More on Policy and Legislation

U.S. Supreme Court sides with DSH hospitals on payments

American Hospital Association applauds the decision, in which billions of dollars are at stake.

Susan Morse, Managing Editor

In a 7-1 decision, the U.S. Supreme Court has affirmed the judgment of a court of appeals in ruling that the Department of Health and Human Services inappropriately cut payments to disproportionate share hospitals.

HHS was required to conduct notice-and-comment rulemaking before changing the Medicare reimbursement payment formula, the Supreme Court said in Azar v. Allina Health Services.


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At stake were billions in payments to disproportionate share hospitals, which serve a large number of low-income patients.


The Centers for Medicare and Medicaid Services changed the payment formula to include Medicare Part C, or Medicare Advantage enrollees, in its calculation of the Medicare fraction used to determine DSH payments.

Hospitals claimed that including these enrollees reduced their payments because Part C enrollees tend to be wealthier than Part A enrollees.

In 2004, CMS issued a final rule declaring it would count Part C patients, but this rule was vacated  after hospitals filed legal challenges.

In 2013, CMS issued a new rule re-adopting the policy.

In 2014, it posted on its website the Medicare fractions for FY 2012, noting they included Part C patients.

Hospitals sued, saying the government violated the Medicare Act requirement to provide public notice and a 60-day comment period.

The Court of Appeals sided with the hospitals.

The Supreme Court today upheld that decision.

Judge Neil Gorsuch delivered the opinion of the court, in which Chief Justice John Roberts and Justices Ruth Bader Ginsburg, Clarence Thomas, Samuel  Alito, Sonia Sotomayor and Elena Kagan joined. Judge Stephen Breyer filed the dissenting opinion. Judge Brett Kavanaugh took no part in consideration or a decision of the case.


"One way or another, Medicare touches the lives of nearly all Americans. Recognizing this reality, Congress has told the government that, when it wishes to establish or change a 'substantive legal standard' affecting Medicare benefits, it must first afford the public notice and a chance to comment. In 2014, the government revealed a new policy on its website that dramatically--and retroactively--reduced payments to hospitals serving low-income patients. Because affected members of the public received no advance warning and no chance to comment first, and because the government has not identified a lawful excuse for neglecting its statutory notice-and-comment obligations, we agree with the court of appeals that the new policy cannot stand," Judge Gorsuch wrote.

"America's hospitals and health systems applaud today's Supreme Court decision finding that the Department of Health and Human Services violated the Medicare Act when it changed Medicare's reimbursement formula for disproportionate share hospitals without providing notice and opportunity to comment," the American Hospital Association said. "By evading the notice-and-comment process, HHS failed to consider the real-world impact of its changes, leading to policies that may adversely affect patients as well as providers. As we stated in our amicus brief, more public participation in policymaking, including by hospitals and health systems, leads to better-thought-out policies with a deeper understanding of their direct impact on health care providers and those they serve."

Stephanie Kennan, senior vice president of Federal Public Affairs at McGuireWoods Consulting, said the court's ruling is both burdensome to HHS and inconsistent with prior policy shifts by the department.

"The court's decision makes HHS and its agencies less nimble in changing policy," Kennan said. "Many important policy changes have occurred without notice and comment rulemaking." 

Twitter: @SusanJMorse
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