Hospitals can bring their case on disproportionate share hospital payments to the Supreme Court

The Supreme Court granted hospitals’ request that it hear their appeal about the formula for determining Medicare disproportionate share hospital (DSH) payments, landing the case on the docket for the 2024-25 term.

More than 200 hospitals are plaintiffs in the case. A federal district court ruled for HHS and against the hospitals in 2022, and the Court of Appeals for the Washington, D.C., Circuit upheld the decision in 2023.

Hospitals hope the high court will see things their way in a case they say has implications for the sustainability of the healthcare safety net. In a written argument filed with the Supreme Court, the plaintiffs said the impact of HHS’s “parsimonious interpretation” of the formula amounts to $1.5 billion annually.

“Dire consequences of leaving the current regime uncorrected include hospital closures and service cuts affecting patients who are least able to access alternatives (especially in rural areas),” the hospitals wrote in a separate filing.

What’s at issue

In both prior rulings, courts agreed with HHS on a technical question concerning the DSH payment formula.

Specifically, with respect to the Medicare-fraction component of the formula, patients are to be included in the numerator only if they receive Supplemental Security Income (SSI) cash benefits during the month of their hospitalization. Enrollment in the SSI program is not sufficient for the patient to be counted.

Hospital advocates insist that the interpretation conflicts with HHS’s separate interpretation, as upheld in a 2022 Supreme Court ruling, that patients should be included in the denominator if they merely are eligible for Medicare Part A.

The decisions in the ongoing case and the 2022 case both have gone against hospitals for what the plaintiffs see as contradictory reasons. In the prior case, the phrase entitled to with respect to Medicare benefits was assessed to mean anyone eligible to be insured by Medicare, regardless of whether the program was paying for their care.

In the current case, the district court and circuit court have said the same entitled to phrase requires that patients be not only enrolled in SSI but actually receiving cash payments at the time. Eligibility for other SSI benefits, such as the Medicare Part D low-income subsidy and vocational rehabilitation services, does not qualify the patient for inclusion in the numerator, based on the courts’ reading of the statute.

The Supreme Court may be looking to resolve the discrepancy in the interpretation of entitled to relative to its 2022 decision, although it does not provide explanations or insight about its decisions to hear cases. It merely states that plaintiffs’ petition was granted.

“Only this Court can conclusively establish that entitled to benefits should mean the same thing when used twice in the same sentence — satisfying program eligibility,” the plaintiffs wrote.

A long-running dispute

The disagreement at issue stretches back 18 years. Plaintiff hospitals appealed their disproportionate patient percentage (DPP) calculations spanning 2006-09 to CMS in 2015. The agency’s then-acting administrator, Andy Slavitt, said HHS was justified in its dual interpretations of SSI and Medicare Part A eligibility, as applied to the Medicare DPP formula (i.e., the DSH payment formula).

Thus far, two courts have agreed.

For example, the district court decision states, “The [HHS] secretary adequately explained that the perceived inconsistency arises from the two distinct types of statutory entitlements at issue — SSI cash benefits versus Part A insurance benefits. SSI cash benefits are an entitlement that depends on a right to be paid, while one’s insured status is a continuous entitlement that is not contingent on certain payments being made each month.”

In its filing with the Supreme Court, HHS tried to build on that argument and persuade the court that no review was needed. The filing previews the case the government will try to make when the case is heard.

Citing the circuit court’s ruling, HHS wrote, “‘The Medicare statute reflects the complexity of health insurance’ in that, even if a patient’s Medicare Part A insurance does not result in a ‘payment for any given service’ (because, for instance, the patient has ‘hit some limit on coverage’), the patient is ‘still insured.’ For that reason, the patient’s ‘statutory entitlement to Part A [insurance] benefits’ is not ‘affect[ed]’ by whether his Medicare insurance coverage ultimately results in an actual ‘payment’ for a particular hospital service.”

In contrast, “An individual must apply for SSI benefits and must then be eligible for each month’s payment based on his income, resources and other criteria for that month in order to be ‘entitled’ to that payment.”

Clarity is vital

The hospitals argued that a ruling from the Supreme Court is needed not only to establish the appropriate determination of DSH payments going forward, but also to avoid what otherwise could be a messy set of dockets across the court system.

Such mayhem would be anticipated because, under a methodology that hinges on receipt of SSI cash payments, patients could end up “ping-ponging” into and out of the numerator.

“[HHS] cannot accurately account for that sort of happenstance in the SSI program,” the plaintiffs wrote. “And the agency’s inevitable errors will generate repeated calculation-specific challenges by hospitals.”