On August 25, 2018, the U.S. District Court for the District of New Hampshire in New Hampshire Hospital Association v. Azar gavehospitals another victory in their claims that CMS unlawfully reduces Medicaid Disproportionate Share Hospital (DSH) payments to hospitals by requiring them to calculate their uncompensated care costs to include an offset of payments for patients who were “dually eligible” for Medicaid and either private commercial insurance or Medicare. Earlier this year, the U.S. District Court for the District of Columbia vacated CMS’s 2017 Final Rule codifying this policy. The Secretary appealed that decision to the U.S. Court of Appeals but continued defending the 2017 Final Rule in other districts. In this present instance, the U.S. District Court for the District of New Hampshire found that the nationwide vacatur rendered the issue moot and dismissed the case. The dismissal notes that CMS no longer plans to enforce the 2017 Final Rule while the vacatur remains in effect. Though CMS does not appear to have totally abandoned its position, hospitals are well positioned to argue for Medicaid DSH reimbursement without feeling the reductions of CMS’s policy to count commercial and Medicare payments for dual eligibles toward the hospital-specific limit for Medicaid DSH.
Background
The federal Medicaid statute sets a hospital-specific limit on the amount of Medicaid DSH funding a hospital can receive. The limit is calculated as the net costs of care to Medicaid eligible and uninsured individuals. The Medicaid statute requires hospitals to calculate “net costs” by offsetting payments received under the Medicaid program. The controversy in these cases is whether hospitals are also required to offset payments received by commercial insurers or Medicare for patients who are dually eligible. Offsetting these payments will lower a hospital’s limit and therefore reduce the amount of Medicaid DSH funds it can receive.
When CMS first promulgated regulations setting out the Medicaid DSH payment calculation in a 2008 final rule, it did not require offsets for commercial and Medicare payments for dually eligible payments. Since the 2008 final rule, however, CMS has twice attempted to change this policy and require hospitals to report payments from commercial insurers or Medicare for dually eligible patients. In both instances, federal courts have ruled in favor of providers.
In the first instance, CMS issued guidance in the form of Frequently Asked Questions (FAQs) in 2010, stating in FAQs 33 and 34 that hospitals were to include in the hospital specific limit both private insurance payments received for commercial/Medicaid duals and Medicare payments for Medicare/Medicaid duals. When CMS attempted to enforce this policy from the FAQs, several federal courts ruled that this new policy was not adopted in accordance with lawful procedure and is, therefore, invalid.
In reaction to these losses, CMS promulgated a 2017 final rule codifying into regulation the policy from FAQs 33 and 34. See 82 Fed. Reg. 16114 (April 3, 2017). Hospitals have also successfully challenged the 2017 Final Rule in federal court. In particular, the U.S. District Court for the District of Columbia in Children’s Hospital Association of Texas v. Azar found that the 2017 Final Rule violated the federal Medicaid statute and vacated the rule on a nationwide basis. See, No. 17-cv-844 (D.D.C. Mar. 6, 2018). Federal case law supports the conclusion that when a federal court vacates a rule, it is as if the rule was never in effect, and the agency’s prior policy is effective.
The current case
In New Hampshire Hospital Association, the Secretary attempted to defend the 2017 Final Rule in front of the U.S. District Court for the District of New Hampshire while the Children’s Hospital decision is on appeal in the D.C. Circuit. Judge McCafferty, however, dismissed the case by finding that “the ruling in Children’s Hospital vacating the Final Rule renders the parties’ dispute moot.” In other words, it is no longer in effect. In doing so, the court relied on the Secretary’s filings which acknowledged that the Children’s Hospital vacatur order “prevents application of the Final Rule” and that CMS “will not enforce the rule so long as the Children’s Hospital [] decision remains operative in its current form.”
What this case means for hospitals
Many hospitals are in the midst of receiving audit results from states or their contractors, like Myers and Stauffer, that seek to recoup Medicaid DSH funds relying upon CMS’s heavily criticized policy set forth in the FAQs and the 2017 rule that has now been vacated. Similarly, many hospitals are in the process of reporting cost and payment data to states for the purposes of calculating their hospital-specific DSH limits for future years. Hospitals in these positions now have some additional options to consider as a result of the New Hampshire Hospital Association development and the Secretary’s admission that he is no longer enforcing the 2017 rule while the D.C. Circuit case is pending on appeal. These decisions are difficult to manage, however, in light of the fact that the Secretary has still not conceded that he has authority to require hospitals to report commercial and Medicare payments for purposes of calculating the hospital-specific limit.
The court opinion is available here.
