- The U.S. Supreme Court agreed Thursday to review an appellate court ruling that HHS improperly changed the reimbursement formula for Medicare disproportionate share hospital payments.
- The crux of the case is whether HHS violated federal law by making the change in the DSH reimbursement calculation without public notice and comment.
- At stake for HHS is up to $4 billion in DSH reimbursements made between FY 2005 and 2013.
Policy changes since 2010 have cut payments to hospitals by billions of dollars, a report earlier this year from consulting firm Dobson DaVanzo & Associates forecast, with a prediction the cuts would reach $218.2 billion by 2028.
The cuts include $25.9 billion for Medicaid Disproportionate Share Hospital (DSH) payments, a key source of financing for hospitals that serve low-income populations.
HHS petitioned the high court to hear the case after the D.C. Circuit Court of Appeals ruled in favor of Minneapolis-based Allina Health Services and a group of hospitals. The decision, written by embattled Supreme Court nominee Brett Kavanaugh, overturned a lower court ruling that sided with HHS.
In his 2017 opinion, Kavanaugh concluded that HHS violated the Medicare Act when it revised its reimbursement adjustment formula with going through the usual rulemaking process. In particular, he rejected the government's argument that the notice-and-comment requirement for regulations setting or modifying a "substantive legal standard" does not apply to "interpretive rules."
Kavanaugh also held that HHS erred in including Medicare Part C enrollees with Part A enrollees in its new DSH payment calculations.
"That difference in interpretation makes a huge difference in the real world," Kavanaugh wrote. "Part C enrollees tend to be wealthier than Part A enrollees. Including Part C days in Medicare fractions therefore tends to lead to lower reimbursement rates. Ultimately, millions of dollars are at stake for the Government and the hospitals."
In its petition, HHS maintains that the appellate court's decision would "significantly impair" its ability to administer annual Medicare reimbursements through the third-party contractors it employs to pay hospitals.
"The court of appeals' decision threatens to undermine HHS's ability to administer the Medicare Program in a workable manner," the petition states. Given the time and cost involved in formal rulemaking, "converting the agency's non-binding manuals and other interpretive materials into regulations requiring notice and comment would jeopardize the flexibility needed in light of Medicare’s complex and frequently changing statutory context and administrative developments."