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NH Judge Rejects CMS FAQs Clarifying Medicaid DSH Payments

A New Hampshire judged ruled against CMS enforcement of two FAQs that would permit Medicare and private payments for dual-eligibles to be used to calculate Medicaid DSH payments.

NH district judge enjoined CMS from enforcing FAQ policies that would include Medicare and private payments for dual-eligibles in Medicaid DSH payments

Source: Thinkstock

- A district court in New Hampshire recently prohibited CMS from enforcing two Frequently Asked Questions (FAQs) that clarified how private payer and Medicare reimbursements paid to hospitals for dually-eligible Medicaid patients would be used to determine Medicaid Disproportionate Share Hospital (DSH) payments.

With the ruling, New Hampshire became the third state after Texas and Washington to successfully stop CMS from implementing the DSH payment methodology as detailed by the FAQs.

State Medicaid programs provide DSH payments to hospitals that serve greater numbers of low-income and uninsured individuals. The payments aim to help hospitals cover uncompensated care costs for treating these patient populations.

However, hospital-specific DSH payments cannot exceed the total costs of care for treating low-income and uninsured individuals, meaning any payments received for treating the patient populations must be deducted from net costs.

In January 2010, CMS released FAQs to further clarify its methodology for calculating hospital-specific DSH payment limits. The FAQs in question were numbers 33 and 34, which pertained to dually-eligible Medicaid patient costs.

FAQ 33 stated that “days, cost[s], and revenues associated with patients that are dually eligible for Medicaid and private insurance should be included in the calculation of the Medicaid inpatient utilization rate (MIUR) for the purposes of determining a hospital eligible to receive DSH payments.”

Therefore, all days, costs, and revenues stemming from Medicaid-eligible patients and those covered by private insurance should be used to determine hospital-specific DSH payment limits.

FAQ 34 clarified that hospital-specific DSH payments cannot be greater than the costs incurred by the hospital for providing services to Medicaid and uninsured patients during the year less the payments received for those services. The subtracted payments would include Medicare reimbursements received for treating dually-eligible Medicaid patients if hospitals include dually-eligible days to determine DSH qualification.

“In calculating the Medicare payment for service, the hospital would have to include the Medicare DSH adjustment and any other Medicare payments (including, but not limited to Medicare IME [indirect medical education] and GME [graduate medical education]) with respect to that service,” CMS continued. “This would include payments for Medicare allowable bad debt attributable to dual eligibles.”

The New Hampshire Hospital Association and several other industry groups filed a lawsuit against the Department of Health and Human Services (HHS) in January 2016. The plaintiffs argued that HHS, including CMS, cannot change the DSH payment methodology without a proper notice-and-comment rulemaking process.

The plaintiffs also claimed that their case had standing because hospitals would significantly suffer from FAQ implementation. Under the FAQ methodology, hospitals may have to repay past DSH overpayments and future payments would be reduced.

First, New Hampshire hospitals involved in the lawsuit reported that 2011 DSH payment audits revealed that they received DSH overpayments because of FAQs 33 and 34. The state’s health and human services department, therefore, attempted to recoup the overpayments.

However, the hospitals argued that the state should not be permitted to recoup DSH overpayments that stemmed from FAQ 33 and 34 policies since the methodology change did not follow a legal process.

In response, HHS stated that the state’s department oversees recoupment payment collections and the state department would continue to be responsible for recoupment regardless of the FAQs.

The district judge ruled in favor of the hospitals because the FAQs spurred the state’s health and human services department to collect DSH recoupment payments. Therefore, HHS was responsible for the DSH overpayment identifications and collections.

Second, the hospitals stated that the FAQs would result in lower prospective DSH payments, which would strain hospital revenue cycles. Since Medicare and private payer payments for dually-eligible Medicaid patients would be used to determine hospital-specific DSH limits, the limits would be lower since total costs of care would less additional payments.

HHS countered that a 2014 global settlement agreement between New Hampshire hospitals and the state government changed DSH payment provisions starting in 2016. Since the voluntary agreement established a new formula for determining each hospital’s DSH funding levels, the plaintiffs cannot argue that the FAQ policies injured them.

The district judge also favored the hospitals on this count because the FAQs apply to New Hampshire hospitals regardless of the settlement agreement.

The judge concluded that CMS is “permanently enjoined from enforcing FAQs 33 and 34” and “shall follow the policies and procedures in effect before defendants issued FAQs 33 and 34, until and unless those policies and procedures are replaced by an enforceable and properly promulgated regulation.”

The New Hampshire hospitals will now join their peers in Washington and Texas in being exempt from the certain FAQ DSH payment policies.

Texas Children’s and Seattle Children’s Hospitals filed a similar lawsuit against HHS in 2014. Like the New Hampshire case, the judge prohibited CMS from enforcing FAQ 33 and collecting federal DSH overpayments stemming from noncompliance with the FAQ.

The Texas and Washington hospitals, however, did not question FAQ 34, making New Hampshire the first state to successfully challenge the Medicaid DSH payment policy.

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