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had not been re­viewed by the ad­min­is­tra­tive body charged with do­ing so, the Provider Re­im­burse­ment Re­view Board, Dirr says, so the hos­pi­tal as­so­ci­a­tion dropped the suit and took it up with the re­view board. A group ap­peal was filed with the board Feb. 11 re­quest­ing ex­pe­dited ju­di­cial re­view, which would move the dis­pute back into fed­eral court, where the as­so­ci­a­tion thinks it be­longs, he says. “It’s a legal mat­ter” and not some­thing that the re­view board would nor­mally be de­cid­ing, Dirr says. But for pro­ce­dural rea­sons, the board needs to re­view the dis­pute be­fore it goes to court, he says.

Among the ar­gu­ments raised by the KHA in its ini­tial suit and by oth­ers op­pos­ing the re­vi­sion is that the CMS is chang­ing its pol­icy and not is­su­ing a clar­i­fi­ca­tion, as the CMS rule called it. By call­ing it a clar­i­fi­ca­tion, “it pre­cluded the pub­lic com­ment rou­tine,” Slabach says.

More­over, they ar­gue that the move goes against the spirit of hav­ing a crit­i­cal-ac­cess hos­pi­tal des­ig­na­tion in the first place. “This change in pol­icy, which HHS er­ro­neously de­scribes as a ‘clar­i­fi­ca­tion’ in the fi­nal rule … will have a se­ri­ous neg­a­tive eco­nomic im­pact on each of the (crit­i­cal-ac­cess hos­pi­tal) mem­bers of the KHA, and will de­prive the low-in­come, mostly ru­ral pop­u­la­tions they serve of ac­cess to the health­care ser­vices cur­rently pro­vided by these KHA mem­bers,” ac­cord­ing to the law­suit.

“It’s re­ally an about-face from what they’ve done in the past,” Dirr says. “They’ve al­ways al­lowed the full amount of these provider taxes,” he says.

Two provider groups in the state of Wis­con­sin make a sim­i­lar ar­gu­ment in a letter to the CMS op­pos­ing the agency’s in­ter­pre­ta­tion.

“The CMS pol­icy is not a clar­i­fi­ca­tion,” ac­cord­ing to a June 16, 2010, letter to the CMS signed by the Wis­con­sin Hos­pi­tal As­so­ci­a­tion and the Ru­ral Wis­con­sin Health Co­op­er­a­tive. “CMS has never de­scribed these taxes as non­re­im­bursable, nor that amounts re­ceived from the state must be off­set against the amount of the taxes, in the (Medi­care provider re­im­burse­ment man­ual) or in any other guid­ance,” the groups write. “And al­though the CMS has had op­por­tu­ni­ties to do so in the past when ad­dress­ing provider tax is­sues at the Provider Re­im­burse­ment Re­view Board and through ad­min­is­tra­tor re­view, it has never ar­tic­u­lated a pol­icy akin to what is be­ing pro­posed here.”

No change at CMS

The CMS re­mains unswayed. “We be­lieve that this pro­vi­sion, as ar­tic­u­lated in the pro­posed rule, is a clar­i­fi­ca­tion of our cur­rent, long­stand­ing pol­icy which re­quires that ‘rea­son­able costs’ claimed by providers must be ‘ac­tu­ally in­curred,’ ” the CMS wrote in its fi­nal in­pa­tient prospec­tive pay­ment rule.

“We be­lieve that it is con­sis­tent with the cur­rent and long-stand­ing prin­ci­ples of cost re­im­burse­ment, as set forth in the statute and reg­u­la­tions, to re­mind both providers and our con­trac­tors, that al­though a par­tic­u­lar tax may be an al­low­able cost, the amount of that tax that providers may claim for rea­son­able cost pur­poses, must re­flect the amount of these as­sessed taxes that are ac­tu­ally in­curred,” the CMS rule states.

CMS of­fi­cials could not be reached for com­ment.

De­spite the stead­fast na­ture of the CMS’ re­sponse in the fi­nal rule, Alan Mor­gan, pres­i­dent of the Na­tional Ru­ral Health As­so­ci­a­tion, raised the is­sue in a meet­ing with Ber­wick this month, which was a fol­low-up to the CMS ad­min­is­tra­tor’s speech be­fore the NRHA’s pol­icy in­sti­tute. But the NRHA’s Slabach says the mat­ter was dis­cussed at broad lev­els and did not get into the de­tail nec­es­sary to ne­go­ti­ate sub­stan­tive changes.

The Amer­i­can Hos­pi­tal As­so­ci­a­tion, mean­while, is likely to push to get leg­is­la­tion passed that would re­quire the CMS to in­clude Medi­care provider taxes in cost cal­cu­la­tions for crit­i­cal-ac­cess hos­pi­tals. Such a bill was in­tro­duced in the House last year, and the AHA would like to try to get a sim­i­lar bill in­tro­duced in the cur­rent Congress, says Joanna Kim, se­nior as­so­ciate di­rec­tor for pol­icy at the AHA.

But for now, crit­i­cal-ac­cess hos­pi­tals that pre­vi­ously in­cluded state provider taxes on their Medi­care cost re­ports are de­pen­dent on the in­ter­pre­ta­tion from their fis­cal in­ter­me­di­ary, as in­structed by the CMS. Cald­well Med­i­cal Cen­ter, a 25-bed fa­cil­ity in Prince­ton, Ky., paid a provider tax of about $258,000 and re­ceived Med­i­caid dis­pro­por­tion­ate-share hos­pi­tal pay­ments of $156,000 for the fis­cal year ended June 30, 2009, says Shane Whit­ting­ton, chief fi­nan­cial of­fi­cer.

The CMS fis­cal in­ter­me­di­ary dis­al­lowed all $258,000 of the tax claimed, re­sult­ing in the hos­pi­tal writ­ing a check for about $100,000, he says.

The risk of un­even ap­pli­ca­tion of the rules that could come from dif­fer­ent in­ter­me­di­aries par­tic­u­larly ir­ri­tates Cald­well’s CEO, Charles Lovell Jr. “The fact that it’s not be­ing han­dled evenly across the board, that’s the frus­trat­ing part,” Lovell says.

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