Opinion ID: 32619
Heading Depth: 2
Heading Rank: 2

Heading: Louisiana's efforts to increase DSH payment adjustments

Text: 18 Louisiana is largely rural and most of the rural areas are medically under-served. See 67 Fed.Reg. 21962-67 (May 1, 2002) (listing urban areas from the 2000 census). Recognizing that small rural hospitals bear significant costs for the services they provide to low-income uninsured patients through their hospital-based clinics, 1 Louisiana sought guidance from HHS as to how those costs could be taken into account as part of a rural hospital's DSH payment adjustment. In a January 19, 1999 letter U.S. Senator John Breaux asked Donna Shalala, the then Secretary of HHS, to clarify when RHC costs could be taken into account for DSH purposes. In her response, Secretary Shalala wrote: 19 While I agree that a state has discretion to license or formally approve a hospital-based RHC as an outpatient hospital clinic for purposes of the Medicaid DSH program, I [cannot] require that states consider the costs of such a facility in calculating DSH limits. Under applicable law, a State has the flexibility to include a hospital-based RHC under the license of the hospital, to separately license a hospital-based RHC, or to issue a license which recognizes the dual nature of the clinic as both an outpatient hospital clinic and an RHC. Where a state has chosen to license these clinics as hospital outpatient departments, and they are certified as part of the hospital, the state would be able to include the uncompensated care costs related to RHC-provided hospital outpatient services in the calculation of a hospital's DSH payment limit. However, if the state has decided that its hospital-based RHCs are to be separately licensed, then the clinics' costs cannot be included in DSH calculations. 20 ... 21 Our understanding is that Louisiana law requires separate licensing of RHCs and does not provide for any other formal approval process to designate outpatient hospital facilities. Even if an RHC in Louisiana is based at the hospital and owned by the same overall institution, its uncompensated care costs cannot be recognized for DSH purposes because the services are not considered hospital services by Medicaid. The services provided by these entities can only be considered RHC services, and these clinics would receive cost-based reimbursement for their expenditures. This distinction is critical because, as stated above, only uncompensated costs associated with hospital services can be included in the Medicaid hospital specific DSH limit calculation. However, if Louisiana were to create a process to licence (sic) or formally approve hospital-based RHCs as hospital outpatient departments, then the clinics' uncompensated care costs associated with providing hospital outpatient services could be included in the DSH calculation for their affiliated hospitals. 22 Letter from Donna E. Shalala, Secretary of Health & Human Services, to Senator John B. Breaux 1-2 (July 30, 1999) (emphasis added). 23 The Louisiana legislature responded to Secretary Shalala's letter by immediately amending the state statute governing RHC licensing requirements. The amendment provides: 24 [A] rural health clinic that meets the definition of the Health Care Financing Administration as hospital-based and is operated by a rural hospital ... shall not be required to secure a separate license to receive certification by the Health Care Financing Administration and designated reimbursement under Medicaid and Medicare as long as the rural hospital meets state licensure requirements. Such hospital shall assure that the clinic meets all other requirements of [the rural health clinic licensure statute], as well as any pursuant rules and regulations.... 25 LA.REV.STAT. ANN. § 40:2197(G) (West 2001). 26 Having amended state law, the State submitted a state plan amendment ( SPA 01-03), to CMS for approval. SPA 01-03 implemented Secretary Shalala's guidance by providing that: Any uncompensated costs of providing health care services in a rural health clinic licensed as part of a small rural hospital ... shall be considered outpatient hospital services in the calculation of uncompensated costs. Letter from David W. Hood, Secretary, Louisiana Department of Health & Hospitals, to Calvin G. Cline, Associate Regional Administrator, Health Care Financing Administration Attachment 4 (May 15, 2001) (emphasis added). 27 CMS disapproved SPA 01-03 on August 15, 2001. CMS referred to regulations defining outpatient hospital services in order to conclude that the services at issue did not fall within the meaning of the term hospital services, as used in 42 U.S.C. § 1396r-4(g). See 42 C.F.R. 440.20(a). Despite the fact that state law no longer required separate licensing of hospital-based RHCs, the disapproval letter predicated its analysis on the seemingly inapposite observation that a state may not include costs or revenues in the DSH calculation which are attributable to services rendered in a separately licensed/certified entity, even if that entity is owned by the same institution. Letter from Thomas A. Scully, Administrator for Centers for Medicare & Medicaid Services, to David W. Hood, Secretary, Louisiana Department of Health & Hospitals (Aug. 15, 2001) (emphasis added). 28 The State requested reconsideration, and a hearing officer convened an administrative hearing on January 30, 2002. See 42 C.F.R. § 430.18 (providing for review of CMS disapprovals). The hearing officer on June 7, 2002, recommended that the disapproval be upheld. The Administrator on August 20, 2002, adopted the hearing officer's recommendation and upheld the disapproval. The Administrator stated that because hospital services and RHC services are defined separately under the Social Security Act and its implementing regulations, RHC services can never be considered outpatient hospital services. Louisiana State Plan Amendment 01-03, Doc. No.2002-03 (Centers of Medicare & Medicaid Services Aug. 19, 2002). The Administrator reached that conclusion despite the fact that oftentimes the clinics are licensed by the hospital and provide exactly the same types of services as the hospital's outpatient emergency room, and the costs of providing these services are borne by the hospitals. Louisiana timely appeals.