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 Thursday's decision by the 2nd U.S. Circuit Court of Appeals is a
victory for hospitals in urban areas including the acute care
Lawrence + Memorial Hospital of New London, Connecticut, which said
the Department of Health and Human Services' "reclassification rule"
forced it to overpay for drugs that patients needed.
Writing for the appeals court, Judge Jed Rakoff said the 2000
regulation conflicted with the plain meaning of the federal Medicare
statute, and that HHS lacked authority to implement it.
Medicare lets hospitals be reimbursed for the cost of providing
services. It allows some hospitals to be classified simultaneously
as "rural" to get lower drug pricing and "urban" to ensure they can
attract and pay qualified staff.
But under the HHS rule, according to Rakoff, urban hospitals
classified as "rural" to reduce drug prices could not be deemed
"urban" by the agency's Medicare Geographic Classification Review
Board, unless they first canceled their rural status for the years
in which they sought reclassification.
In December 2014, a federal judge rejected the New London hospital's
challenge to the rule, which she said reflected a "deliberate,
logical, and considered" effort at HHS to implement an ambiguous
Medicare statute.
But Rakoff, who normally sits on the federal district court in
Manhattan, said the statute was clear and downplayed concern that
hospitals might seek classifications they do not deserve.
The law "simply increases the number of situations in which
hospitals can be treated as rural for some purposes and urban for
others, but there is nothing 'absurd' about such a measured
approach," he wrote. "An agency may not rewrite clear statutory
terms to suit its own sense of how the statute should operate."
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A spokesman for U.S. Attorney Deirdre Daly in Connecticut, who
defended the HHS regulation, said: "The Justice Department and HHS
are reviewing the decision to determine how best to proceed."
Joseph Glazer, the hospital's lawyer, in an email said his client is
pleased with the decision. He said the dual classification saves
hospitals millions of dollars annually through greater Medicare
reimbursements or cost savings.
The case is Lawrence + Memorial Hospital v Burwell et al, 2nd U.S.
Circuit Court of Appeals, No. 15-164.
(Reporting by Jonathan Stempel in New York; Editing by Tom Brown and
Cynthia Osterman)
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