Hospitals target Medicare Advantage in DSH payment lawsuit

Hospitals allege in a new lawsuit that the federal government unlawfully changed Medicare disproportionate share hospital payment calculations to include care provided to Medicare Advantage patients, and facilities lost billions of dollars in the process.

Eighty hospitals on Monday sued the Health and Human Services Department over how the agency factors inpatient care for Medicare Advantage patients into DSH payments, which are meant to bolster providers that treat many low-income patients.

Related: Here's where the DSH payment lawsuits stand

Hospitals from states including California, Ohio, Pennsylvania and Texas allege HHS violated the Administrative Procedure Act by not following the typical rulemaking process when it finalized a rule in June 2023 on how Medicare Advantage influences DSH calculations.

DSH payments are calculated by dividing the number of days a hospital treated patients eligible for Medicare Part A and Supplemental Security Income by the number of days a hospital treated Medicare Part A patients — and, according to the 2023 rule, Medicare Advantage patients.

The hospitals allege HHS reduced DSH payments by an estimated $3 billion to $4 billion over a nine-year period by retroactively including so-called Medicare Advantage days in calculations for payments issued prior to Oct. 1, 2013, according to the complaint filed in the U.S. District Court for the District of Columbia.

The rule affects hospitals that appealed payments made prior to fiscal 2014. The plaintiffs, including hospitals owned by Cleveland Clinic, Renton, Washington-based Providence and Chesterfield, Missouri-based Mercy Health, are seeking a reversal of denied appeals with the Provider Reimbursement Review Board, removal of Medicare Advantage days from DSH calculations and elimination of the 2023 regulation.

HHS declined to comment.

Hospitals and the federal government have sparred for years in federal court over how agencies calculate providers' DSH pay.

For instance, nearly four dozen hospitals filed a Medicare DSH payment lawsuit against HHS in March 2023, featuring some arguments similar to those in the complaint filed Monday. In June, the U.S. District Court for the District of Columbia tossed out the 2023 lawsuit led by Oakland, California-based Alameda Health System on technical grounds.