Medicare DSH Payment Case Makes Its Way to the Supreme Court

October 02, 2018 - The Supreme Court recently agreed to review an appeal on a case that could affect up to $4 billion in Medicare Disproportionate Share Hospital (DSH) payments.

Supreme Court judges approved a request from HHS to revisit an appellate court’s decision that stated HHS improperly modified the reimbursement formula for calculating Medicare DSH payments. The payments go to hospitals that treat significantly more low-income and uninsured patients.

The decision in question was notably written by the current Supreme Court nominee Brett Kavanaugh in July 2017.

In the appellate court’s decision, Kavanaugh sided with Minnesota-based Allina Health Services and a group of other hospitals. The hospitals argued that CMS violated the Medicare Act by changing the Medicare DSH payment formula without going through the mandated rulemaking process.

In 2014, HHS included Part C days in the Medicare DSH payment calculation for the 2012 fiscal year (FY). The federal department had never used Part C data in the payment determinations prior to 2014.

The modified Medicare DSH payment formula resulted in lower reimbursement rates for hospitals, with some organizations facing reductions equal to hundreds of millions of dollars.

The hospital groups argued that the addition of Part C days to the Medicare DSH formula violated the Medicare Act because HHS did not hold a notice-and-comment period.

HHS countered that the federal department did not have to institute a notice-and-comment period for the Medicare DSH payment revision. Adding Part C enrollees to the hospital payment calculations was an interpretation of a rule, and therefore, was not subject to the Medicare Act’s formal rulemaking process.

Kavanaugh disagreed with HHS, overturning several previous court rulings. He argued in his decision that HHS violated the Medicare Act by modifying its interpretation of the DSH payment formula without a proper notice-and-comment period.

“Unlike the APA [Administrative Procedure Act], the text of the Medicare Act does not exempt interpretive rules from notice-and-comment rulemaking. On the contrary, the text expressly requires notice-and-comment rulemaking,” he wrote.

Kavanaugh also explained that including Part C enrollees in the Medicare DSH payment formula “makes a huge difference in the real world.”

“Part C enrollees tend to be wealthier than Part A enrollees. Including Part C days in Medicare fractions therefore tends to lead to lower reimbursement rates. Ultimately, hundreds of millions of dollars are at stake for the Government and the hospitals,” he wrote.

HHS petitioned the Supreme Court in July 2018 to reconsider the case. The federal department argued that the appellate court’s ruling would “impair the government’s ability to administer its reimbursement process,” the petition stated.

“Requiring the agency to conduct notice-and-comment rulemaking before it can establish or modify provisions of the Provider Reimbursement Manual (PRM) and other interpretive materials that Medicare contractors must follow would make it much more difficult for HHS to administer the Medicare program,” HHS added.

The Supreme Court granted the HHS request. However, the high court will only consider a very specific question raised in the Medicare DSH payment case, which has been making its way up to the Supreme Court since 2014.

According to the Supreme Court’s website, the high court’s consideration of the case will be limited to, “Whether 42 U. S. C. §1395hh(a)(2) or §1395hh(a)(4) required the Department of Health and Human Services to conduct notice-and-comment rulemaking before providing the challenged instructions to a Medicare Administrator Contractor making initial determinations of payments due under Medicare.”

The Supreme Court has yet to schedule dates for the arguments, opinion, and vote.