June 13, 2016

Have you ever found that you could not make heads or tails of a Medicare regulation?  Have you wondered whether even CMS could decipher and coherently apply its own rules?  The sheer volume of regulations makes it difficult to be certain of one’s interpretation:

Medicare is, to say the least, a complicated program. The Centers for Medicare & Medicaid Services (CMS) estimates that it issues literally thousands of new or revised guidance documents (not pages) every single year, guidance providers must follow exactingly if they wish to provide health care services to the elderly and disabled under Medicare’s umbrella. Currently, about 37,000 separate guidance documents can be found on CMS’s website.

Caring Hearts Personal Home Services, Inc. v. Burwell (No. 14-3234) (10th Cir. 2016).  Caring Hearts, a home health agency, had been ordered to refund more than $800,000 to CMS on the grounds that some of the physical therapy or skilled nursing services it had performed were not provided for “homebound” patients and were not ”reasonable and necessary” as required by the statute.  The Administrative Law Judge (ALJ) upheld CMS’s decision as did the federal district court.

The Court of Appeals for the Tenth Circuit reversed the decision, finding that CMS had applied regulations that did not exist in 2008, when the services were provided, and that CMS was unaware of this until the litigation.  The regulations that defined the criteria for deeming a patient “homebound” and services “reasonable and necessary” in 2008 were much more vague and liberal than the ones that replaced them several years later.

Textual differences between the “homebound” regulation that was in effect in 2008 and the one on which CMS relied—use of the words “shall” and “must” in contrast to “should” and “will”—were material to the decision.  The later version was much more onerous than the 2008 regulation.

As for the “reasonable and necessary” requirement, the relevant statute (42 U.S.C. § 1395y(a)(1)(A)) states simply that charges must be “reasonable and necessary,” without offering providers any guidance as to what might and might not qualify.  It does not dictate any specific documentation.  Under current regulations, providers must meet a stringent documentation requirement to prove medical necessity of physical therapy services, but the Court ruled that this was not retroactive to the time period at issue.  Instead, 42 C.F.R. § 409.44(c)(2)(I), as it stood in 2008, required simply that the services meet the “accepted standards of medical practice”—a benchmark that Caring Hearts met.  The Court also applied the less exacting standard for skilled nursing medical necessity documentation.

CMS’s final argument was that 42 U.S.C. § 1395pp, which gives the agency power to forgive provider mistakes relating to “reasonable and necessary” and to “custodial care,” would not allow it to relieve a provider of liability if the dispute centered on whether a patient was homebound.  The Court rebuked CMS by stating that “here too it seems CMS is unfamiliar with its own law,” noting that although the statute 30 years ago did preclude relief related to homebound condition, that is not the current status of the law.

The Court concluded:

This case has taken us to a strange world where the government itself—the very “expert” agency responsible for promulgating the “law” no less—seems unable to keep pace with its own frenetic lawmaking. . . . whatever else one might say about our visit to this place, one thing seems to us certain: an agency decision that loses track of its own controlling regulations and applies the wrong rules in order to penalize private citizens can never stand.

Vacating the lower court’s decision, the Court went one step further and suggested in its opinion that Caring Hearts could reasonably seek attorney’s fees from the agency.

The 19-page Court opinion is without doubt an embarrassment to both CMS and to its lawyers.  Cases are normally litigated on the basis of how the law applies to the facts at hand—not on whether the parties are relying on statutes and regulations that did not exist at the time the controversy arose.  But CMS can perhaps be forgiven because of the enormous workload imposed on it by Congress, which passes the laws that CMS must implement by regulation, and by the sheer numbers of beneficiaries, providers and suppliers who may challenge its decisions.

A Very Brief and Selective History of CMS

1937 – U.S. Surgeon General Thomas Parran proposed that National Health Insurance first cover Social Security beneficiaries.

1965 – Medicare and Medicaid were enacted as Title XVIII and Title XIX of the Social Security Act, providing hospital, post-hospital extended care and home health coverage to almost all Americans aged 65 or older (i.e., those receiving retirement benefits from Social Security or the Railroad Retirement Board)—but not physicians’ services, thanks to the efforts of organized medicine—and providing states with the option of receiving federal funding for providing health care services to low-income children, their caretaker relatives, the blind and individuals with disabilities.  At the time, seniors were the population group most likely to be living in poverty; about half had health insurance coverage.  To implement the Health Insurance for the Aged (Medicare) Act, the Social Security Administration was reorganized and the Bureau of Health Insurance was established on July 30, 1965.  This bureau was responsible for the development of health insurance policy.  Medicaid was part of the Social Rehabilitation Service at the time.

1966 – Medicare was implemented and more than 19 million individuals had enrolled by July 1.

1977 – The Health Care Financing Administration (HCFA) was established to administer the Medicare and Medicaid programs.

2001 – HHS Secretary Tommy Thompson renamed HCFA the Centers for Medicare & Medicaid Services (CMS) following a competition among HCFA staff.

Today CMS has more than 6,000 employees serving more than 100 million beneficiaries.  In 2014, total CMS expenditures amounted to $910.3 billion, of which $892.8 billion went to Medicare and Medicaid benefit payments.  About 4,000 employees are located at CMS headquarters outside Baltimore.  The remaining employees work in Washington, D.C., in 10 regional offices, and in various field offices throughout the United States.

If CMS cannot keep up with its own regulations—and Caring Hearts is one instance where clearly the agency could not—then it falls to providers to show ALJs and judges the applicable rules.  Anesthesiologists and others who seek to overturn CMS decisions will need to check whether the regulations allegedly violated were in effect at the time of the activity CMS has challenged.  Remember that ALJs have about 15 minutes to hear each party’s arguments.  As in all litigation, your representatives should make it easy for the decision-maker to find in your favor.

With best wishes,

Tony Mira
President and CEO