In recent years, a number of hospitals have run into financial headaches over Medicare audit proceedings that sometimes happen years after a patient’s treatment.

Now, the association that represents thousands of those hospitals is suing in an effort to get Medicare to pay. Here’s how they got here:

The circumstances: In an effort to cut waste, the Recovery Audit Contractors audit program, established under the Bush administration in 2003, has forced hospitals to repay Medicare for inpatient services that the auditors later determined should have been outpatient services — sometimes years after the fact. The agency has collected $1.86 billion in such payments since 2003.

The lawsuit: The American Hospital Association (AHA) — along with four regional groups from Michigan, Missouri, and Pennsylvania — has sued the Department of Health and Human Services, stating that auditors agreed that the medical services provided were necessary but “disagreed only with the setting in which the care was provided.” AHA wants the government to pay the affected hospitals back in full. “Prolonged uncertainty about whether Medicare will ultimately pay for the services previously provided wreaks havoc on hospital financial planning, including the ability to assess capital and staffing needs. Both the uncertainty and the actual loss of Medicare funds ultimately may adversely affect patient care,” according to the lawsuit [PDF].

The claim: “What the federal government is doing is wrong, unfair, and a clear violation of federal law,” AHA President and CEO Rich Umbdenstock said in a statement [PDF]. “Doctors and nurses provide the best care possible using their medical judgment and training. Allowing government auditors to second-guess these difficult medical decisions about where to best treat a patient years later based on a cold record and then refuse to pay for that care is indefensible.”

In addition to seeking reimbursement from Medicare, the association is asking the court to throw out the audit policy. The case was filed in the U.S. District Court for the District of Columbia.

(TMG archive photo)