Supreme Court Rules Against HHS in Medicare DSH Payment Case
The Supreme Court ruled that HHS failed to follow regulatory procedures by notifying hospitals of substantial Medicare DSH payment changes on its website.
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By - In a 7-1 decision released on Monday, the Supreme Court sided with hospitals that sued HHS in 2014 over a change in how the department calculated Medicare disproportionate share hospital (DSH) payments.
The justices affirmed a 2017 judgment from the Court of Appeals, in which current Supreme Court Justice Brett Kavanaugh ruled that HHS violated the Medicare Act by including Part C patients in the calculations of DSH payments without going through the notice-and-comment rulemaking procedures.
“In 2014, the government revealed a new policy on its website that dramatically— and retroactively —reduced payments to hospitals serving low-income patients,” Associate Justice Neil Gorsuch wrote in the majority opinion. “Because affected members of the public received no advance warning and no chance to comment first, and because the government has not identified a lawful excuse for neglecting its statutory notice-and-comment obligations, we agree with the court of appeals that the new policy cannot stand.”
Justice Stephen Breyer was the only dissenting vote and recommended that the court send back the case to the court of appeals to “consider whether the agency determination at issue in this case is a substantive rule (which requires notice and comment) or an interpretive rule (which does not).”
Justice Kavanaugh recused himself from the Supreme Court case and did not participate in the court’s recent ruling.
The decision impacts billions of dollars in payments to hospitals that treat some of the most vulnerable patient populations. The government estimated in court documents that the 2014 decision to include Part C – or Medicare Advantage – patients in Medicare DSH payments would reduce hospital reimbursement by between $3 and $4 billion over a nine-year period.
The ruling is a win for hospitals, which use Medicare DSH payments to offset the financial losses of treating low-income patients and invest in new capabilities and service lines to treat vulnerable patient populations.
“By evading the notice-and-comment process, HHS failed to consider the real-world impact of its changes, leading to policies that may adversely affect patients as well as providers,” Melinda Hatton, general counsel for the American Hospital Association (AHA), said in response to the Supreme Court’s decision.
The AHA has a history of supporting the hospitals that filed the case against HHS. In conjunction with the Federation of American Hospitals (FAH) and Association of American Medical Colleges (AAMC), AHA filed an amicus brief supporting the hospitals’ claims that HHS violated regulatory rules by using a shortcut to alter the Medicare DSH payment calculations.
AHA stands by its support of notice-and-comment rulemaking, recently stating that “more public participation in policymaking, including by hospitals and health systems, leads to better-thought-out policies with a deeper understanding of their direct impact on healthcare providers and those they serve.”
The decision could have a far-reaching influence on payment rules. Notice-and-comment periods give providers from across the industry the opportunity to fight proposed reimbursement rate or payment cuts.
Medicare already under-reimburses providers. According to the most recent data from the AHA, the Medicare reimbursement was $53.9 billion short of the actual costs of treating beneficiaries in 2017.
“Despite improvements in coverage, Medicare and Medicaid payment continues to fall further below the cost of providing care,” Aaron Wesolowski, AHA's vice president of policy desearch, analytics, and strategy told RevCycleIntelligence.com earlier this year.
“While most hospitals have remained financially viable, one third have negative operating margins, threatening access to health care in the communities they serve,” he continued. “These underpayments continue as hospitals and health systems continue to invest in alternative payment and delivery models and to develop approaches that address the social, economic, and environmental factors that impact health outcomes and costs.”
