In a recent decision, the D.C. District Court determined that a Medicare contractor erroneously computed the nursing and allied health pass-through reimbursement in violation of the regulation at 42 C.F.R 413.85(d)(2)(i). The regulation requires that the net cost of approved educational activities be determined by deducting the revenues that a provider receives from tuition and student fees from the provider’s total allowable educational costs that are directly related to approved educational activities. This decision, which was not appealed by the Centers for Medicare & Medicaid Services (“CMS”), is the latest in which the federal courts have reined in CMS for a reimbursement decision in conflict with its own regulations.
The hospitals challenged CMS Transmittal 12, issued on November 17, 2017, which directed hospitals to deduct tuition and fees before the allocation of the Administrative and General (“A&G”) costs. The D.C. District Court concluded that the Transmittal’s instructions are invalid, and A&G costs are part of the “total allowable educational costs” under 42 C.F.R. § 413.85(d)(2)(i). Therefore, the cost report may only deduct tuition revenue after computing its “total allowable educational costs” inclusive of its A&G costs, prior to that tuition offset.
Because this error is incorporated into the Medicare cost report, providers should be aware of the decision in this case when preparing any protests on their cost reports. The correct manner of calculating nursing and allied health pass-through costs is as follows:
Net Costs = [Direct Costs + Other Costs (A&G)] – Tuition Revenue
Practical Takeaways
- For hospitals with nursing and allied health education programs that charge tuition, consider protesting this issue on affected cost reports.
- Consider challenging all policies implemented via Transmittals that conflict with regulations.
If you have any questions on this topic or would like further assistance, please contact:
- Sue Andersen at sandersen@hallrender.com or (301) 785-3996;
- Elizabeth Elias at eelias@hallrender.com or (317) 977-1468; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot give legal advice outside of an attorney-client relationship.
