U.S. Rep. Derek Kilmer, left, and Olympic Medical Center CEO Eric Lewis walk through OMC’s Sequim Campus in May. (Jesse Major/Peninsula Daily News)

U.S. Rep. Derek Kilmer, left, and Olympic Medical Center CEO Eric Lewis walk through OMC’s Sequim Campus in May. (Jesse Major/Peninsula Daily News)

Federal judge rules in favor of Olympic Medical Center over reimbursement rule

Centers for Medicare and Medicaid move would have cost hospital $47 million

PORT ANGELES — A federal judge ruled this week in favor of Olympic Medical Center and other hospitals across the country that the Trump Administration did not have the authority to implement a rule that would have cost the Clallam County hospital more than $47 million over the next decade.

U.S. District Judge Rosemary M. Collyer filed her memorandum opinion in U.S. District Court for the District of Columbia on Tuesday, vacating portions of the Centers for Medicare and Medicaid Services (CMS) rule that led to Olympic Medical Center delaying construction at its Sequim campus and slashing its budget.

“It’s just outstanding news for our community and Olympic Medical Center’s patients and we are thrilled with the court’s decision that came out [Tuesday],” said OMC CEO Eric Lewis.

He said he has not yet discussed the decision with the hospital’s board of commissioners, but said staff are working on the 2020 operating budget and capital budget currently. The cut started at 30 percent this year, but was poised to increase to 60 percent in 2020.

“I think we will have to be conservative until we know exactly how and when the reimbursement is going to change,” he said. “How we do the 2020 budget is to be determined.”

CMS implemented the “site neutrality” rule in November, a move that had cut Medicare reimbursements by 60 percent at clinics that are more than 250 yards away from a hospital’s main campus. The ruling does not affect Jefferson Healthcare or Forks Community Hospital.

“CMS believes it is paying millions of taxpayer dollars for patient services in hospital outpatient departments that could be provided at less expense in physician offices. CMS May be correct,” Collyer wrote in her conclusion.

“But CMS was not authorized to ignore the statutory process for setting payment rates in the Outpatient Prospective Payment System and to lower payments only for certain services performed by certain providers.”

Olympic Medical Center became a named plaintiff in the American Hospital Association lawsuit in December after 1,780 Clallam County residents wrote to the Centers for Medicare and Medicaid Services to argue against the 60 percent cuts to Medicare reimbursements at off-site clinics.

Future uncertain

While the court ruled in favor of Olympic Medical Center, Chief Human Resources Officer and General Counsel Jennifer Burkhardt said the future is uncertain.

The judge wrote that while vacating the rule, she would not require CMS to issue payments that were improperly withheld, citing case law that the rule must be remanded to the agency for further action. A joint-status report is due by Oct. 1.

Burkhardt said the hospital’s position is that CMS should pay back the approximately $1.7 million it withheld from OMC and that the government should not be permitted to make any further cuts.

She feels the court’s opinion positions the hospitals for a good outcome and she is confident the hospitals will be successful if the government appeals.

“The Court finds that CMS exceeded its statutory authority when it cut the payment rate for clinic services at off-campus provider-based clinics,” Collyer wrote.

“The Court will grant [the hospitals’] motions, deny CMS’ cross-motion, vacate the rule, and remand.”

Burkhardt believes Olympic Medical Center’s story and that of the 1,780 Clallam County residents who commented on the rule as it was proposed resonated with the court.

While the first foot-note in the 28-page opinion does not mention OMC’s Sequim campus by name, it says “an off-campus provider-based department may be located away from the main hospital … because the hospital wants to have an affiliated facility in a different (oftentimes underserved) neighborhood.”

“The footnote gives us every reason to believe the court recognized the circumstances in Sequim,” Burkhardt said.

Clallam County comments

The opinion also mentions that CMS received nearly 3,000 comments, many of which argued that CMS lacked statuary authority to implement the rule, but the government “nonetheless” decided to do so.

Collyer wrote that Congress had already settled the argument on “site neutrality” when it adopted the Bipartisan Budget Act of 2015.

That law limited reimbursements to future off-site clinics, but grandfathered in clinics like OMC’s Sequim and Port Angeles clinics.

The court recognized that CMS has been given the right to “develop a method for controlling the unnecessary increases in volume of services” under Medicare, but wrote that the “method” used was not allowed.

The judge wrote that the “method” is not “a price-setting tool, and the government’s effort to wield it in such a manner is manifestly inconsistent with the statutory scheme.”

The American Hospital Association and Association of American Medical Colleges released a statement Tuesday saying they are pleased with the decision.

“The ruling, which will allow hospitals to maintain access to important services for patients and communities, affirmed that the cuts directly undercut the clear intent of Congress to protect hospital outpatient departments because of the many real and crucial differences between them and other sites of care,” the AHA and AAMC said in a joint statement.

“Now that the court has ruled, it is up to the agency to put forth remedies for impacted hospitals and the patients they serve.”

Of Olympic Medical Center’s patients, 83 percent rely on government-paid insurance with 58.63 percent of all patients relying on Medicare, the lawsuit said.

The hospital provides outpatient services at eight off-site clinics that Congress agreed should receive higher Medicare reimbursement rates, according to the lawsuit.

U.S. Rep. Derek Kilmer, D-Gig Harbor, visited Olympic Medical Center in May to learn about how the cuts had halted the hospital’s plans to expand on the Sequim campus.

Kilmer has called the rule “outrageous” and has promoted the Protecting Local Access to Care for Everyone Act to fight the policy.

“Today’s ruling is great news for hospitals seeking to provide affordable care in rural communities, especially in areas where we already face a shortage of qualified care providers,” Kilmer said in a statement released Tuesday night.

“Hospitals should be encouraged to bring their services closer to the people they care for, not be penalized for it. That’s why earlier this year, I introduced bipartisan legislation to ensure that regional hospitals, like Olympic Medical Center, can continue to make health care more accessible to more people. Today’s decision will help keep access to care in rural regions and keep jobs in rural communities.”


Reporter Jesse Major can be reached at 360-452-2345, ext. 56250, or at [email protected].

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