HHS can continue using Worksheet S-10 to calculate uncompensated care payments after federal court ruling

The summary judgment in favor of HHS shot down the plaintiff hospitals’ argument that a notice-and-comment period should have been conducted before the payment formula was changed.

A federal district court dealt hospitals a defeat in a case about uncompensated care (UC) payments, issuing a summary judgment in favor of the U.S. Department of Health and Human Services (HHS).

The ruling means HHS can continue using hospitals’ audited Worksheet S-10 data to calculate UC costs, which determine the UC payments that supplement disproportionate share hospital (DSH) payments.

Summarizing the arguments and decision

Nearly 50 hospitals filed suit over the use of the Worksheet S-10 data as applied to FY20 UC payments based on 2015 cost reports. The hospitals’ complaint stemmed from Medicare administrative contractors’ audits of the data, a process that affected payments.

The hospitals argued that the use of “unpublished audit protocols” to determine payments violated notice-and-comment rulemaking requirements. The plaintiffs also asserted that the application of Worksheet S-10 data to UC payment was “contrary to law and arbitrary and capricious.”

The U.S. District Court for the District of Columbia ruled that the Medicare statute “precludes administrative and judicial review of the Secretary’s decision to use the audited Worksheet S-10 data in his calculation of plaintiffs’ uncompensated care factor.” Because payment calculations and processes are not subject to review on either substantive or procedural grounds, the court stated, the lack of a notice-and-comment period is immaterial.

The court agreed with HHS that the audits by Medicare administrative contractors “are part of the methodology used by the Secretary to determine ‘the amount of uncompensated care for [each] hospital.’”

The court further explained, “To hold otherwise would allow hospitals to challenge the estimates themselves through procedural attacks on the data and methodologies used to establish the estimates, eviscerating the statutory bar and undercutting Congress’s express language insulating the estimates from review.”

Earlier argument falls short this time

In a 2019 decision, the Supreme Court ruled for hospitals in another DSH payment case, saying HHS could not institute a planned change to the calculation without a prescribed notice-and-comment period.

The change would have incorporated a hospital’s Medicare Advantage patients in the determination of its DSH payment, resulting in a lower payment since Medicare-eligible patient days constitute the “denominator” in the ratio used as part of the calculation (the “numerator” is days of care provided to Medicare-eligible patients who also are eligible for income support).

But in the latest case, the D.C. district court dismissed a similar argument as it pertains to the use of Worksheet S-10 data. In part, the court said the lack of a notice-and-comment period is irrelevant because of the statutory intent to preclude review of the calculation process applied by the HHS secretary.

By comparison, according to the D.C. court, the Supreme Court ruling involved a change to a more “substantive legal standard” for which a notice-and-comment period is required.