Hospitals sue HHS over disproportionate share hospital payment

Photo: Kittiphan Teerawattanakul EyeEm/Getty Images

Eighty hospitals have sued the Department of Health and Human Services over disproportionate share hospital payments that include calculations for Medicare Advantage.

The action was filed Monday in the U.S. District Court for the District of Columbia by the Cleveland Clinic and other hospitals in Ohio, several Texas Health hospitals, Huntington Beach Hospital and other hospitals in California, Mercy Hospitals in several states, and other hospitals in New Jersey, Rhode Island, Arkansas, Alabama, Louisiana, Michigan, Kansas, Oklahoma, Missouri, Pennsylvania, Nevada, Washington and Hawaii. 

The civil action stems from how the Centers for Medicare and Medicaid Services determines inpatient days in calculations for disproportionate share hospital payments for providers that serve vulnerable populations.

Hospitals are losing billions, according to the lawsuit.

Litigation has been ongoing for about 16 years.

In a previous ruling, the lawsuit said, "The court also explained that the inclusion of Part C days in the Medicare fraction 'makes the fraction smaller and reduces hospitals' payments considerably - by between $3 and $4 billion over a 9-year period, according to the government.'"

In this complaint, the hospitals want the court to reverse a Reimbursement Review Board, or PRRB, dismissal and to vacate the Part C Days Final Rule. They want an order to Health and Human Services Secretary Xavier Becerra to calculate the Medicare Fraction without including Part C days. They've also asked for costs and attorney's fees.

WHY THIS MATTERS

At issue in the case is the calculation CMS uses for DSH payments. A Medicare Fraction determines the number of hospital inpatient days for patients who were eligible for both Medicare Part A and Supplemental Security Income (SSI) at the time of receiving hospital services. A Medicaid Fraction is also used in DSH calculations

Hospitals object to Part C days being included in the calculation.

In a 2003 proposed rule, HHS said Part C days, in which Medicare Advantage plans were the payer, should be excluded from the Medicare Fraction and used in the Medicaid Fraction only. However, HHS overturned that in the 2004 final rule. When the final rule for 2005 inpatient payment was issued, it included Part C days in the Medicare fraction. 

Hospitals challenged and the district court vacated the 2004 final rule, saying in part that HHS gave no reason for the about-face. 

Litigation began again after CMS in 2014 published the Medicare Part A/SSI fractions for 2012, which included Part C days for all hospitals. 

"CMS proceeded without notice of comment or explanation," the lawsuit said.

HHS said it could, because there was no rule.

The Supreme Court affirmed a Court of Appeals' ruling requiring notice and comment rulemaking. 

In August 2020, CMS published a notice of proposed rulemaking, which had the same Part C change that was adopted in the 2004 final rule, including Part C days in the Medicare Fraction. 

On June 9, 2023, CMS issued a final rule called the Part C Days Retroactive Rule in which it finalized a proposal to place Part C days in the Medicare Fraction, retroactive to before October 1, 2013.

Hospitals want the back and forth litigation to end.

"Litigation on the policy in the 2004 final rule, including the Secretary's attempt to impose that policy retroactively, has now exceeded 16 years," the lawsuit said. "Remanding the case to the PRRB could further delay proper Medicare payments to the plaintiffs by years. Therefore, should the court reverse the PRRB's dismissal of the plaintiff's appeals, it is appropriate for the court to assume jurisdiction over the plaintiff's challenge to the Part C Days Final Rule."

THE LARGER TREND

Litigation over DSH payments includes a lawsuit by Hackensack Meridian Health in June. Hackensack sued HHS over the calculation of Medicare reimbursement used to determine Disproportionate Share Hospital payments.

The Centers for Medicare and Medicaid Services calculations left out more than 400 patients, which reduced the amount of reimbursement Hackensack hospitals were paid, according to the lawsuit. The complaint was filed on June 28, the same day that the Supreme Court ruled 6-3 against the long-standing Chevron doctrine, that for decades protected legal challenges to federal regulations.

Email the writer: SMorse@himss.org