CMS Prevails in DSH Challenge Involving Waiver-Expansion Days

by Baker Donelson

Over the years, CMS and its contractors have wrestled with how days approved under a Medicaid demonstration project should be counted, if at all, for purposes of the Medicare disproportionate share hospital (DSH) calculation. Plainly, federal law requires that the Medicare DSH calculation include days associated with patients covered under Title XIX of the Social Security Act. The question, however, has been whether similar days associated with patients who are covered under a demonstration projected authorized under Section 1115 of the Social Security Act (“expansion days”) must also be included in the Medicare DSH calculation. On April 22, the United States Court of Appeals for the Sixth Circuit, in Adventist Health Sys./Sunbelt, Inc. v. Sebelius [PDF], said “no,” at least for the years at issue (years before 2000).

By way of background, prior to 2000, CMS had not expressly adopted a position regarding how expansion days should be treated, leaving the decision on how to treat the days up to the fiscal intermediaries. The fiscal intermediaries, in turn, were inconsistent in their treatment. Fiscal intermediaries in some states allowed hospitals to include expansion days in the Medicaid fraction of the Medicare DSH adjustment. Other intermediaries, however, including the intermediary for the plaintiff/appellant hospitals here, did not. In January 2000, however, CMS took a position regarding expansion days, issuing a rule in which the agency included such days in the DSH formula. Then, some five years later, Congress passed the Deficit Reduction Act (DRA) in which it both amended the DSH statute explicitly to authorize the Secretary to include expansion days in the DSH calculation and ratified the CMS’s 2000 rule.

Unfortunately for the hospitals here, their claims were for years prior to 2000 (when the decision on how to treat the days was left to the intermediaries), and their fiscal intermediary was one that had determined that the expansion days were not part of the DSH calculation. The providers challenged the intermediary’s position, but their challenge had no success before CMS, the district court, or the court of appeals. The court of appeals concluded that the position taken by the intermediary and affirmed by CMS was a permissible construction of the statute as it existed prior to the DRA, stating that the statute, at that time, did not directly address whether expansion days should be counted in the DSH calculation. It then went on to rule that the intermediary’s interpretation of the statute, pre-DRA, was a permissible one and was neither arbitrary nor capricious.

In its decision, the Sixth Circuit recognized that, in Portland Adventist Med. Ctr. v. Thompson, 399 F.3d 1091 (9th Cir. 2005), the Ninth Circuit had earlier ruled that the statute was unambiguous and required the inclusion of the expansion days in the Medicare DSH formula. The Sixth Circuit, however, disagreed with the Ninth Circuit’s ruling and concluded that a more recent decision by the D.C. Circuit, Cookeville Regional Med’l Ctr. v. Leavitt, 531 F.3d 844 (D.C. Cir. 2008), was more persuasive. In Cookville, the D.C. Circuit concluded that the statutory language gave the Secretary discretion not to include expansion days in the calculation. Moreover, the Sixth Circuit concluded, the Portland Adventist court did not have the advantage of viewing the issue in light of the DRA, in which Congress clarified its intent regarding the DSH adjustment calculation and the scope of the Secretary’s discretion. That clarification, the court held, should be given “significant consideration” and “great weight.” Accordingly, the court held, the CMS position must be upheld.

Ober|Kaler’s Comments

The Sixth Circuit’s decision was not particularly surprising given the D.C. Circuit’s 2008 Cookeville ruling. Under both court rulings, CMS’s 2000 regulation and the DRA, the only periods for which expansion days are to be excluded from the Medicare DSH calculation are for those years prior to 2000, and then only when the intermediary’s practice had been to disallow those days. Unfortunately for these providers, they fell within that group.

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.

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