The CMS deal is one of the largest government settlements paid to a healthcare provider. Source: East Carolina University

The Centers for Medicare & Medicaid Services (CMS) has agreed to pay 667 hospitals $666 million to settle a reimbursement policy lawsuit that began in the 1980s.

The deal, resulting from negotiations under way since April 2006, is among the largest government settlements paid to healthcare providers, according to the Wall Street Journal (WSJ).

The WSJ reported that in 1986, the Reagan administration changed reimbursement rules to exclude certain low-income patients from the calculation that determined whether hospitals were entitled to larger compensation for serving disproportionate numbers of underserved. Several hospitals sued to amend the rule, and were victorious in 1997.

Baystate Health in Springfield, Mass., then sued CMS and the Department of Health and Human Services in 2002, seeking back payments for treatment administered in the early 1990s to patients covered by Medicare, the federal health insurance program for elderly and disabled patients, the WSJ reported. The number of plaintiffs grew to 667 hospitals, the majority of them nonprofits that mostly treated the underserved.

A federal judge in Washington, D.C., ruled in favor of the hospitals in 2004. The government appealed and lost in 2005, and in April 2006 the Supreme Court rejected its request for a hearing. In filing its appeal, the government estimated its exposure to be $2.8 billion, Chris Keough, a partner at Vinson & Elkins and lead counsel for 130 of the hospitals, told the WSJ.