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The American Hospital Association and four delivery systems have sued the Department of Health and Human Services, alleging the Medicare program is refusing to pay for hospital care provided to patients “even though all agree that the care provided was reasonable and medically necessary as the Medicare Act requires,” according to the lawsuit.

“The government’s refusal to pay for this care is harming hospitals and patients,” the suit contends. “More pertinent here, it violates the Medicare Act and is otherwise unlawful.”

Along with AHA, other plaintiffs include Lancaster (Pa.) General Hospital, Missouri Baptist Sullivan Hospital in Sullivan, Munson Medical Center in Traverse City, Mich., and Trinity Health Corp. in Livonia, Mich. The suit was filed Nov. 1 in U.S. District Court for the District of Columbia.

The hospitals contend that HHS is refusing to reimburse hospitals when in hindsight it determines the care could have been provided in an outpatient facility or department rather than the inpatient part of the hospital. The hospitals argue that physicians are the ones who decide whether to admit a patient to the hospital, and complications such as age and chronic conditions play a factor in the decision.

“When Recovery Audit Contractors decide that care could have been provided in an outpatient facility or department instead of an inpatient setting, hospitals must return the funding they received years earlier,” according to an AHA statement. “They then get little or often no reimbursement for the ‘outpatient’ services they provided even though there is no dispute whatsoever that the care received was reasonable and necessary. The only dispute is whether it could have been delivered in an outpatient department instead of the hospital.”

Plaintiffs are asking for the nonpayment policy to be overruled and that hospitals be reimbursed for denied payments in the past. HHS has not yet responded to the the lawsuit, available here.