Policy & Regulation News

MO Court Bans CMS from Altering DSH Medicaid Reimbursement Rules

CMS cannot enforce two FAQs and a 2017 final rule in Missouri that would change the formula for calculating Medicaid reimbursement for Disproportionate Share Hospitals (DSH).

Medicaid reimbursement and the Disproportionate Share Hospital (DSH) program

Source: Thinkstock

By Jacqueline LaPointe

- A District Court in Missouri prohibited CMS from enforcing a 2017 final rule and two Frequently Asked Questions (FAQs) from 2010 that would alter the formula for calculating hospital-specific limits for  Medicaid reimbursement under the Disproportionate Share Hospital (DSH) program.

US District Judge Brian Wimes decided that the sub-regulatory guidance that would lower Medicaid DSH payments was not consistent with the Medicaid Act’s formula for determining hospital-specific payments.

The final rule and FAQs required private payer and Medicare reimbursement to be included when calculating the Medicaid shortfall part of the hospital-specific limit on Medicaid DSH payments.

However, US District Judge Brian Wimes sided with the Missouri Hospital Association, which brought forth the lawsuit, deciding 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.”

Medicaid supplements payments to hospitals that treat a greater portion of Medicaid and uninsured individuals using DSH payments. Hospitals incur significant uncompensated care costs because of patient bad debt and Medicaid shortfalls, which reached $16.2 billion in 2015 according to recent data from the American Hospital Association (AHA).

Hospitals can receive Medicaid DSH payments based on their Medicaid shortfall and uncompensated care costs.

The Medicaid Act states that DSH payments going to a hospital should not exceed “the costs incurred during the year of furnishing hospital services (as determined by the Secretary and net of payments under [the Medicaid Act Chap. 7, Subchapter XIX], other than under this section, and by uninsured patients) by the hospitals to individuals who either are eligible for medical assistance under the State [Medicaid] plan or have no health insurance (or other source of third party coverage) for services provided during the year.”

But CMS clarified in two FAQ answers from 2010 that the law states that third-party reimbursements for individuals eligible for both Medicaid and private insurance or Medicaid and Medicare should be included in uncompensated care cost and hospital-specific limit calculations.

In 2016, the federal agency also proposed to clarify Medicaid DSH payment calculations. The rule intended to make explicit the HHS Secretary’s “existing interpretation that uncompensated care costs include only those costs for Medicaid eligible individuals that remain after accounting for payments received by hospitals by or on behalf of Medicaid eligible individuals, including Medicare and other third-party payments that compensate the hospitals for care furnished to such individuals.”

CMS finalized the rule in April 2017, and the rule went into effect in June 2017.

The federal agency explained that the final rule and FAQs were interpretative and provided clarity for existing laws.

But healthcare stakeholders criticized the final rule and supporting FAQs, arguing that the guidance and sub-regulatory documents created a new policy that changed the Medicaid DSH payment formula.

Judge Wimes explained that the sub-regulatory guidance from 2010 and 2017 created two competing formulas for Medicaid DSH payments. The formula backed by the Missouri Hospital Association:

Total cost of treatment for Medicaid-eligible patients – Total payments from Medicaid not under the DSH program = Medicaid shortfall

CMS asserted that the formula as defined by the Medicaid Act and subsequent rules and guidance documents is:

Total cost of treatment for Medicaid-eligible patients - (Total payments from non-DSH Medicaid + Total payments received for Medicaid-eligible treatments from Medicare and private insurance, if any) = Medicaid shortfall

Not only does the formula modification violate proper rulemaking processes, the change would also harm hospitals, the Missouri Hospital Association asserted. The formula modification would result in one of the Missouri Hospital Association’s member hospitals repaying $5.9 million for just the 2011 fiscal year.

Judge Wimes agreed with Missouri Hospital Association and other critics that CMS exceeded its authority by issuing sub-regulatory guidance to change the Medicaid DSH payment formula.

His decision echoed two other recent court orders in Tennessee and New Hampshire, which also barred CMS from using the FAQs to calculate Medicaid DSH payments. But the ruling in Missouri is the first case to invalidate the 2017 final rule.

The rule’s invalidation could have an impact on Medicaid DSH payments nationwide, not just in the three states that challenged the rule and FAQs.