Federal appeals court removes barrier for dual hospital classification

It may now be easier for hospitals to improve outcomes at lower costs by claiming both "urban" and "rural" status, thanks to a ruling by the 2nd U.S. Circuit Court of Appeals in New York.

The Center for Medicare & Medicaid Services allows hospitals to classify themselves as "rural" (which providers typically leverage for discounts on drug purchases) while also classifying themselves as "urban," (an important factor to attract qualified clinicians), according to Reuters.

However, the article notes that the Department of Health and Human Services' "reclassification rule," implemented in 2000, bars urban providers that use the "rural" designation from also being classified as urban without first cancelling their rural status for the years in which they wish to be reclassified.

The plaintiff in the case, Lawrence + Memorial Hospital in New London, Connecticut, argued the regulation forced it to overpay for necessary drugs. The decision comes just over a year after a judge dismissed the challenge in December 2014, arguing the rule was necessary to clarify ambiguity within Medicare regulations, according to the article.

Judge Jed Rakoff, however, ruled the statute was clear without the 2000 rule. Far from encouraging hospitals to reclassify inappropriately, it "simply increases the number of situations in which hospitals can be treated as rural for some purposes and urban for others, but there is nothing 'absurd' about such a measured approach," he wrote in his ruling. "An agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate."

Joseph Glazer, who represented the hospital in the suit, praised the decision and said the dual classification option will save millions of dollars through a combination of savings and increased Medicare reimbursements.

The ruling comes as good news for hospitals on drug prices after widespread consternation last October, when a District of Columbia judge ruled drug companies are under no obligation to provide "orphan" drugs under the 340B discount program, FierceHealthFinance previously reported.

To learn more:
- read the ruling
- here's the article

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