Home Health & Hospice Week

Appeals court lets RHHI go back on approval of cost report methodology.

If you rely on your intermediary's word, you could be making an expensive mistake.

That's what home health agency Mercy Home Health in Springfield, PA found out when the U.S. Court of Appeals for the Third Circuit handed down a Feb. 3 decision in Mercy Home Health v. Leavitt.

In 1994, Mercy received approval from then-intermediary Independence Blue Cross for an alternative cost report methodology used through fiscal year 1996. When regional home health intermediary Wellmark (later Cahaba GBA) took over after IBC withdrew, it revoked the approval for the alternate methodology and disallowed nearly $770,000 in costs for FYs 1995 and 1996.

This case is very unusual because an incoming intermediary usually honors the prior approvals of a previous RHHI, notes consultant Jim Plonsey with Medicare Training & Consulting in Lansing, IL. RHHIs tend to make changes from that point forward, rather than retroactively enforcing new rules, says Plonsey, who formerly trained intermediary auditors.

A win: Mercy appealed the disallowance to the Provider Reimbursement Review Board and won on the two years' disallowances that were retroactively revoked (see Eli's HCW, Vol. XII, No. 32). "The Board is not convinced that the Intermediary's caveat 'subject to verification at audit' leaves the door open for the current Intermediary to retroactively rescind the prior Intermediary's approval," the August 2003 decision said.

A loss: The HHS Administrator overturned the PRRB decision and Mercy appealed it to the federal district court. But the U.S. District Court for the Eastern District of Pennsylvania last year ruled in favor of HHS, noting that Congress clearly gives HHS "the ability to take retroactive actions to remedy incorrect Medicare reimbursements" (see Eli's HCW, Vol. XIV, No. 12).

While it might seem unfair to Mercy, the court looked ultimately at what was fair to the Medicare program, Plonsey observes. "If the intermediary makes the mistake, it's the provider that suffers"--not the Medicare program.

When courts let intermediaries renounce prior cost-allocation methodology approvals, "the providers are then asked to produce documents to prove the equity of their allocations for periods of time during which they did not maintain such documentation because it was unnecessary in light of the approvals," laments attorney Joel Hamme with Powers Pyles Sutter & Verville in Washington, DC. That's "a neat Catch-22, and one that courts don't seem to understand."

Next step: Mercy appealed the decision to the appeals court, which dealt the agency a final blow. "Just as Medicare cost principles take priority over the absence of prior approval, so, too, do the same cost principles take priority over the presence of prior approval," the appeals court maintained in its decision favoring HHS.

The decision is "bitterly disappointing and disheartening," says attorney Mark [...]