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Hospitals Settle DSH Cases for $667 Million

 

Email Alert

March 14, 2008
By James F. Flynn and Kenneth R. Marcus*

On March 13, 2008, the Secretary of Health and Human Services and the Plaintiff hospitals in the consolidated case In Re Medicare Litigation, (D.DC. 03-0090 (PLF)) entered into a Settlement Agreement providing for a $667 Million global settlement of disproportionate share hospital (DSH) adjustment claims of 667 hospitals and upwards of 2400 fiscal years. The Settlement Agreement, believed to be the largest of its kind, is the culmination of nearly two years of negotiations between representatives of the Secretary and the Plaintiffs, which began in April of 2006 when the United States Supreme Court denied the Secretary's petition for certiorari to review Baystate Health System v Leavitt. The settlement provided for a global, lump sum payment to settle all but three claims. The Plaintiffs determined the allocation of the settlement without the involvement of the Secretary of HHS.

The foundation for the litigation, and the ultimate settlement, was the 2001 landmark decision in Monmouth Medical Center v. Thompson, 257 F.3d 807 (D.C. Cir. 2001). In that case, the plaintiff hospitals claimed that the fiscal intermediary had a duty, under the Medicare reopening regulation 42 C.F.R. 405.1885(b), to reopen cost reports dated between 2/27/94 and 2/27/97 to apply HCFA Ruling 97-2. HCFA Ruling 97-2 reflected the acquiescence of the Secretary of HHS to the decisions of four United States Courts of Appeals that in computing the DSH adjustment, Medicaid eligible paid and unpaid days were required to be included. HCFA Ruling 97-2, however, provided for prospective relief, and specifically prohibited the intermediary from reopening cost reports to apply the ruling. The hospitals in Monmouth had requested reopenings, which were denied. Significantly, the decision in Monmouth was based on the Federal Mandamus Act, not the Medicare Act.

Thus, In Re Medicare Litigation represented the logical next step, with the Plaintiffs arguing that, under Monmouth, they were entitled to mandamus relief because the Intermediary was under the duty imposed by the Monmouth decision without regard to whether they had requested reopenings. The United States Court of Appeals for the District of Columbia ruled in favor of the Baystate Health System plaintiffs.

The management of the case was relatively unique. By order of the court in light of the several hundred complaints filed in late 2002 and early 2003, four law firms were appointed "Plaintiffs Coordinating Counsel," and were charged with the task of managing the several hundred cases. It was decided that the Baystate Health System case presented a "core issue," and that case served as the lead case, with the remaining cases consolidated and held in abeyance. Although the consolidated cases remained in abeyance, the Plaintiffs Coordinating Counsel, who were ultimately joined by a number of other law firms, managed the many facets of the litigation for a period of nearly five years.

The settlement is also noteworthy because it involved a cooperative effort among fourteen law firms, several leading consulting firms and attorneys for the Secretary of HHS and the Department of Justice.

*We would like to thank James F. Flynn, Esq. (Bricker & Eckler LLP, Columbus, OH) and Kenneth R. Marcus, Esq. (Honigman Miller Schwartz & Cohn LLP, Detroit, MI) for providing this email alert.

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