On May 9, 2017, the U.S. Court of Appeals for the District of Columbia Circuit affirmed a lower court ruling denying hospitals from including New Jersey Charity Care Program (NJCCP) patients in the hospitals’ disproportionate share hospital (DSH) payment formula.  The ruling in Cooper Hospital University Medical Center v. Price, No. 16-5165 (D.C. Cir. May 9, 2017) confirmed that the U.S. Department of Health and Human Services (HHS) can exclude State charity care patients that are not part of a Section 1115 waiver from counting toward additional Medicare hospital payments designated for low-income patient care.

In Cooper, hospitals in two consolidated appeals argued that HHS incorrectly interpreted and applied this statutory formula, which requires HHS to count the number of patient days attributable to patients “eligible for medical assistance under a State plan approved under [the Medicaid statute].” 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II).  The hospitals argued that HHS could not exclude patient days accrued under NJCCP from the reimbursement calculation.  Specifically, the hospitals’ position was that HHS’s decision to exclude NJCCP patient days from DSH calculations violated their equal protection rights because HHS allows other States’ charity program patients to be counted if they are part of HHS’s waiver program.

The HHS waiver program at issue in Cooper is found in Section 1115 of the Social Security Act (“Section 1115 expansion-waiver programs”).  Section 1115 expansion-waiver programs allow HHS to grant States approval for “experimental, pilot, or demonstration projects that promote the objectives of the Medicaid and Children’s Health Insurance Program (CHIP) programs” in order to expand eligibility to individuals who are not otherwise Medicaid or CHIP eligible; provide services not typically covered by Medicaid; or use innovative service delivery systems that improve care, increase efficiency, and reduce costs.  More information on Section 1115 expansion-waiver programs can be found here

The court acknowledged that Section 1115 expansion-waiver programs are Federally approved.  Thus, HHS’s decision to distinguish between Federally-approved programs and State-only programs, like NJCCP, is “congressionally sanctioned.”  Additionally, the court found that “while the Secretary [of HHS] has the discretion to include patient days for Section 1115 programs, he is prohibited from including state charity care patient days accrued through NJCCP.”  The court also noted that “a hospital’s eligibility to receive a larger Medicare-DSH payment neither affects a fundamental right nor burdens a suspect class,” and, therefore, HHS must only show “some legitimate governmental purpose in order to prevail against the Appellants’ Equal Protection arguments.”

The court found that there was clearly a legitimate purpose for HHS to exclude NJCCP patient days from the hospitals’ DSH payment formula.  The court agreed with the lower court’s holding that “expansion waivers further the goals of Medicaid, HHS has considerably more oversight of Section 1115 expansion-waiver programs than it does over state charity care programs, and the decision to approve expansion-waiver programs and include them in the Medicare DSH reimbursement is made on a case-by-case basis.”

The court’s decision was not surprising as several others cases have held similarly in the past.  However, it does emphasize the importance of distinguishing between populations included in Section 1115 waiver programs and those subject only to a State charity care program for DSH reimbursement purposes.  The court’s decision in Cooper Hosp. Univ. Med. Ctr. v. Price can be read in its entirety here.