Kentucky Court of Appeals Offers Hospitals Relief from Overreaching Utilization Review Recoupments

Providers subject to utilization review recoupments in Texas should review Kentucky v. Owensboro Med. Health Sys., Inc., No. 2015-CA-000229-MR (Ky. Ct. App. Aug. 12, 2016).  This case addresses the question of whether a State Medicaid Agency (Kentucky) can retroactively recoup the entire amount paid for an inpatient admission.

In Owensboro, the inpatient admission was determined to be not medically necessary, but the services provided were medically necessary and provided in the appropriate location (a hospital emergency room).

The Court held that the improper admission of a patient as an inpatient did not mean that the services provided were medically unnecessary, as the term is defined for the purposes of Medicaid reimbursement.  Importantly, the Court noted that “medically necessary outpatient care is not to be treated the same as medically unnecessary inpatient care,” as only the inpatient admission was unnecessary.  The Court further went on to state that having the provider “absorb the costs of medically necessary treatment it provided to a Medicaid beneficiary simply because the services were provided on an inpatient basis rather than an outpatient basis” was inappropriate.

While the case is not binding on Texas courts and the Commonwealth of Kentucky may still seek further review in the Kentucky Supreme Court, it does provide hospitals with some hope in these situations, as Courts may be increasingly willing to review Medicaid agency practices and procedures for their practical implications, including Medicaid’s refusal to reimburse a hospital for otherwise medically appropriate and necessary treatment.

(Given that the deadline to seek further review in the Supreme Court of Kentucky has not run, there may be updates to this case forthcoming.)