IM85-2 is based, in a general way, on these statutes and regulations. It addresses itself to the types of review that the statutes and regulations specify, such as admissions review, outlier review (review of hospital stays which are longer or more costly than usual), and DRG validation. The document, however, provides a detailed description of how the PRO program shall be implemented which goes far beyond anything found in any other legislative source. Throughout its sixty-seven page length, IM85-2 establishes elaborate procedures, with specific requirements which govern PRO review. The procedures in the document are unmistakably absent from the statutes and regulations, and it is apparent that the document is HHS's fundamental source for implementing PRO review functions. It does not merely interpret or elucidate HHS's official position regarding statutes. Nor do the new regulations contain equivalent procedures. The document fills a breach left by the statutes and regulations.
The entire document is riddled with specific procedures implementing the PRO program which are not directly derived from any explicit statutory source; one set of examples must suffice.
Both the statute and the regulations provide that the PRO must review hospital admissions and discharges for appropriateness and medical necessity. IM85-2 addresses admissions review at 18 et seq. It specifies that the PRO must review at least 5% of all hospital admissions selected at random. Id. at 20. HHS may approve alternate review schedules, but these must include at a minimum 5% of all admissions and 2.5% of those must be selected at random. Id.
If a "significant pattern" of unnecessary admissions is noted for any quarter, the PRO is to step up review to include 100% of all admissions in the "subcategory" where the pattern was found. A subcategory is identified through an in-depth analysis by the PRO of the admissions review data. But if no subcategory can be identified, then the PRO must review 100% of all admissions for the hospital. A significant pattern triggering this intensified review occurs when 2.5% or three cases, whichever is greater, of hospital admissions have been determined to be unnecessary. Id.
Besides this random review, the document requires PROs to review all cases where a patient is transferred from a PPS hospital to any other acute care facility for medical necessity, appropriateness of admission, the reason for the transfer, and DRG validation of the record of the receiving hospital. Id. at 22.
All transfers from an acute hospital to a psychiatric unit which is a distinct part of an acute hospital and which is excepted from PPS must be identified by the PRO. Precise review requirements depend on which psychiatric diagnosis is involved and different requirements are provided in detail. Some listed diagnoses must be reviewed in every case; others are to be reviewed on a 10% basis, selected at random. When a significant pattern of unnecessary transfer admissions to exempt psychiatric units is found, intensified review is specified. Id. at 23.
All transfers to distinct part rehabilitation and alcohol/drug treatment units in PPS exempt facilities, and all transfers to swing bed reimbursement must be identified and reviewed by the PRO. Specific review criteria are provided. Id. at 25.
PROs must identify and review all cases involving admissions to any acute hospital within seven calendar days of discharge from a PPS acute facility. The type of review the PRO must perform is explained in detail. The document provides a formula by which the PRO must determine when intensified review is required. Separate instructions are given for review of hospitals outside the PRO jurisdiction. Id. at 28.
All admissions for permanent pacemaker insertions and reinsertions must be identified and reviewed by the PRO. And the PRO must identify and review all other invasive procedures where a pattern of abuse previously has been identified. Id. at 37.
These requirements and others like them throughout the document are not mere statements of what HHS thinks the statutes and regulations require. These are precise obligations which, while consistent with broad statutory directives, are not interpretations of any explicit statutory provisions. They establish frequency and method of review. These are "nuts-and-bolts" procedures which govern the daily business of PROs in their relationships to hospitals. These are original policy determinations which will have concrete effects on hospitals which must complete and produce records for PRO review within arbitrary time limits.
The language as well as the substance of the document reveals that HHS intended it to establish specific obligations which would provide a basis for denial of Medicare payments. The cover page introduction to the document states that it makes,
revisions to the required review activities -- some of which increase the level of review, while others decrease workload.
This statement is followed by a list of substantive changes in the review requirements. This hardly demonstrates that HHS was revising its interpretation of already existing obligations; rather, HHS clearly employed IM85-2 to make policy and implement the program. Further, the document is composed primarily of imperative language, which reads as if HHS is creating original obligations, rather than reiterating requirements found elsewhere. Indeed, in discussing the obligations upon hospitals and PROs, the document almost never even refers to the statutes or regulations which HHS claims it interprets.
At issue here is not whether the procedures established in IM85-2 are valid exercises of HHS's rulemaking authority under the statutes; HHS is specifically authorized to make rules implementing the program. But it is apparent that HHS was exercising its rulemaking authority in issuing IM85-2 -- it imposed novel obligations implementing the PRO program. IM85-2 is a legislative rule. It is invalid for failure to comply with the notice and comment procedures of the A.P.A. Also, because the specific review requirements implied that IM85-2 is not covered in the new regulations, the complaint as to this document is not moot.
2. PSRO Transmittal No. 108
HHS argues the challenge to PSRO Transmittal No. 108 is moot because it has been superseded by a new document, PRO Manual IM85-3. IM85-3 incorporates all of PSRO Transmittal No. 108 by reference, and covers the same areas of the PRO program as Transmittal No. 108. IM85-3 also was not issued pursuant to A.P.A. notice and comment procedures, and so raises the same legal issue as its predecessor, namely, whether it contains legislative rules implementing the PRO program, which are subject to notice and comment procedures. We therefore construe the complaint as challenging IM85-3.
IM85-3 addresses the PRO responsibility to review a determination by a hospital that a patient is no longer covered by Medicare and may be billed for services. 42 C.F.R. § 412.42(c) requires that when a hospital makes this determination, it must provide that patient written notice that,
1) the hospital and attending physician or the PRO conclude the patient no longer requires in-patient care;