Supreme Court gears up to review Medicare DSH formula

The Supreme Court on Tuesday will hear arguments in an appeal over whether HHS can recalculate its Medicare disproportionate share hospital payments without going through the full rule-making process to get public input on the change.

HHS petitioned the high court to take the case last spring, estimating that the government would have to pay out between $3 billion and $4 billion in Medicare disproportionate share hospital payments if a decision from the U.S. Court of Appeals for the D.C. Circuit stands.

The lawsuit stems from HHS’ decision in 2014 to factor Medicare Advantage patients with traditional Medicare Part A patients into its calculation of the fraction used to set each hospital’s Medicare DSH payment. The new calculation went into effect for payments from fiscal 2012.

This fraction is determined by HHS on behalf of the third-party Medicare contractors who set the payments for each hospital since individual contractors don’t have access to all the data they need

But the hospitals argued that HHS violated proper procedure when it remade its payment calculations — that comes with significant financial cuts — without engaging in a formal rulemaking process that includes a public comment period where interested parties could weigh in.

The decision, written by the Supreme Court’s newest Justice Brett Kavanaugh when he sat on the D.C. Circuit in 2017, will be reviewed by his eight peers. Justice Ruth Bader Ginsburg will not attend Tuesday’s hearing, but will review the briefs and transcripts.

Kavanaugh agreed with hospitals that the federal government was wrong to lump Medicare Advantage enrollees in with traditional Medicare enrollees to come up with its calculation unilaterally. He wrote that it was a difference in interpretation of what the law allows that “makes a huge difference in the real world.”

“Part C [Medicare Advantage] enrollees tend to be wealthier than Part A enrollees,” Kavanaugh wrote. “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.”

Although the original decision was made under the Obama administration, HHS Secretary Alex Azar is sticking to his predecessors’ position, and his agency maintains the department didn’t need to follow a formal process since the payments aren’t legally binding.

HHS said the Kavanaugh decision could cripple its ability to administer the Medicare program “in a workable manner.” They called the reimbursement provisions “extraordinarily complex,” and maintained CMS should have the autonomy to to resolve any ambiguities.

Minneapolis-based Allina Health Services led the lawsuit challenging the DSH formula. Other health systems involved 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.

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