Supreme Court closes door on late appeals of Medicare underpayments

Hospital advocates say unfairness is now built into Medicare billing appeals due process after a ruling by the U.S. Supreme Court preventing claimants from fighting for higher Medicare payments if they don’t find out they were shortchanged until after the statutory deadline to appeal.

In an unanimous decision issued Jan. 22, the justices sided with the Dept. of Health and Human Services by stating that the theory of “equitable tolling” does not apply in Auburn v. Sebelius. That concept allows courts to waive a deadline in extraordinary circumstances.

“It’s disappointing that the courts have abdicated any oversight role as to HHS–provider interaction,” said Brian M. Daucher, a California-based attorney with Sheppard Mullin Richter & Hampton LLP. He wrote a friend-of-the-court brief for a group of hospice facilities in support of allowing late payment appeals. “There remains a significant imbalance of power in that relationship. Providers now need to seek relief from Congress, in terms of a fairer standard for untimely appeal review.”

The case involved the method the Centers for Medicare & Medicaid Services used to calculate Medicare payments for disproportionate share hospitals before 2008. DSHs are medical centers that receive a higher pay rate because they treat a larger portion of low-income patients who have trouble paying their bills.

In 2008, a federal court ruled that the formula Medicare contractors had been using to calculate DSH payments set the rates too low. Judges ordered CMS to start calculating payments with a new formula that would result in higher, fairer payments.

After the ruling, several hospitals, hospices and medical centers attempted to appeal past Medicare payments in light of the erroneous formula, but CMS said it was too late. Under Medicare law, health professionals have only 180 days to appeal a payment. A group of hospitals, led by Auburn Regional Medical Center in Washington state, sued the administration.

The plaintiffs said hospitals had the right to appeal late because of the incorrect payment calculations by CMS. HHS argued that only Congress, not the courts, could modify the 180-day deadline. The appeals window was at issue only for hospitals in this case, but it applies to physician payment appeals as well.

A district court ruled for HHS, but the U.S. Court of Appeals for the District of Columbia Circuit reversed that decision.

In their ruling, Supreme Court justices said the 180-day deadline was not intended to be flexible, and that if it were, Congress would have revised it long ago.

“For nearly 40 years, the secretary has prohibited the board from extending that deadline, except as provided by regulation,” the decision stated. “And until the D.C. Circuit’s decision in this case, no court had ever read equitable tolling into [the law]. Congress amended [the statute] six times since 1974, each time leaving untouched the 180-day administrative appeal provision and the secretary’s rulemaking authority.”

Robert L. Roth, Auburn’s attorney, said the ruling ties the hands of health professionals who discover payment errors after the statutory deadline. “Obviously [we’re] disappointed in the result, most particularly because it doesn’t address the issue, which is what should happen when a provider is unable to appeal timely because they are unaware they’ve been underpaid.”

CMS did not respond to messages seeking comment by this article’s deadline.

Other possible avenues for late appeals

The ruling reinforces calls for CMS to disclose fully the data underlying its payment calculations, said Marie Watteau, a spokeswoman for the American Hospital Assn. The association issued a friend-of-the-court brief in support of the hospitals.

“Only by being fully transparent will CMS enable hospitals to double-check CMS’ work and point out mistakes within the permitted time frames,” Watteau said in an email.

But the door on appealing payments after the statutory deadline may not be closed completely, said Jeffrey A. Lovitky, a Washington attorney who wrote a friend-of-the-court brief on behalf of Quality Reimbursement Services in support of the hospitals. Quality Reimbursement Services assists health professionals in filing claims before the Provider Reimbursement Review Board.

Although justices denied that equitable tolling was applicable in such cases, Lovitky noted they did not foreclose the possibility of equitable estoppel. That theory protects one party from being harmed by another party’s voluntary conduct, such as concealment of material facts.

Justice Sonia Sotomayor mentioned this theory in a separate concurring opinion, although she did not go so far as to say it applied in Auburn.

“While equitable tolling extends to circumstances outside both parties’ control, the related doctrines of equitable estoppel and fraudulent concealment may bar a defendant from enforcing a statute of limitation when its own deception prevented a reasonably diligent plaintiff from bringing a timely claim,” she said. In another case, “we applied the basic principle underlying these doctrines to an agency’s conduct, as we concluded that a 60-day deadline to seek judicial review of the administrative denial of disability benefits should be tolled because the Social Security Administration’s secretive conduct [prevented] plaintiffs from knowing of a violation of rights.”

During oral arguments in the Auburn case, Roth argued that HHS intentionally hid information that could have led to earlier appeals by the hospitals. However, the parties filed their claims only under the equitable tolling cause of action, Lovitky said, so that issue was not decided.

Such claims “could also be pled under equitable estoppel because there is evidence that the government continued to understate [calculation] percentages even after it was aware that the percentage was understated,” he said. “I think it’s an open question.”

Roth said he is in the process of analyzing the Supreme Court decision to determine how his clients should proceed, but he agreed that equitable estoppel is a potential alternative avenue. “It remains to be seen, but I don’t think the court addressed nor precluded those issues going forward.”

But Daucher said he believes that only Congress now can remedy the loopholes in CMS appeals deadline regulations.

Congress “could simply amend [the law] to provide a longer time or an express standard for good cause for extending the time,” he said. “We would not need a whole new law, just some revisions to the provider appeals statute that would take the good-cause determination in part out of CMS’ hands.”