Supreme Court Decision Maintains Status Quo for Disproportionate Share Percentage Calculation: What Does It Mean for the 340B Program?

Quarles & Brady LLP

Last week, the Supreme Court released a decision relating to how the Department of Health and Human Services (HHS) requires hospitals to calculate its disproportionate share percentage. While this percentage is primarily used to determine enhanced reimbursement rates depending on how many low-income patients the hospital treats, it is also used as a minimum 340B eligibility threshold for certain hospital providers.

In short, the Court determined that HHS’s current methodology (in effect since 2004) for calculating the disproportionate share percentage is correct and the percentage should continue to be calculated in the same manner as it has been over the last eighteen (18) or so years.

We will spare the reader from an in-depth breakdown of the Byzantine Medicare regulatory structure (even the Court acknowledged that the laws and rules at issue in this case are “mind numbingly complex”). The crux of the case revolves around the total number of Medicare “patient” days that should be included in the statutory formula used to calculate the disproportionate share percentage. Specifically, the case largely hinged on whether days where a Medicare-eligible patient was (1) treated at the hospital but (2) did NOT actually utilize his/her Medicare coverage should count as patient days included in the formula (for example, if a Medicare beneficiary has supplemental commercial insurance that has not yet been exhausted, so Medicare was not billed). The Court ultimately determined that those days should still be included in the formula, which aligns with current HHS requirements.

What Does This Mean for the 340B Program?

340B participating disproportionate share hospitals (DSH), children's hospitals (PED), and free-standing cancer hospitals must have a disproportionate share percentage of at least 11.75% per their most recently filed Medicare Cost Report to maintain 340B eligibility. Rural referral centers (RRC) and sole community hospitals (SCH) must have a percentage of at least 8%.

From a practical perspective, this will have little to no impact on current 340B participating hospitals. The disproportionate share percentage will continue to be calculated in the same manner.

On the other hand, the Court’s ultimate decision was unfavorable to non-qualifying hospitals hoping to attain a disproportionate share percentage above the 340B Program’s minimum thresholds. If the Court would have decided the case differently and the Medicare patient days discussed above were deemed to be excluded from the calculation, this would, on the whole, have led to higher disproportionate share percentages and potentially allowed additional hospitals to qualify for the 340B Program. However, the methodology will remain the same, and hospitals on the cusp of 340B eligibility (but still under those minimum thresholds) will not experience a bump in their disproportionate share percentage based on an updated calculation.

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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