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U.S. Court in New York Says State Medicare Part B Audit Methodology Violates Medicare Act

 
 

HLD, v. 28, n. 7 (July 2000)

U.S. Court in New York Says State Medicare Part B Audit Methodology Violates Medicare Act

In an effort to help Medicaid patients who also qualify for Medicare ("dual-eligibles") but who cannot afford to purchase optional supplementary Medicare Part B insurance covering certain physician and ancillary services, Congress established a "buy-in" program whereby states could obtain Part B coverage for the dual-eligibles by agreeing to pay Medicare's cost sharing amounts on their behalf. Because Medicare Part B and Medicaid coverage overlap with respect to certain services, the New York Department of Social Services ("NY DSS") performs audits to reconcile the differences between the two systems and to recoup any Medicare Part B payments that are duplicative of Medicaid payments. See N.Y. Comp. Codes R. & Regs. tit. 10, � 86-2.17(m). In 1997, the U.S. District Court for the Southern District of New York held that NY DSS could recoup only Medicare payments that were duplicative of Medicaid payments and could not use an audit methodology to prevent a nursing facility from collecting 100% of its reasonable costs and services as calculated under Medicare. See Jewish Home and Hosp. for Aged v. Wing, 954 F. Supp. 96 (S.D.N.Y. 1997) ("Jewish Home I"). Following Jewish Home I, NY DSS implemented a new audit methodology whereby it would calculate a percentage representing the extent of Medicaid reimbursement for total nursing facility expenses for a given rate year. The NY DSS assumed that this percentage also represented the percentage of Medicare Part B costs that were already paid for by Medicaid and proposed to recoup the nursing facility's Medicare Part B income at the same percentage. Jewish Home and Hospital for Aged ("Jewish Home") sued NY DSS commissioner ("commissioner") in the same court to enforce the rights to Medicare reimbursement under Jewish Home I, alleging that the new audit methodology remained deficient under the Medicare Act. Jewish Home moved for summary judgment and requested both declaratory and injunctive relief.

The U.S. District Court for the Southern District of New York ruled that the new NY DSS audit methodology was not designed to and did not adequately measure the extent to which Medicare payments were duplicative of Medicaid payments and granted Jewish Home's motion for summary judgment and request for injunctive relief. The court noted that, although the new audit methodology assumed that the percentage of total nursing facility operating expenses paid by Medicaid also represented the percentage of Medicare expenses paid by Medicaid, a nursing facility's total operating expenses were only minimally related to the facility's total annual Medicare expenses. For example, the court noted that Medicare Part B does not cover the cost of nursing, but that the new audit methodology included Medicaid reimbursement of nursing expenses in its calculation of duplicative reimbursement.

The court rejected the commissioner's contention that no other feasible audit methodology was available to calculate duplicative reimbursement. The court, however, observed that nursing facilities submit a required annual line-item breakdown of costs, which includes discrete costs for Medicare Part B and Medicaid services. This breakdown, the court concluded, would allow the NY DSS to easily determine Medicaid reimbursement to assess duplicative reimbursement of these discrete costs. The court similarly noted that the NY DSS uniformly applied fixed annual rate adjustments to all direct costs reimbursed by Medicaid and, thus, could logically apply those adjustments to each individual cost component, including reimbursable Part B services.

Accordingly, the court declared that the new audit methodology violated Jewish Home I and the Medicare Act, granted Jewish Home's motion for summary judgment, and enjoined the commissioner from using the methodology in any pending or future Medicare Part B audits.

Jewish Home and Hosp. for Aged, 91 F. Supp. 2d 593 (S.D.N.Y. Mar. 30, 2000) (14 pages).

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