Squire Patton Boggs Wins Victory in Overturning Key Parts of Self-Disallowance Regulation

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    Squire Patton Boggs has secured a victory in a case that will have broad implications for US hospitals that did or will object to the legitimacy of the US Department of Health and Human Services’ (HHS) so-called “self-disallowance” regulation and its application to certain administrative payment appeals made by providers.

    As explained by Steve Nash, co-chair of the Squire Patton Boggs international Healthcare Practice Group, on May 23, 2008, the Centers for Medicare and Medicaid Services (CMS) issued omnibus revisions to its regulations governing practice before the Provider Reimbursement Review Board (PRRB). 73 Fed. Reg. 30190 (May 23, 2008).

    One such revision reintroduced, in regulatory form, a policy that had been struck down by the Supreme Court, in 1988, in Bethesda Hosp. Ass’n v. Bowen, 485 U.S. 399 (1988).

    That policy required a provider to note “purely legal challenges” – e.g., to an agency’s regulation – at the time of filing its cost report. If a provider failed to do so, HHS took the position that the PRRB did not have jurisdiction to hear that challenge. This requirement came to be known as the “self-disallowance rule.”

    On Friday, August 19, 2016, District Judge Amit P. Mehta of the United States District Court for the District of Columbia ruled in favor of a group of 11 hospitals in Banner Heart Hospital v. Burwell, a case challenging the validity of Secretary Sylvia Mathews Burwell’s 2008 self-disallowance regulation as applied to legal challenges to the validity of one or more of the Secretary Burwell’s payment regulations. Squire Patton Boggs presented oral arguments before Judge Mehta on behalf of the hospitals on July 21, 2016.

    Two years ago, a group of hospitals represented by Mr. Nash’s team was successful in challenging the application of the self-disallowance rule to PRRB appeals filed in the absence of a timely Notice of Program Reimbursement (NPR). See, e.g., Charleston Area Med. Ctr. v. Sibelius, 2014 BL 227626, D.D.C., No. 13-766, 8/6/14. The Charleston case opened the door for a US$32.5 million settlement from the CMS on behalf of approximately 15 hospitals nationwide.

    The present case has successfully challenged application of the same rule, but this time when the PRRB appeals were filed after receipt of an NPR. As the court stated:

    Accordingly, the court holds that, under Bethesda – and at Chevron Step One – the Secretary’s self-disallowance regulation, as applied to Plaintiffs’ specific regulatory challenge, conflicts with the plain text of section 1395oo. The court’s … decision is limited only to the regulation’s application to providers who, like Plaintiffs, seek to assert a legal challenge to a regulation or policy that cannot be addressed by a fiscal intermediary.

    When questioned, Mr. Nash noted that, as with the Charleston case, the court’s decision in Banner Heart has broad application and should benefit all hospitals that have had PRRB appeals advancing purely legal challenges dismissed by the PRRB for lack of jurisdiction due to failure to comply with HHS’s self-disallowance rule. This with respect to any cost report filed before January 1, 2016. Appeals in respect of cost reports filed on or after that date will encounter a new set of requirements, largely mimicking those invalidated by the Charleston and Banner Heart cases, newly established by CMS in the fall of 2015 but now tied to the agency’s requirements for the filing of a complete cost report.

    Judge Mehta’s order remands the case to the PRRB to rule on the hospital’s expedited judicial review (EJR) request, unencumbered by the Secretary Burwell’s self-disallowance regulation.

    The Squire Patton Boggs team was led by Mr. Nash, and included Sven Collins, Mimi Hu Brouillette, Michihiro M. Tsuda, Larisa Vaysman, Aditi Kulkarni and Sarah Conley.

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