The Third Circuit recently issued an opinion in Nazareth Hospital et al. v. Sebelius, No. 13-2627, holding that Medicaid pilot projects, known as Section 1115 waiver projects, were different enough from the State of Pennsylvania’s General Assistance (“GA”) plan to warrant being treated differently for purposes of calculating Disproportionate Share Hospital (“DSH”) payments.  The opinion overturns a decision by the U.S. District Court for the Eastern District of Pennsylvania that there was no good basis for the distinction, which had breathed life into the argument that general assistance days should be included in the DSH Medicaid fraction.   

The District Court focused on the fact that the Secretary approved Pennsylvania’s GA plan as part of the State Medicaid plan (specifically, in amendment SPA 94-08, which sets forth Pennsylvania’s proposal to distribute Medicaid DSH payments) just as she approves Section 1115 waiver projects, and that Section 1115 waiver projects and the GA plan covered essentially the same patients and services.  Thus, there was no rational basis for distinguishing the two, and to do so would result in some hospitals unfairly losing out on DSH money despite treating essentially the same people.

In overturning the District Court, the Third Circuit found the purpose of Section 1115 waiver programs as compared to the GA plan, as well as the Secretary’s amount of control and oversight of a Section 1115 waiver project, to be rational distinctions.  According to the Third Circuit, while the Secretary did review the GA plan, she reviewed it for a different purpose—to ascertain how the State of Pennsylvania intended to disburse Medicaid DSH payments, not to determine whether the objective of the Medicaid statute would be promoted by its authorization, as would be the case in reviewing a Section 1115 waiver project. 

As for the similarity in patients and plans, the Third Circuit stated that even if the similarities were accurate, they were irrelevant: “While people and services may be the same, they can be treated differently for purposes of reimbursement if the reason for the differing treatment is rational.  The Secretary has described relevant distinctions between patient days under the state GA plan and those under a Section 1115 waiver project, such that she rationally excluded the former from Medicare DSH calculations and included the latter.”    

For a copy of the Third Circuit opinion, please click here.  For a copy of the District Court decision, please click here. 

Reporter, Kerrie S. Howze, Atlanta, +1 404 572 3594, khowze@kslaw.com.