Eight Maine hospitals have sued U.S. Department of Health and Human Services Secretary Kathleen Sebelius over the government’s handling of millions of dollars in payments for some low-income and elderly patients.

In the suit filed Friday in U.S. District Court in Portland, the hospitals argue that Sebelius arbitrarily and improperly ruled against them in a dispute over the payments.

The eight hospitals are Maine Medical Center in Portland, Central Maine Medical Center in Lewiston, Mid Coast Hospital in Brunswick, Eastern Maine Medical Center in Bangor, Mercy Hospital in Portland, Northern Maine Medical Center in Fort Kent, Southern Maine Medical Center in Biddeford and MaineGeneral Medical Center in Augusta.

At issue are special payments the federal government makes through Medicare to hospitals that treat a disproportionate share of poor patients who can’t afford care. For more than 20 years, hospitals have relied on the special subsidies to help defray the costs of those patients’ unpaid medical bills.

The federal Centers for Medicare and Medicaid Services, a division of the U.S. Department of Health and Human Services, calculates the payments based on the prevalence of patients who qualified for Medicaid, the joint federal-state health program for the poor, and for Medicare’s Supplemental Security Income benefit for the poor and disabled.

In 1997, the centers added to the calculation inpatient stays by certain “dual eligible” patients who qualify for both Medicare and Medicaid, according to the lawsuit. In general, the greater the number of patients eligible for Medicaid that a hospital includes, the larger its special Medicare payment.

A private organization that contracts with Medicare to manage reimbursements instructed the eight hospitals to claim those new patient visits, according to the lawsuit. The hospitals trusted that advice and “made significant economic and operational decisions” based on it, the lawsuit states.

The private contractor later changed its position on the dual eligible patients. In May 2005, the contractor reduced some of the previous subsidies allotted to the eight hospitals and sought repayment of the difference, according to the lawsuit.

Together, the eight hospitals repaid tens of millions of dollars, according to their attorney, William Stiles of Verrill Dana in Portland.

The hospitals appealed to an independent Medicare review board.

In a March 2013 decision, the review board disagreed that the payment calculation should include the dual eligible patients and rejected the hospitals’ argument that they shouldn’t be held responsible for any overpayments. But it ruled in favor of the hospitals in finding they weren’t properly notified that special payments they already had received would be reviewed and reduced, according to the lawsuit.

The review board found that the hospitals should be paid back 80 percent to 90 percent of the funds, Stiles said.

Sebelius then weighed in on the review board’s decision, affirming where it disagreed with the hospitals and reversing its decision about the improper notification.

Now the hospitals are asking a federal judge to review Sebelius’ decision and find that the hospitals were entitled to either receive the money in the first place or keep it.

The eight hospitals allege that Sebelius’ decision was “arbitrary, capricious” and “an abuse of discretion,” according to the lawsuit. Her decision also was unsupported by evidence and wasn’t issued within a required 60-day time period, the suit states.

The hospitals have asked the court to vacate Sebelius’ decision, remand the appeal and direct Sebelius to see to it that the hospitals are repaid the funds that were improperly recouped from them.

The Centers for Medicare and Medicaid Services declined to comment on the suit.

The suit is unrelated to the $484 million owed to Maine’s hospitals under the Medicaid program dating back to 2009.

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