Health Law Daily Wrap Up, ADMINISTRATION OF MEDICARE/MEDICAID PROGRAMS—PRRB DECISIONS: Provider’s appeal remanded for MAC to correctly calculate VDA, (Aug 8, 2025)

By Jody Coultas, J.D.

The Board determined that the MAC improperly calculated the VDA payment for fiscal year 2014 for a sole community hospital and remanded for recalculation.

The Provider Reimbursement Review Board (PRRB) determined that National Government Services, Inc., a Medicare Administrative Contractor (MAC), improperly calculated the volume decrease adjustment (VDA) payment for Carthage Area Hospital for fiscal year 2014. The Board remanded the appeal to the MAC to recalculate the hospital’s VDA consistent with the methodology outlined in the Provider Reimbursement Manual (Carthage Area Hospital, PRRB No. 2025-D34, Case No. 18-0494 (June 25, 2025)).

Background. Carthage, an acute care hospital located in Carthage, New York, was designated as a Sole Community Hospital (SCH). The Medicare contractor assigned to Carthage for this appeal was National Government Services, Inc. In 2016, Carthage filed a request for a VDA payment of $898,390 for FY 2014 to compensate it for a decrease in inpatient discharges during FY 2014. The MAC determined the correct payment amount to be $723,647. Carthage appealed.

Diagnosis-related group payments are subject to certain adjustments. One such adjustment referred to as a VDA payment and it is available to SCHs if, due to circumstances beyond their control, they incur a decrease of more than five percent (5%) in their total number of inpatient cases from one cost reporting period to the next.

Decision. It was undisputed that Carthage experienced a decrease in discharges greater than 5 percent from FY 2013 to FY 2014 due to circumstances beyond its control and that, as a result, Carthage was eligible to have a VDA calculation performed for FY 2014. In Lake Region Healthcare Corp. v. Becerra, the federal district court in the District of Columbia held that the longstanding CMS fixed-total method approach to calculating VDAs for cost reporting periods before FY 2018 violated 42 U.S.C. § 1395ww(d)(5) (see CMS’s VDA calculation method did not exceed its interpretive discretion, Oct. 19, 2022). Under the fixed-total method, the VDA was the difference between a hospital’s fixed costs and total DRG payments. Thus, the Board found that the “fixed-fixed” methodology was proper for the calculation of the FY 2014 VDA payment for Carthage. The Board remanded the appeal to the MAC with instructions to calculate Carthage’s FY 2014 VDA consistent with Lake Region and the methodology outlined in PRM-1, § 2810.1.D.2.b (Rev. 479).

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