Payment Matters: D.C. Appeals Court Provides Mixed Victory to Provider on DSH Calculation Involving Medicare Part C Days

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In a limited victory for providers, the United States Court of Appeals for the District of Columbia Circuit ruled in Northeast Hospital v. Sebelius that CMS used an impermissibly retroactive policy when it calculated the provider’s disproportionate share hospital (DSH) adjustment. Although the provider prevailed in Northeast Hospital, the decision threatens to dramatically reduce DSH reimbursement for any provider with a significant Medicare managed care population.

The DSH calculation measures the number of patient days associated with low income patients using two fractions: (1) the Medicare fraction, which includes only days associated patients that are “entitled to benefits under Medicare Part A,” and (2) the Medicaid fraction, which excludes days associated with patients that are “entitled to benefits under Medicare Part A.” The issue in Northeast Hospital was the proper treatment of patient days associated with beneficiaries who are both enrolled in Medicare Part C and eligible for Medicaid. Inclusion of days associated with such patients in the Medicare fraction, as opposed to the Medicaid fraction, significantly diminishes reimbursement under the DSH adjustment.

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