Sebelius v. Auburn Regional Medical Center: Hospitals Allege Medicare Intentionally Underpaid Providers–And Got Away With It

By Katie Booth

In the Supreme Court’s recent decision in Auburn Regional Medical Center, the Court held that a suit against HHS by eighteen hospitals alleging intentional underpayment of Medicare reimbursements was barred by a 180-day internal agency deadline for appeals of reimbursement decisions. The rub is that the hospitals only found out about the underpayments, which allegedly occurred from 1987 to 1994, in March of 2006. These underpayments affected thousands of hospitals and added up to billions of dollars. Yet under Auburn, since the hospitals did not sue within 180 days of the underpayment (or even within an extended three-year window for “good cause”), they cannot recover. The Court in Auburn rejected the hospitals’ argument that equitable tolling should apply, finding instead that “the presumption in favor of equitable tolling does not apply to administrative appeals of the kind here at issue.”

The Auburn decision raises important questions about the ability of the federal government to intentionally underpay healthcare providers. In oral argument, the lawyer for the hospitals characterized HHS’s actions as “intentional concealment . . . [and] misconduct by the Secretary, that caused the statute of limitations time to be missed.” While there are good reasons not to disturb decades-old reimbursement decisions, it is sobering that the federal government can intentionally conceal underpayments and—if it conceals the underpayment for only 180 days—never have to reimburse the injured party. This situation presents a striking contrast “to 42 CFR § 405.1885(b)(3) (2012), which permits reopening of an intermediary’s reimbursement determination ‘at any time if it is established that such determination . . . was procured by fraud or similar fault of any party to the determination.’” In other words, HHS can reopen reimbursement decisions if a provider intentionally conceals important information, but not vice versa.

While 42 CFR § 405.1836 allows providers to appeal reimbursement decisions for up to three years for “good cause,” the current language of this regulation defines good cause as “extraordinary circumstances . . . (such as a natural or other catastrophe, fire, or strike).” It is unclear whether the intentional concealment of underpayments by HHS counts as good cause, since intentional concealment by the government is not a “natural or other catastrophe.” If not, providers have only 180 days to discover if the federal government has intentionally underpaid them (although Justice Sotomayor in her opinion in Auburn suggests equitable tolling might be available if “good cause” is defined “so narrowly as to exclude cases of fraudulent concealment and equitable estoppel”). Even if the three-year “good cause” provision applies, it does not help providers—like the hospitals in Auburn—who find out about an intentional underpayment more than three years after it occurs. The Auburn case may be a wake up call to providers that they must be on the lookout not only for unintentional reimbursement errors by the federal government, but also intentional concealment of information and underpayment.

The Auburn case also raises questions about how so many hospitals failed to recognize the long-running underpayment. While electronic health records and sophisticated computer systems may prevent such a situation from occurring in the future, the Auburn case suggests that hospitals may not be keeping as careful an eye on government reimbursements as perhaps they should. Reimbursement formulae are only “growing more complex,” making it even more difficult to spot underpayments. Auburn may result in more spending by hospitals on expensive computer systems to track federal government reimbursements, and also more appeals by hospitals skeptical of the government’s reimbursement methodology. While finality is an important consideration in any legal system, the Auburn case may undermine providers’ trust in the accuracy of Medicare reimbursements.

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