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October 2, 2018

SCOTUS to hear hospitals’ DSH payment challenge

Daily Briefing

    The Supreme Court on Thursday said it will hear a case that challenges CMS' changes to the Medicare's disproportionate-share hospital (DSH) payment formula, Healthcare Dive reports.

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    James Segroves, a partner at Reed Smith, said the case will be the first Medicare-related case the Supreme Court will hear in several years.

    Case details

    Allina Health Services and a group of hospitals filed a lawsuit challenging changes CMS made in 2014 to its DSH reimbursement adjustment formula, claiming that the department implemented the changes without complying with the notice-and-comment requirements under the federal Medicare Act. The providers also argued that the new method undercounted the number of low-income Medicare beneficiaries hospitals treat.

    In 2017, Supreme Court nominee Brett Kavanaugh as a judge on the U.S. Court of Appeals for the District of Columbia Circuit ruled that HHS violated the Medicare Act when it changed its DSH reimbursement adjustment formula without following the law's rulemaking process. Kavanaugh in the ruling disagreed with HHS' argument that it did not have to follow the notice-and-comment requirements because the requirements do not apply to "interpretive rules."

    In addition, Kavanaugh ruled that CMS could not include Medicare Part C beneficiaries, who are not entitled to benefits covered under Medicare Part A, in its new DSH payment calculations.

    HHS appealed that decision to the Supreme Court, arguing that the ruling would "significantly impair" the department's ability to use interpretive rules and to administer Medicare reimbursements through third-parties it uses to pay hospitals. HHS argued that, because of the time and cost associated with the formal rulemaking process, "converting the [department'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."


    According to Modern Healthcare, HHS estimates that it could owe providers up to $4 billion in DSH payments for fiscal years 2005 through 2013 if the Supreme Court rules against the department.

    Segroves said the Supreme Court's ruling in the case also could have significant effects because HHS commonly uses interpretive rules (Bryant, Healthcare Dive, 9/28; Luthi, Modern Healthcare, 9/27; Minemyer, FierceHealthcare, 9/28; Stohr, Bloomberg, 9/27).

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