CMS Appeals Ruling on Changing Medicaid DSH Payment Rules in MO

April 17, 2018 - CMS is appealing a recent federal court decision that barred the agency from enforcing a 2017 final rule and two sub-regulatory articles from 2010 in Missouri. The federal agency stated that rule and articles clarified the formula for calculating hospital-specific limits for Medicare Disproportionate Share Hospital (DSH) payments.

In February 2018, District Court Judge Brian Wimes sided with the Missouri Hospital Association, who filed the original lawsuit. He ruled that sub-regulatory guidance and a final rule that would include third-party payments when determining the Medicaid shortfall component of the hospital-specific limit for Medicaid DSH payments was not consistent with the Medicaid Act.

Medicaid DSH payments are crucial for hospitals treating a greater proportion of Medicaid patients. Medicaid reimbursement is significantly lower than actual costs. Most recent data from the American Hospital Association showed that Medicaid reimbursement fell $20 billion short of actual hospital costs for treating beneficiaries in 2016.  

The Medicaid DSH payments support hospitals facing this shortfall and those that treat a large number of uninsured individuals.

But the recently enforced rule and two FAQ answers altered how CMS determines a hospital’s payments, according to the Missouri Hospital Association. The final rule and guidance articles also violated proper rulemaking processes.

In addition, the policy would harm hospitals, the association added. By including the third-party payments, hospitals would receive lower Medicaid DSH payments. The Missouri Hospital Association told the federal court that the new formula for calculating the hospital-specific limit for Medicaid DSH payments would result in a member organization repaying $5.9 million for just the 2011 fiscal year.

In response, CMS stated that it released the final rule and guidance articles to merely clarify an existing interpretation.

Judge Wimes agreed with the hospital association, concluding that the Medicaid Act is “unambiguous that the calculation of a DSH hospital’s HSL [hospital-specific limit] does not involve consideration of private insurance or Medicare payments, and a DSH hospital’s total uncompensated costs of care for calculating the HSL is reduced only by the total of other Medicaid program payments.”

Recently, another US District Judge in Washington DC came to the same conclusion. In March 2018, a federal court prohibited CMS from enforcing the 2017 final rule nationwide. The federal agency overstepped its statutory authority under the Medicaid Act by releasing a final rule that altered the formula for determining Medicaid DSH payments, the judge ruled.

While CMS goes back to court for the Missouri case, the federal agency has until May 7, 2018, to file an appeal in the Washington DC case, the AHA reported.

CMS could be facing an uphill battle though. A US Court of Appeals recently affirmed a district court ruling from 2017 that prohibited the federal agency from using the 2010 FAQ answers when determining Medicaid DSH payments to New Hampshire hospitals.

CMS claimed that the guidance in the FAQ answers was to clarify an existing interpretation of the Medicaid DSH program. However, the court sided with the New Hampshire Hospital Association and other industry groups in the state that filed the lawsuit, arguing the federal agency did not follow proper notice-and-comment rulemaking procedures.

New Hampshire was the third state to successfully stop CMS from enforcing the Medicaid DSH payment changes listed in the FAQ answers. Texas and Washington have also barred CMS from using at least one of the FAQ answers when calculating Medicaid DSH payments to hospitals in their state.

Legal efforts in several states and nationwide could void the Medicaid DSH payment rule and associated guidance articles.