On March 4, 2024, CMS issued Ruling 1498-R3 which revokes CMS Ruling 1498-R2. CMS Ruling 1498-R2 gave providers the option of using either “total” days or “covered” days in calculating their disproportionate share (DSH) Medicare/SSI fractions for periods prior to 2004. CMS alleges the revocation of 1498-R2 is necessary to comply with the Supreme Court’s ruling in Becerra v. Empire Health Foundation, for Valley Hospital Medical Center, 597 U.S. 424 (2022) (Empire Health).

The DSH Medicare fraction looks at the number of patient days of patients who were entitled to both Medicare Part A and SSI benefits divided by the total number of days associated with discharges of patients who were entitled to Medicare Part A. 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I).

In Empire Health, the Supreme Court held that hospital patient days for Medicare beneficiaries for which Medicare does not pay, such as days on which a beneficiary has exhausted their benefits for a spell of illness, are still days on which beneficiaries are “entitled to benefits under part A.” As a result, those days belong in the Medicare fraction portion of the disproportionate patient percentage used to calculate providers’ Medicare DSH adjustment.

The now-revoked CMS Ruling 1498-R2 allowed providers to choose whether to receive Medicare fractions calculated based on “total days” or on “covered days” (i.e., days actually paid under Part A) for cost reporting periods with discharges pre-dating October 1, 2004. The Supreme Court in Empire Health held that the Medicare statute provided “surprisingly clear” support for CMS’s position that the Medicare fractions should be based on total days. Although the Supreme Court in Empire did not say that the Medicare statute compelled this outcome, that is the way CMS is interpreting it. According to CMS, therefore, the previous choice that existed under CMS Ruling 1498-R2 to pick “total days” or “covered days” is invalid and had to be revoked.

This CMS Ruling requires the agency and Medicare Administrative Contractors to calculate or recalculate the provider’s Medicare fraction in accordance with the Medicare statute as construed in Empire Health – that is, based on total days, not covered days for each properly pending claim in a DSH appeal or open cost report, including those involving patient discharges pre-dating October 1, 2004. Administrative appeals tribunals and Medicare Administrative Contractors may not, however, reopen any determination or decision with respect to the “total” versus “covered” benefit days Medicare-SSI fraction issue.

The full text of CMS Ruling 1498-R3 is available here.