DC Circuit Issues Latest DSH Decision, Reducing Reimbursements


On June 11, 2013, the D.C. Circuit Court issued the latest ruling relating to the proper calculation of hospitals’ disproportionate share hospital (DSH) payment, leading to potentially lower Medicare reimbursements related to admissions of low-income patients.  See Catholic Health Initiatives - Iowa Corp. d/b/a Mercy Medical Center - Des Moines v. Sebelius, Case No. 12-5092, available here. The question in this case was whether the Secretary’s exclusion of dual-eligible (i.e., Medicare and Medicaid-eligible) patient days for which a patient’s Medicare Part A benefits have been exhausted from the Medicaid Fraction component of the DSH calculation was permissible.  In holding that it was permissible, the court overturned a D.C. District Court ruling in favor of Catholic Health Initiatives (CHI).  Catholic Health Initiatives - Iowa Corp. d/b/a Mercy Medical Center - Des Moines v. Sebelius, Case 1:10-cv-00411-RCL (Jan. 30, 2012), available here

The case involved payments related to the hospital’s 1997 fiscal year that were reduced years later.  Among other arguments, the hospital argued that under the DSH statute, which defines the Medicaid Fraction as containing patient days for “patients who (for such days) were eligible for medical assistance under [Medicaid] but who were not entitled to benefits under part A of [Medicare],” dual-eligible Part A exhausted days belong in the Medicaid Fraction.  The theory behind this argument is that “entitlement” to Part A benefits is synonymous with “payment”—if a day is not paid by Part A because the patient’s Part A benefits are exhausted, then the patient was not “entitled to benefits under Part A” for that day.  Under this theory, a hospital’s patients classified as low-income for purposes of the DSH payment would generally increase based on the mathematics involved in the payment calculation, which in turn would lead to a rise in the hospital’s DSH revenue.  Although the D.C. Circuit found CHI’s theory reasonable, the court determined that the district court erred in finding that the HHS Secretary’s denial of Medicare reimbursements for DSH adjustments was impermissible and that a 2004 rule requiring dual-eligible days to be included in the Medicare fraction for the DSH calculation could not be retroactively applied to the 1997 cost-reporting period.  Underpinning the Circuit’s decision was the finding that the language of the mathematical calculation in the DSH statute “is downright byzantine and its meaning not easily discernible.”  The court therefore granted significant deference to the agency’s interpretation, and found that it was not arbitrary.  Moreover, the D.C. Circuit reasoned that even if the policy for excluding dual-eligible exhausted days from the Medicaid fraction was retroactively applied to the 1997 cost-reporting period, “it would not constitute the sort of unfair retroactivity that may render an agency decision arbitrary and capricious.”

The D.C. Circuit’s decision will likely have a significant impact on pending appeals with a similar issue.  A more detailed background about the Catholic Health Initiatives case and the D.C. District Court’s January 30, 2012 decision is available at the February 6, 2012 Health Headline entitled “DC Court Issues Latest DSH Decision,” available here.   

Reporter, Juliet M. McBride, Houston, +1 713 276 7448, jmcbride@kslaw.com.

Written by:

Published In:


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© King & Spalding | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.