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Supreme Court hears case over disproportionate share hospital payments

Hundreds of millions of dollars in reimbursement are at stake; $3-4 billion from 2005 to 2013.

Susan Morse, Senior Editor

The Supreme Court was expected to hear oral arguments today over notice and rulemaking requirements for Medicare reimbursement.

The outcome of Azar vs. Allina Health Services could greatly affect reimbursement for hospitals that serve a disproportionate share of low-income patients. The DSH payment calculation is based on the percentage of low-income patients served.

The government wants to add Part C, or Medicare Advantage beneficiaries into the calculation, a move hospitals fear would decrease payments based on their belief that MA members are, on average, wealthier than Medicare Part A beneficiaries.

But the lawsuit is about how the Department of Health and Human Services went about attempting to implement its rule.

The hospitals in the lawsuit argue that HHS is required to conduct notice and comment rulemaking before providing the instructions to a Medicare administrative contractor that makes the initial determinations of payments due under Medicare. Medicare uses private contractors to administer its reimbursements to providers.

The case went to the District of Columbia Circuit Court, which vacated the rule. The hospitals argue that after the circuit court's decision, CMS simply tried to make the same change without undertaking notice and comment.

The judge in the District of Columbia Circuit Court case was Brett Kavanaugh, who as Supreme Court Justice, is recusing himself in the HHS case Azar vs. Allina Health.

WHY THIS MATTERS

CMS's proposed rule changes affect hundreds of millions of dollars in reimbursement for hospitals. The government estimates that the DSH payments from 2005 to 2013 totaled $3 to $4 billion, according to SCOTUSblog.

Hospitals suing HHS said the Centers for Medicare and Medicaid Services "botched" attempted rulemaking in 2004, when the department tried to change the standard governing Medicare payment to hospitals nationwide for services furnished to low-income patients.

The Medicare Act requires the agency to engage in notice-and-comment rulemaking, the hospitals argue.

HHS disagrees, saying the Medicare Act does not require HHS to issue formal notice-and-comment rulemaking prior to changing the DSH calculation formula. Doing so would cripple the Medicare program, requiring the agency to use rulemaking for any change in its lengthy and detailed operations manuals, it argues.

The hospitals involved in the lawsuit are Allina Health System and its affiliated hospitals, Abbott Northwestern, United, and Unity; Florida Health Sciences Center; Montefiore Medical Center; Mount Sinai Medical Center, New York-Presbyterian/Queens; New York Presbyterian Brooklyn Methodist Hospital; and New York and Presbyterian Hospital.

ON THE RECORD

"The agency botched that rulemaking: the final rule was not the 'logical outgrowth' of the proposed rule, and the D.C. Circuit vacated it," Allina and other health systems said.

HHS Secretary Alex Azar said in court documents, "As the government has explained, respondents' theory, if adopted, has the potential to substantially undermine effective administration of the Medicare program, not least because its rationale would encompass not just the Medicare fractions at issue here but nearly every instruction to the agency's contractors, including those contained in the Provider Reimbursement Manual."

Twitter: @SusanJMorse
Email the writer: susan.morse@himssmedia.com

Hansa Wattanawongsiri