The fight about how Medicare compensates disproportionate share hospitals (“DSH”) is one of the longest-running reimbursement disputes of recent years, and it has generated copious work for judges around the country. In a 5-4 decision, the U.S. Supreme Court settled one piece of the conflict: the counting of “Medicare-entitled” patients in the Medicare fraction of the “disproportionate-patient percentage.” Becerra v. Empire Health Found., 597 U.S. ___ (2022) (slip op.). The Supreme Court concluded that the proper calculation, under the statute, counts “individuals ‘entitled to [Medicare] benefits[,]’ . . . regardless of whether they are receiving Medicare payments” for certain services. Id. (slip op., at 18) (emphasis added).
DSH payments are made to hospitals with a large low-income patient mix. “The mark-up reflects that low-income individuals are often more expensive to treat than higher income ones, even for the same medical conditions.” Id. (slip op., at 3). The federal government thus gives hospitals a financial boost for treating a “disproportionate share” of the indigent population.
The DHS payment depends on a hospital’s “disproportionate-patient percentage,” which is basically the sum of two fractions: the Medicare fraction, which reflects what portion of the Medicare patients were low-income; and the Medicaid fraction, which reflects what portion of the non-Medicare patients were on Medicaid. Historically, HHS calculated the Medicare fraction by including only patients actually receiving certain Medicare benefits for their care. In 2004, however, HHS changed course and issued a new rule. It counted, in the Medicare fraction, all patients who were eligible for Medicare benefits generally (essentially, over 65 or disabled), even if particular benefits were not actually being paid. For most providers, that change resulted in a pay cut.
The new rule sparked several lawsuits. Hospitals challenged HHS’s policy based on the authorizing statutory language. These hospitals essentially argued in favor of the old methodology. Appeals led to a circuit split, with the Sixth and D.C. Circuits agreeing with HHS, and the Ninth Circuit ruling that HHS had misread the statute.