A Potential Gamechanger For Appeals: Sixth Circuit Revives Medicare Payment Safe Harbor

The bottom line

Under new US Court of Appeals for the Sixth Circuit precedent, if a Medicare provider reasonably interprets Medicare’s coverage requirements as covering an item or service and submits a claim for payment, the provider is not required to refund the payment even if a Medicare contractor subsequently deems the item or service noncovered. This decision breathes new life into an important statutory safe harbor and fundamentally restructures how Medicare coverage appeals should be approached.

In depth

Background: Medicare coverage and the safe harbor

Under federal law, Medicare generally does not pay for certain items and services that are not reasonable and necessary for the diagnosis or treatment of an illness or injury. For example, in the case of hospice care, services must be reasonable and necessary for the palliation or management of terminal illness to be paid by Medicare.

However, even if Medicare determines that a service is not reasonable and necessary and payment may not be made, Medicare will still make payment if the provider “did not know, and could not reasonably have been expected to know, that payment would not be made for such items or services.” 42 U.S.C. § 1395pp.

In practice, Medicare contractors and administrative law judges (ALJs) have historically interpreted this safe harbor to mean only that as long as a reasonable and necessary determination was made based on some coverage requirement, the provider was reasonably expected to have known that payment would not be made for the item or service based on that coverage requirement.

For example, in the case of hospice care, the coverage requirement is that a patient be considered terminally ill, which is defined as having a life expectancy of six months or less. But as the Sixth Circuit acknowledged, “predicting life expectancy is not an exact science” – some patients live well beyond six months even when it was reasonable at the time of service to believe that the patient would live for six months or less.

Contractors often rely on local coverage determinations (LCDs) to evaluate whether services are “reasonable and necessary.” The LCD before the Sixth Circuit, LCD 33393, identifies clinical diagnoses, signs, symptoms, and other characteristics that may support a terminal prognosis, but it does not dictate a single coverage methodology for every patient.

The dispute

In Home Health, a Medicare-certified hospice provider, faced a post-payment review that resulted in nearly $1 million in alleged overpayments for noncovered hospice services (services deemed not reasonable and necessary). After In Home Health pursued appeals, an ALJ upheld denials for claims involving four patients. The ALJ also held that In Home Health could not invoke the safe harbor because, as a Medicare provider, it was “expected to know” the applicable Centers for Medicare & Medicaid Services notices and standards. The district court affirmed the ALJ’s finding.

Rejecting the historic approach

The ALJ reasoned that because In Home Health was a Medicare provider, it was “expected to know” the applicable guidance and, as a result, whether its claims would be covered under that guidance. The Sixth Circuit rejected this reasoning, explaining that the reasoning would effectively eliminate the safe harbor. The Sixth Circuit remarked that under the ALJ’s interpretation, all providers are imputed with knowledge of the relevant notices and standards, and that knowledge alone is sufficient to say they should have known Medicare excluded their claims.

The Sixth Circuit found this to be an absurd end, in that no provider could ever qualify for the safe harbor, irrespective of how vague or ambiguous the Medicare notice and standards were as applied to their claims, or how reasonable the providers’ view was that Medicare would cover them. Instead, the court described the safe harbor as “a cost-shifting mechanism, limiting a provider’s liability when it acted reasonably and in good faith.”

The Sixth Circuit focused on the hospice coverage requirements in LCD 33393, noting that the ALJ treated the LCD as “clear” notice that Medicare would deny the claims, when in fact, it is a multifactor, fact-intensive standard. The Sixth Circuit reasoned that the LCD allows for multiple reasonable applications in some instances. As a result, the Sixth Circuit opined that the ALJ should have asked whether the provider adopted a reasonable interpretation of the LCD as applied to the four patients’ denied claims to determine whether their payments were protected by the safe harbor.

Because LCD 33393 did not clearly indicate that the hospice services were noncovered, the Sixth Circuit remanded the case to the ALJ to determine whether in good faith the provider could reasonably have believed that the patients were terminally ill as defined by the LCD. If so, the payments would qualify for the safe harbor and would not require repayment even though they were deemed noncovered.

The two-part safe harbor test

In effect, the Sixth Circuit articulated a framework for applying the safe harbor:

• Step 1 – Was there “clear notice” of noncoverage? A provider cannot invoke the safe harbor if it was on clear notice that Medicare would not cover the claim. Clear notice may arise from Medicare notices, Federal Register publications, or the claim’s inconsistency with accepted standards of practice.
• Step 2 – Was the provider’s interpretation reasonable? Even absent clear notice, the provider must have reasonably interpreted the applicable guidance as covering the claim. As the court explained: “the statute – which we must follow – turns on reasonableness, not on clear notice alone.” This case is consistent with the US Supreme Court’s Loper Bright decision that shifted the proper interpretation of statutes away from agencies, and its SuperValu decision that focused the intent inquiry under the False Claims Act on what the provider believed the rule to be at the time the claim was submitted.

The court emphasized that the reasonableness inquiry must be tied to the particular claims at issue. The question is not whether the provider knew guidance existed, but whether the provider reasonably could have interpreted that guidance as covering the specific claim.

The safe harbor’s limits

In Home Health does not provide a defense for every overpayment. The safe harbor remains unavailable where:

• Medicare clearly indicated services were not covered.
• The provider’s interpretation was not objectively reasonable.

For providers operating under fact-intensive or ambiguous coverage standards, the decision underscores the importance of maintaining contemporaneous documentation and preserving evidence demonstrating why coverage determinations were reasonable based on the information available at the time.

What this means for you

Although this case arose from hospice claims, the court’s interpretation of § 1395pp has broad implications for all Medicare providers and suppliers facing post-payment reviews. The decision establishes that an adverse coverage determination does not end the analysis. Where a provider can establish that it reasonably interpreted Medicare guidance as supporting payment, the safe harbor may provide an independent basis for avoiding repayment, even if the provider loses on the underlying coverage question.

Providers facing Medicare audits, overpayment determinations, or recoupment actions should carefully evaluate both the underlying coverage issues and whether § 1395pp may provide an independent basis for relief. Providers conducting self-audits for potential overpayments also should evaluate with counsel how this statute applies to the facts of a particular situation.

Ashley Anumba, a law clerk in the New York office, also contributed to this article.