Commonwealth of Ky., Cabinet for Health and Family Servs. v. Owensboro Med. Health Sys., Inc. — Aug. 2016 (Summary)

MEDICAID

Commonwealth of Ky., Cabinet for Health and Family Servs. v. Owensboro Med. Health Sys., Inc.
No. 2015-CA-000229-MR (Ky. Ct. App. Aug. 12, 2016)

The Court of Appeals of Kentucky affirmed a lower court’s ruling to reverse and remand the Cabinet Secretary of Kentucky’s Health and Family Services’ final order denying a health system’s reimbursement for Medicaid services.

The health system submitted a claim for payment to the Medicaid program after a treating physician admitted a patient on an inpatient basis for testing and treatment. Over a year later, the health system was notified that reimbursement for the patient was being retroactively denied because the Cabinet’s medical necessity review determined that the patient could have been treated on an outpatient basis. After several appeals, the Cabinet Secretary issued a final order affirming the decision to deny payment for the inpatient admission, which the health system appealed once more.  A trial court remanded the case back to the Secretary for a determination of whether the services provided might be reimbursable as outpatient care, which resulted in this action.

The court rejected the Cabinet’s argument that because Kentucky chose not to cover or reimburse providers for days on which an inappropriate level of care was provided, they had no authority to pay for services provided at an inappropriate level of care. The court reasoned that medically necessary outpatient care was not to be treated the same as medically unnecessary inpatient care, and it would be inappropriate to force the health system to absorb the cost of the medically necessary treatment it provided to a Medicaid beneficiary simply because the services were provided on an inpatient basis rather than an outpatient basis. Additionally, the court rationalized that an inappropriate level of care, in the appropriate context, referred to services provided on an inpatient basis that should have been provided by a skilled nursing or intermediate care facility, not services that should have been provided on an outpatient basis. Thus, based on this reasoning, the court affirmed the lower court’s ruling.