- CMS acted within its authority when it issued a rule in 2017 that effectively lowered hospitals' reimbursement for serving Medicaid-eligible and uninsured patients, the U.S. Court of Appeals for the District of Columbia Circuit ruled Tuesday.
- Reversing a lower court's decision to vacate the rule, Circuit Judge Karen LeCraft Henderson, writing for the three-judge appellate panel, said the rule accorded with the intent of the Medicaid Act and wasn't arbitrary or capricious.
- The ruling likely will mean slashed reimbursement for safety net hospitals caring for a large number of low-income patients. The plaintiffs said they are reviewing their options.
Hospitals have pushed back against major reductions to DSH payments set to go into effect in October. Congress has delayed the cuts for years. The current formula has been in use since 1992.
Children's hospitals in Minnesota, Virginia and Washington and the Children's Hospital Association of Texas (CHAT) sued the government in 2017, challenging the rule calculating DSH payments, which compensate hospitals that serve a disproportionate number of low-income patients. The hospitals claimed the rule's definition of "costs incurred" was contrary to the Medicaid Act.
The hospitals won at the trial court level, with the district court vacating the 2017 rule as exceeding the agency's statutory authority, and HHS appealed.
The central issue in the case is whether payments made by Medicare and private insurers should be subtracted from hospitals' "costs incurred."
And the appeals court sided with the agency, rejecting all of the hospitals' arguments. Among other things, Henderson wasn't persuaded by the hospitals' claim the statute limits the payments that can be considered when determining costs. While the statute requires consideration of payments by Medicaid and the uninsured, Henderson said, nowhere does it say other payments can't be considered.
"There is reason to believe the Congress did not intend to exclude Medicare and private insurance payments from consideration," she wrote.
"Contrary to the plaintiffs' contention, we believe the 2017 Rule is consistent with the statute's context and purpose, both of which suggest DSH payments are meant to assist those hospitals that need them most by covering only those costs for which DSH hospitals are in fact uncompensated," the opinion said.
Indeed, by requiring the inclusion of payments by Medicare and private insurers, the 2017 Rule ensures DSH payments will go to hospitals most in need, the appeals court said, finding the rule consistent with the statute. Henderson also rejected the plaintiffs' argument the rule was arbitrary or capricious.
Meanwhile, the children hospital plaintiffs told Healthcare Dive they are reviewing the decision and exploring their options.
"We are disappointed with the result because it will reduce critical Medicaid funding to safety net providers like children's hospitals," Stacy Wilson, president of CHAT, said in a statement. Children's hospitals rely heavily on Medicaid payments because 50%-80% of their inpatient days are covered by Medicaid, and the hospitals are often the only place children can get care for complex and life-threatening conditions, she said.
Tuesday's ruling is just the latest on the DSH issue. Just a few months ago, the U.S. Supreme Court examined a different case related to DSH payments. It ruled HHS violated the Medicare Act when it changed the Medicare reimbursement formula for the designated hospitals without providing them with notice and the chance to comment.