Hospitals treating a significant number of low-income patients have expended more resources litigating over their Medicare disproportionate-share hospital payments than any other facet of their Medicare reimbursements. It is time for Congress to fix this broken payment scheme and end the litigation.
When Congress enacted the Medicare inpatient prospective payment system in 1983, it authorized HCFA (now the CMS) to establish a disproportionate-share hospital, or DSH, adjustment. This reflected a congressional finding that low-income patients are in poorer health and cost more to treat than other patients and that this cost differential must be recognized in the PPS rates.
From the beginning, however, HCFA/CMS has shown a steadfast reluctance to implement the DSH adjustment. Indeed, HCFA found that based upon its "current data" a DSH adjustment was unwarranted. The litigation began.
In 1984 Congress again directed HCFA to develop the adjustment, and again the agency delayed. Hospitals then sought and obtained a court order directing the agency to act. Finally, tired of HCFA's continued stone-walling, Congress created the DSH adjustment in the Comprehensive Omnibus Budget Reconciliation Act of 1986.
A hospital is entitled to a DSH adjustment if its "disproportionate-patient percentage," which is supposed to be an estimate of the level of care provided to low-income patients, meets certain thresholds. Two "proxies" are used to calculate each hospital's disproportionate-patient percentage, and the vast majority of DSH litigation involves them. The first proxy, the so-called Supplemental Security Income, or SSI, percentage, is intended to represent those Medicare patients who are also receiving SSI payments. The second, known as the "Medi-caid proxy," covers those patients eligible for medical assistance under a Title XIX state plan but not entitled to Medicare.
Although Congress mandated the inclusion of all days for which patients were eligible for medical assistance under a state plan approved under Title XIX in the Medicaid proxy, under HCFA's narrowly drawn regulations, whether a day was counted depended on whether a state's Medicaid program actually paid for that day. By design, this policy significantly understated hospitals' DSH payments. Once again, hospitals were off to court.
Every court to consider the issue rejected the CMS' policy. In February 1997, HCFA issued Ruling 97-2, which conceded that all days when patients were eligible for medical assistance under a state Title XIX plan (and not entitled to Medicare Part A) should be counted regardless of whether a state paid for the day. Moreover, after admitting that its DSH payment guidance "was not sufficiently clear," in December 1999 HCFA issued a program memorandum that purported to "clarify" the types of days to be included in the DSH calculation. Despite these concessions and clarifications, HCFA continued to block hospital's rights to well-deserved DSH payments.
Even after HCFA acknowledged that its prior DSH policy was wrong, it refused to reopen settled cost reports to correct hospitals' past DSH payments. In 2001, the U.S. Court of Appeals for the District of Columbia declared this reopening prohibition unlawful in Monmouth Medical Center v. Thompson. The court held that Ruling 97-2 provided notice that HCFA's prior interpretation of the Medicare act was inconsistent with the law, which imposed a clear duty upon intermediaries to reopen all DSH payment determinations that were issued in the three years preceding Ruling 97-2.
By early 2003, hospitals had filed more than 250 cases in the U.S. District Court in Washington seeking relief under the Monmouth doctrine. In these cases, unlike in Monmouth, hospitals had not filed timely reopening requests. Nonetheless, in a March decision in the now-consolidated litigation's lead case, Baystate Health System v. Thompson, the court ruled overwhelmingly in the hospitals' favor. As expected, the government has appealed this decision and the litigation drags on.
Congress enacted the DSH adjustment to protect hospitals that would be severely dis-advantaged under PPS because they served an unbalanced share of costly low-income patients. Most DSH litigation has centered on the calculation of the proxies for low-income patients. One thing is clear-these proxies are broken. The CMS has done everything in its power to limit the type and number of days included in the Medicaid proxy, and in reaction, hospitals have had to file thousands of cases seeking relief. Moreover, although the CMS calculates every hospital's SSI percentage each year, it has routinely rejected hospitals' attempts to obtain the data supporting those percentages. There are now a growing number of cases challenging the CMS' SSI percentages. Hospitals have been forced into litigation at every turn and, even when victorious, are subjected to laborious and lengthy intermediary audits before they are able to obtain their proper DSH payments.
Finally, and perhaps most disturbingly, the proxies do not adequately estimate a hospital's low-income patient population. They fail to incorporate charity care, uncompensated care and care provided under state, city or county healthcare programs. Since states have widely divergent Medicaid-covered populations, there are even significant inconsistencies among hospitals across the country regarding the types of patients included in, or excluded from, their DSH calculations. Under the current DSH methodology, Congress' original intent is being thwarted, and the hospitals most in need of the financial assistance are not receiving sufficient payments.
John Jacob is senior counsel in the healthcare practice group of Washington law firm Akin Gump Strauss Hauer & Feld.