On June 29, 2018, the US Court of Appeals for the DC Circuit invalidated a Centers for Medicare & Medicaid Services (CMS) regulatory interpretation that prevented hospitals from correcting old cost-reporting errors that continue to impact current and future Medicare reimbursements. In Saint Francis Medical Center v. Azar, the court sided with a group of hospitals challenging factual determinations, derived from 1981 cost-reporting data, that were used to determine base rates known as standardized amounts. The hospitals' standardized amounts were calculated in 1983, but permanently affect the formula used to determine the hospitals' prospective payment amounts. At issue in the case was whether CMS’ “predicate facts” rule barred the hospitals from appealing the determinations used to calculate their standardized amounts. The DC Circuit held that CMS’ predicate facts rule applies only in the “reopening” context, and does not prohibit administrative appeals of current cost reports for the purpose of prospectively correcting errors in long-settled base-year determinations.

This decision has significant implications for GME reimbursement, because it means that providers may challenge, in current and future appeals, prior incorrect “base year” determinations (e.g., those based on erroneous data) that are used to determine GME reimbursement on a go-forward basis. Two examples of such determinations include (i) the number of resident full time equivalents (FTEs) counted during a hospital's three- or five-year cap-building window that are used to determine the hospital's permanent GME FTE caps, and (ii) the calculation of costs used to determine a hospital's per resident amount (PRA).

Whether such "predicate facts" may be challenged in subsequent years—i.e., after expiration of the three-year window in which to reopen the applicable base-year cost report—has been an ongoing debate, culminating (for now) in the St. Francis decision. In a case decided in 2013, Kaiser Foundation Hospitals v. Sebelius, the DC Circuit rejected CMS' argument that the three-year reopening limitation effectively prohibited go-forward adjustments to predicate facts that were established in now-closed cost-reporting periods. Later that year, in response to the Kaiser decision, CMS revised the reopening regulations to clarify that payment determinations—including the predicate facts that support such determinations—could not be reopened unless challenged within the first three years of the determination.

The St. Francis opinion clarifies that the three-year limitation on reopening cost reports to correct predicate fact determinations does not apply to appeals of current cost reports to correct errors based on incorrectly determined predicate facts. Under St. Francis, a hospital may appeal a predicate fact (e.g., the FTE counts used to establish its GME caps) to the Provider Reimbursement Review Board (PRRB) even if the applicable base year is beyond its three-year reopening period. Accordingly, hospitals may challenge base-year determinations that affect current or future reimbursement by filing an appeal to the PRRB for any cost-reporting period for which the appeal is still timely.

The St. Francis decision is a victory for hospitals seeking to challenge incorrect base-year determinations with negative GME reimbursement implications. Notably, CMS conceivably could (and very well may) promulgate a new regulation to foreclose this appellate opportunity. For this reason, providers are encouraged to act expeditiously to examine their cost reports for potential “predicate fact” errors they may wish to correct. (Certainly, GME reimbursements are one such example, but there are many other Medicare reimbursement frameworks that also utilize base-year determinations that have continuing reimbursement effect.) Contact the GME @ Dentons team listed above if you have questions about the implications of this decision for your facility's GME reimbursement or how to preserve your appeal rights for current and future cost reporting periods.