On June 24, 2022, the U.S. Supreme Court decided Becerra v. Empire Health Foundation and resolved a split between the U.S. Courts of Appeal for the 6th, 9th and District of Columbia Circuits in favor of how the Department of Health and Human Services (“HHS”) determines disproportionate share hospital (“DSH”) payments.
The Medicare program accounts for the costs incurred by hospitals that serve a higher proportion of low-income patients by making DSH payments to those hospitals. The Medicare program calculates the DSH payment for each such hospital using the DSH supplemental payment formula (the “DSH Formula”). The DSH Formula is calculated by combining two fractions – the Medicare fraction, which represents the proportion of a hospital’s Medicare patients who have low incomes, and the Medicaid fraction, which represents the proportion of a hospital’s patients who are not entitled to Medicare and have low incomes.
At issue in Becerra v. Empire Health Foundation was the language “who (for such days) were entitled to [Medicare Part A] benefits” in the Medicare fraction. In 2004, HHS changed its position and took the stance that patients “entitled” to Medicare Part A meant those patients for whom Medicare insures as opposed to those patients for whom Medicare insures and pays for on a given day (i.e., HHS took the position that “entitled” to Medicare Part A benefits meant “eligible” for Medicare Part A benefits). Echoing the U.S. Court of Appeals for the 9th Circuit, Empire Health Foundation argued that HHS should interpret the language “who (for such days) were entitled to [Medicare Part A] benefits” to mean those patients actually receiving Medicare Part A benefits on a given day. This interpretation would likely increase many DSH payments because it would exclude those patients who Medicare insures but for whom Medicare will not pay for services (because, for example, the patient’s inpatient hospital benefits have been exhausted).
The Supreme Court gave deference to HHS’s interpretation of the complex language in the DSH Formula and concluded that the word “entitled” in the Medicare fraction should include all patients eligible for Medicare Part A benefits, even if the Medicare Part A Hospital Insurance Trust Fund was not actually paying for services on a given day.
For many DSH hospitals, the Court’s resolution of the circuit split in favor of HHS’s interpretation is a loss, since the Court’s decision reaffirms an interpretation of the DSH Formula that has the effect of reducing DSH payments. While the Court’s decision focused on the use of the word “entitled” as it relates to Medicare Part A benefits, the word “entitled” is used elsewhere in the DSH Formula statute; for example, to be included in the Medicare fraction, a patient must be “entitled” to supplemental security income (“SSI”) benefits. A patient is “entitled” to SSI benefits if the patient is actually receiving SSI payments. It is possible that the Court’s decision opens the door to arguments against this differing and more restrictive interpretation of the word “entitled.”
Hospitals in Maryland are under the jurisdiction of the Health Services Cost Review Commission, and their rates for hospital services are set through the Total Cost of Care Model (the “TCOC Model”). The TCOC Model accounts for variations in cost associated with different poor patient populations (e.g., Medicaid and charity care) in a way that is different from how the DSH Formula accounts for such variations in cost in the rest of the country. As such, for Maryland hospitals, the decision in Becerra v. Empire Health Foundation will not directly affect their reimbursement (at least while the TCOC Model is in effect). Nevertheless, the Court’s decision serves to highlight the reimbursement struggle, nationwide, of hospitals that serve a higher proportion of low-income patients.
The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties. Opinions and conclusions in this post are solely those of the author unless otherwise indicated.
[View source.]
