Supreme Court justices lean toward hospitals in Medicare DSH case
Two U.S. Supreme Court justices on Tuesday pushed back on the federal government's sweeping Medicare payment change cutting billions of dollars from hospitals, saying the procedure for the formula change didn't reflect the magnitude of the policy's impact.
In oral arguments before eight of the justices, Sonia Sotomayor and Neal Gorsuch both focused on how hospitals would be hit by the CMS' alterations to its Medicare disproportionate share hospital payment formula in 2014. The change was put into place without a public notice-and-comment period, which several hospitals claim violates federal law.
The case has far-reaching implications for Medicare, the financial foundation for the healthcare system and accountable for about $750 billion.
The CMS and Justice Department contended that the new payment calculation does not fall into the category of so-called "substantive legal standard" and therefore didn't require a public comment period, including feedback from hospitals.
Sotomayor bluntly told Justice Department attorney Edwin Kneedler she had a problem with the government's position that the payment change didn't amount to substantive policy given that the entire hospital industry is affected.
"I have a problem with that," she said of the government's argument. "And I know you say that, but I don't know how you take this outside of being a policy, meaning it's applying to every single provider uniformly."
She was also skeptical that hospitals seeking to dispute the payment change—which garners a savings for the government at a net loss for industry—would be able to get real recourse from the agency's adjudication board. Although HHS said hospitals should go to the board to dispute the payment change, Sotomayor said the board isn't likely to overrule the agency.
"And what would happen" at the agency's adjudication board, she asked. "The board would look at it and say we're not going to listen, even though we're required to listen, to the agency's position; we're going to tell them they're wrong?"
Under the change, HHS factors Medicare Advantage enrollees in with traditional Medicare (or Part A) enrollees when calculating a hospital's DSH payment.
Gorsuch doubled down on Sotomayor's line of questioning, as Kneedler argued that a hospital win in this case would broadly impair Medicare's ability to administer the program by forcing it to go through additional procedural hurdles when it makes regulations.
"I don't doubt it's more convenient for the government to proceed through adjudication of an individual case and announce a new rule that applies to the whole of society without inviting comment and providing notice to everyone affected," Gorsuch said. "I get that that's easier and preferable, certainly more efficient."
However, he said, the government should also consider the scale of the impact of its payment change.
"Couldn't Congress make rationally an alternative decision that informal rulemaking, not even formal rulemaking, that's gone by the boards, but just informal notice and comment to affected parties in something as significant as changing the formula for Medicare for all Medicare providers nationwide, that maybe they should have 60 days to at least throw in their comments," Gorsuch said.
Both Sotomayor and Gorsuch appeared to support the reasoning of newest Supreme Court Justice Brett Kavanaugh in his decision in the case for the U.S. Court of Appeals for the District of Columbia Circuit.
Kavanaugh wrote in his 2017 decision that the HHS decision to include Medicare Advantage in its payment calculation gave the change enormous significance for the hospitals affected. On Tuesday, he recused himself from the Supreme Court arguments because of his prior involvement with the case.
Of all the justices on the bench, Justice Stephen Breyer pushed hardest for the government's argument to prevent additional administrative hurdles.
"You may be happy with this case, but not in others when policies take 19 years to take effect," Breyer said.
Justice Ruth Bader Ginsberg did not participate in arguments as she is recovering from a cancer operation, but she will participate in the decision after reviewing briefs and the oral argument transcript.
The conflict over the Medicare DSH formula has a 15-year history starting in 2003 when HHS proposed through rulemaking to leave the Medicare Advantage population out in its calculation. After a public comment period, the agency finalized the rule in 2004 but reversed itself from the proposal by including the Medicare Advantage enrollees after all.
The regulation was struck down in courts and in 2013 HHS issued a new rule for future years. This left the payments between 2004 and 2013 in question, and if the government loses it estimates it will be on the hook for $3 billion to $4 billion in DSH payments.
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