final rule is contrary to the D.C. Circuit’s opinion in Northeast Hospital v. Sebelius. In that case the court held it was impermissible for CMS to give the 2004 final rule retroactive effect because CMS had a practice of excluding Part C days from the Medicare Fraction. CMS responded that Allina II requires that any determination of in which Fraction Part C days are counted must be done through rulemaking and that a mere practice cannot substitute for rulemaking. Still other commenters argued that Allina II does not require that determining the proper placement of Part C days must be done through rulemaking, and that CMS could proceed by case-by-case adjudication. Adjudication is generally an alternative to rulemaking. CMS answers that it does not see an adjudicatory approach to the treatment of Part C days that would be consistent with the Supreme Court’s holding in Allina II. According to CMS, whether Part C enrollees are “entitled to benefits under Part A,” or are not so entitled, is a legal question that does not turn on facts unique to any particular hospital. Thus, according to CMS, to resolve this issue by adjudications, hospitals would appeal fractions that, just as in Allina II, would necessarily already reflect a policy establishing the substantive legal standard of which Fraction includes Part C days, and just as in Allina II, would end in final decisions that would reflect the same policy in each case.

The final rule will undoubtedly be challenged and the litigation may not be finally resolved for a few years. In the meantime, pending are two civil complaints filed against the Secretary, alleging unreasonable delay in the processing of NPRs, administrative resolutions, and requests for realignment. As noted above, the final rule states that CMS will begin issuing initial and revised NPRs (and presumably administrative resolutions and realignments) upon the final rule becoming effective, but it is presently unknown just how soon after the rule’s effective date CMS will actually begin taking these actions or how long it will take to complete all of them.

For the complete Final Action, follow this link:Click here