Centers for Medicare and Medicaid Services’ failed position on FAQs 33 & 34 results in attorneys’ fee award

April 02, 2019

Chief Communications Officer
Allison McClain

A federal court in New Hampshire has awarded fees and costs against the Centers for Medicare and Medicaid Services (CMS) for its position on questions 33 and 34 from the Medicaid Disproportionate Share Hospital (DSH) guidance. Medicaid reimbursement rates are generally lower than hospital costs, resulting in shortfalls. For hospitals treating a high number of Medicaid-eligible patients, reimbursement rates are bolstered by DSH payments.

Nixon Peabody represented 26 New Hampshire hospitals who reached a deal in 2014 to resolve ongoing litigation in exchange for DSH payments to supplement uncompensated care. The deal worked well in the initial years until CMS enforced new dual eligibility payment policies first through guidance issued in the form of frequently asked questions (FAQs) published online without formal rulemaking, and later through a final rule adopting those same policies. FAQs 33 and 34 focused on the treatment of Medicare and private insurance payments received by hospitals on behalf of Medicaid-eligible patients, and had the effect of reducing the hospital-specific DSH payment limit for many eligible hospitals.

The New Hampshire hospitals sued and won. The federal district court issued an injunction and the First Circuit affirmed. In December 2018, CMS withdrew its guidance on FAQs 33 and 34.

In a decision issued in New Hampshire federal court on March 28, 2019, the court, ruling on the New Hampshire hospitals’ motion for attorneys’ fees, noted CMS’ position on FAQs 33 and 34 “lacked a reasonable basis in law and fact.” The court ordered fee reimbursement under the Equal Access to Justice Act, finding that CMS’ position in the litigation was not “substantially justified,” and that “no reasonable person could think that [CMS] had the right to promulgate the challenged policies in the manner in which they did.”

Nixon Peabody’s litigation team was led by chair of the firm’s Litigation department, partner Scott O’Connell, and included associates Morgan Nighan and Kierstan Schultz.

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