Medicare DSH payment fight heads to Supreme Court

The U.S. Supreme Court will decide whether HHS followed proper procedure in changing the calculation for Medicare disproportionate-share hospital payments in 2014, which accrued billions of dollars for the federal government.

The court announced Thursday morning it had accepted the petition filed in May by HHS after a federal appellate court in July sided with the provider plaintiffs led by Minneapolis-based Allina Health Services. The department estimates that it could be on the hook for $3 billion to $4 billion in DSH payments from fiscal 2005 through fiscal 2013 if it loses.

The complex case focuses on the "Medicare fraction" used by Medicare administrative contractors to set hospitals' DSH payments. HHS made a calculation change without the notice-and-comment rulemaking where hospitals would have the opportunity to weigh in on the changes. The third-party contractors, known as MACs, don't have all the information they need to determine what Medicare owes each hospital each year, so they depend on the CMS calculation.

After the change was made, Allina sued along with several other hospitals. The providers based their claim against the change on the government's agreements with MACs and the CMS' failure to undertake a public comment period. MACs, in addition to calculating the DSH payments for each hospital, pay out traditional Medicare payments to hospitals based on cost estimates that are later adjusted to match the actual cost reports.

The decision written by Judge Brett Kavanaugh—the current embattled nominee to the Supreme Court—for the U.S. Court of Appeals for the District of Columbia Circuit overturned an earlier decision by the U.S. District Court that sided with HHS.

Kavanaugh wrote in the 2017 decision that HHS was wrong to include enrollees in Medicare Part C plans among the number of Medicare Part A enrollees when calculating Medicare fractions. Hospitals argued that because people enrolled in Part C aren't entitled to Part A benefits they should not be counted with Part A beneficiaries.

"That difference in interpretation makes a huge difference in the real world," Kavanaugh wrote. "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."

HHS in its petition to the Supreme Court argued that the appellate court's decision would "significantly impair" HHS' Medicare payment structure and the way the department works with MACs.

"The court of appeals' decision threatens to undermine HHS' ability to administer the Medicare program in a workable manner," HHS said. The "provisions setting the substantive legal standards for reimbursement and other matters in this extraordinarily complex area of law contain myriad ambiguities that must be resolved, at least as an initial matter, by CMS in its administration of the Medicare program."

The health systems that joined Allina in the claim include Florida Health Sciences Center, Tampa; Mount Sinai Medical Center, Miami Beach, Fla.; and Montefiore Medical Center, New York Hospital Medical Center of Queens, New York Methodist Hospital and Presbyterian Hospital, all in New York City.