Supreme Court Upholds Asymmetry between Medicare Providers and Fiscal Intermediaries

January 2013
Moses Suarez
SmithAmundsen Health Care Alert


Practice Areas


The Supreme Court recently decided a case affecting a Medicare provider’s deadline to appeal a fiscal intermediary’s (FI) notice of program reimbursement (NPR). Sebelius, Sec. of HHS v. Auburn Reg. Med. Ctr., 2013 WL 215485 (U.S.) (Jan. 22, 2013). NPRs are calculated by FIs from provider cost reports and CMS SSI fraction data. Under Medicare, providers may appeal NPRs to the Provider Reimbursement Review Board (PRRB) within 180 days of issuance or up to 3 years for good cause. Auburn providers challenged the appeal period statute of limitation for NPRs over ten years old based on the Doctrine of Equitable Tolling because HHS failed to disclose incorrect reimbursement calculations, which prevented a timely appeal. The Court held, however, that the limitation period is not entitled to equitable tolling.

Medicare is a complex scheme not easily summarized in a few sentences, but her are the basics. Providers are reimbursed a fixed amount per Medicare patient regardless of the operating costs. Hospitals serving a disproportionate share of low income patients (DSL) may receive an increased total reimbursement because of higher patient costs. DSL is determined by a percent of patients eligible for supplemental security income (SSI), known as the SSI fraction. FIs determine the NPR from hospital annual cost reports and the CMS SSI fraction.

Auburn arose from an unrelated appeal by the Bay State Medical Center challenging its SSI fraction between 1993 and 1996. The PRRB determined that CMS omitted categories of SSI data and used a flawed process to calculate the SSI fraction. These omissions resulted in under payments to Medicare providers. CMS’ miscalculation was systemic and affected all Medicare providers. The Board’s finding in Bay State became public in March 2006. Hospitals in Auburn appealed their DSL from 1987 to 1994 within 180 days of publication. They argued tolling the limitations period was appropriate because CMS failed to disclose miscalculated SSI fractions. Historically, CMS only disclosed the SSI fraction without the underlying data until 2003. The District Court dismissed the hospitals’ claims holding that Congress did not authorize Equitable Tolling. The Appellate Court reversed holding that equitable tolling applied to suits against the U.S. similar to suits against private defendants. The Supreme Court, however, held the equitable tolling inapplicable. The Court reasoned it was in the best interest of the program that NPRs have finality. It stated that the Medicare scheme is not designed to be “unusually protective of claimants,” Bowen v. City of New York, 476 U.S. 467, 480 (1986), because the Medicare system involved sophisticated providers, “generally capable of [timely] identifying an underpayment in their own NPR….” The Court disagreed that HHS adhere to “fundamentals of fair play,” which is unbalanced in 42 C.F.R. § 405.1885(b)(3) and permits HHS’ reopening an NPR at any time if procured by fraud or similar fault of any party.

In short, although providers are limited to a 180-days, HHS has an indefinite period to appeal. The Court found this asymmetry in fairness justified by “administrative realities” of the reimbursement system reasoning that there are only a few dozen FIs issuing tens of thousands of NPRs while providers can focus on their own NPR. Hospitals are singularly responsible not only for providing accurate data to FIs and CMS, but also for investigating, auditing, and policing their calculations within 180-days. Providers should know that although Congress requires HHS to furnish hospitals with the data to compute their own DSL, it is only given upon specific request.

142 U.S.C. § 1395 00(a)(3).

2 Relying on Irwin v. Department of Veterans Affairs, 498 U.S. 89, 95-96 (1990).