Medicare Hospitals Unsuccessfully Attempt Statutory Surgery to Recoup Lost Profits

Common sense wins out in the end.  And that is what happened in a Medicare Overpayment case just last week in the case of Fresno Community Hospital and Medical Center v. Cochran, 2021 WL 446140 (D.C. Cir. Feb. 9, 2021).

In Fresno, a group of Medicare providers – 683 Medicare providers to be exact – sued the U.S. Secretary of Health and Human Services in the U.S. District Court for the District of Columbia for lost income based on the Secretary’s attempt to recoup Medicare overpayments.  They lost before the District Court.  So, they took their case to the U.S. Court of Appeals.

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A.  $11 Billion in Medicare Overpayments, and Congress’s Call to Get the Money Back

The story of this case begins in 2013, when Congress recognized that the Medicare system had overpaid certain Medicare providers approximately $11 billion. As the Medicare Hospital Inpatient Prospective Payment System (IPPS) pays providers in advance for their services, a confluence of new diagnostic codes, inter alia, led to an overpayment amount of $11 billion by 2013.

Congress therefore passed legislation that essentially ordered the Secretary of Health and Human Services to recoup the overpayments by docking the hospitals’ pay over a period of years to offset Medicare’s $11 billion overpayment.  The Secretary, after crunching the numbers, decided on a plan in which he would underpay the hospitals gradually over a period of four years.  In other words, he would lower, or “adjust,” the base rate for inpatient care by -0.8% in 2014, -1.6% in 2015, and so on.

B.  A Final Adjustment for 2017 Was the ‘Straw that Broke the Camel’s Back’ for the Hospitals

The Secretary’s plan to recoup the overpayment was going smoothly until 2016.  That year, the Secretary realized that the final planned adjustment of -3.2% would not be enough to recoup the full $11 billion.  So, to stay on track, the Secretary announced that the 2017 adjustment would be -3.9% instead of -3.2%.  It was that extra -0.7% that served as the catalyst for the hospitals’ lawsuit.

The complaint from the hospitals was that the extra -0.7% was improperly carried over into 2018, when the Secretary began gradually increasing the base rate again.  The hospitals’ argument was that, in 2018, when the Secretary adjusted the base rate from -3.9% to -3.4% (consistent with Congress’ order to only gradually increase the rate back to zero), the Secretary should have increased the rate from -3.2% to -2.7%, thereby treating that extra -0.7% as a one-time matter.  The hospitals’ added that the Secretary’s adjustment cost the hospitals $840 million in lost payments.

C.  The Hospitals’ Legal Argument

In order to challenge the Secretary’s rate-adjustment decision, the Medicare hospitals had one major hurdle.  They had to get past the fact that the law expressly prohibited judicial review of the Secretary’s adjustment decisions.  To do so, the hospitals made several arguments.

First, the hospitals argued that the Secretary’s adjustment to -3.4% in 2018 was not an “adjustment,” but rather a “failure to reverse” or a “continued inclusion” of the reviled extra -0.7% that begin the whole case.

Second, the hospitals argued that because the Secretary’s adjustment with the extra -0.7% was improper under the law, it also could not be considered an “adjustment.”

Finally, the hospitals last resort argument was that the Secretary acted outside his legal authority and, therefore, his act was “ultra vires.”

D.  The Court’s Decision

The lower court in the case rejected all of the hospitals’ arguments, and the appeals court followed suit.  In a rather colorful opinion – chock full of hospital metaphors (“The hospitals’ argument flatlines,” “we would have to scrub up for statutory surgery, excising some words and engrafting others”) – the appeals court found that the hospitals simply could not get out from under the statutory prohibition that barred courts from questioning the Secretary’s rate adjustments.

The appeals court went on to add that the hospitals’ reading of the relevant statute was inconsistent with a common-sense, plain reading of that law.  The court noted that the best way to make sense of the statute pertaining to rate adjustments is to simply look at the law in its proper context.  In other words, use common sense.  The relevant statute tells the Secretary how to calculate the rate, explains that the Secretary has the authority to make “adjustments,” and that any “adjustment” under the law permits no judicial review.  Accordingly, the hospitals’ creative arguments to the contrary were unpersuasive.


Not Hospital Fraud, but fortunately the common-sense notion that the “law says what it says,” when the terms are clear, will win the day.  That was the case with Fresno, in which the Secretary of HHS was permitted to exercise his authority to adjust the base rate to recoup a $11 billion Medicare Overpayment.

At Nolan Auerbach & White, LLP, we keep an eye out for cases such as Fresno. If you have further questions on this or any Healthcare Fraud subject, please contact the Whistleblower Firm – Nolan Auerbach & White, LLP.  We have the experience and resources to protect healthcare fraud whistleblowers.  Contact us online, or by calling 800-372-8304 today.

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