Medicare Payment and Reimbursement

Hospitals say Supreme Court should hear a case that affects disproportionate share hospital payments

HHS’s application of the DSH formula was upheld by an appeals court last year, and hospitals estimate it causes underpayments of $1.5 billion annually.

February 5, 2024 12:35 pm

Hospital advocacy groups hope the Supreme Court will review a lower-court ruling that has adverse implications for Medicare disproportionate share hospital (DSH) payments.

Six groups on Feb. 2 submitted an amicus brief to the Supreme Court regarding an appeals court’s 2023 decision backing HHS’s interpretation of the DSH payment formula. The department long has said the formula includes a hospital’s share of patients who are eligible for Supplemental Security Income (SSI) benefits only for patients who receive SSI payments during the month that they’re in the hospital.

Hospital plaintiffs argue that patients should be included in the numerator of the formula’s Medicare fraction if they are enrolled in the SSI program — even if they are not receiving payments during the month of their hospitalization. They maintain that SSI benefits include not only cash payments but also the Medicare Part D low-income subsidy and vocational training.

Both a district court and the U.S. Court of Appeals for the District of Columbia Circuit have sided with HHS in the case, Advocate Christ Medical Center, et al. v. Becerra, in which the plaintiffs are more than 200 hospitals across 32 states. The courts said the relevant statute defines SSI strictly as a cash benefit.

The rulings do not actually lower DSH payments but instead maintain a status quo that hospitals view as unfair.

What’s at stake

If not reversed, the lower-court rulings “will have serious repercussions for healthcare in the United States,” wrote the American Hospital Association, Association of American Medical Colleges, America’s Essential Hospitals, Catholic Health Association, Federation of American Hospitals and National Rural Health Association.

The groups said HHS’s interpretation of the formula has resulted in a loss of “billions of dollars in federal assistance” for hospitals while potentially affecting their eligibility for other subsidies such as 340B drug discounts (issues with 340B eligibility increasingly are posing an issue for some hospitals).

“Many hospitals around the country are operating on thin margins and teetering on the edge of survival,” the groups wrote. “And many of those hospitals are concentrated in rural America and other communities with a high number of low-income patients. They are the reason Congress created DSH payments to supplement Medicare reimbursement rates, which are often well below the actual cost of care.”

The actual financial impact is hard to gauge because of the limited availability of data, the plaintiffs said in their petition to the Supreme Court. They estimate the gap is about $1.5 billion per year based on a 15% cumulative decrease relative to what DSH payments would be if the formula were interpreted appropriately. The number likely is higher because the estimate doesn’t account for hospitals that are rendered ineligible for DSH payments due to the SSI definition, they added.

“HHS’s failure to fully fund the DSH program puts these hospitals at risk and makes it more likely that the trend of closures or service cuts will accelerate,” the hospital associations wrote. “The most obvious victims of hospital closures or cuts are patients, who may have to travel long distances or forgo necessary treatment after losing access to a hospital in their community.”

How a past case factors in

Hospitals hope for a better outcome than the last time the Supreme Court decided a case involving DSH payments. In the 2022 Becerra v. Empire Health Foundation case, the court ruled, 5-4, that HHS could interpret total Medicare inpatient days — the denominator in the DSH formula’s Medicare fraction — to include patients who meet the statutory criteria for Medicare eligibility even when the program is not covering their hospitalization.

The hospital plaintiffs and advocacy groups think that ruling should work in their favor this time. They argue the precedent established in the 2022 decision should hold sway in establishing when patients are considered to be SSI beneficiaries.

In Empire Health, HHS successfully argued that a patient is ‘entitled to’ Medicare under the DSH formula so long as she is qualified for the program,” the hospital associations wrote. “But despite that victory, HHS has refused to apply the same logic to determine whether a patient is ‘entitled to’ SSI benefits — even though Congress used the same words in the same sentence.”

The appeals court’s decision in the current case attempted to address that dichotomy, saying the argument “misses key distinctions between the Part A and SSI schemes,” including that “Part A benefits extend well beyond payment for specific services at specific times.”

Along with a judgment in support of their construal of the DSH formula, plaintiff hospitals sought an order for HHS to provide detailed Social Security Administration (SSA) payment codes indicating whether each SSI patient qualifies for the SSI cash payment.

The appeals court denied that request, saying, in part, that HHS never even receives such data from the SSA.

A beleaguered program

The hospital groups hope the Supreme Court not only will hear the case but also will issue a ruling that sets a new tone for HHS’s oversight of the DSH program.

“This is not just an isolated error of statutory interpretation; it is the latest turn in a decades-long saga of agency resistance to the DSH program, to the detriment of the neediest hospitals and patients,” they wrote.

HHS has until March 4 to respond to the plaintiffs’ request for the Supreme Court to review the prior rulings.


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