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SCOTUS Says a Medicare Patient is Included in the DSH Medicare Fraction Even if Medicare Does Not Pay

August 25, 2022

By: Chacey R. Malhouitre and Brontë Arreola

Earlier this summer, the Supreme Court issued an opinion in Becerra v. Empire Health Foundation, a case where a hospital challenged the Department of Health and Human Services (“HHS”) interpretation of a 2004 regulation affecting the way Medicare’s disproportionate share hospital (“DSH”) adjustments are calculated. The Supreme Court upheld HHS’s interpretation, much to the disappointment of the Empire Health Foundation and other hospitals like it across the country.

The DSH adjustment allows hospitals that serve a higher-than-usual percentage of low-income patients to receive higher rates. To calculate the DSH adjustment, HHS adds together two statutorily defined fractions: (i) the Medicare fraction—the proportion of a hospital’s days in a fiscal year for patients “entitled” to Medicare Part A benefits who have low incomes compared to all days in a fiscal year for patients “entitled” to Medicare Part A benefits; and (ii) the Medicaid fraction—the proportion of a hospital’s days in a fiscal year for patients who are “eligible” for Medicaid but not “entitled” to Medicare Part A benefits, compared to all patient days in a fiscal year. In determining the Medicare fraction, HHS interpreted the term “entitled” to benefits to include all days for Medicare Part A-eligible patients’ benefits when calculating DSH adjustments, regardless of whether the hospitals are actually reimbursed by Medicare for a patient on a given day.

The Supreme Court gave a couple of examples where a hospital might not be reimbursed by Medicare for a patient enrolled in Medicare: (i) where a patient exceeds the 90-day cap for an illness; or (ii) the patient is covered by other insurance (e.g., private health insurance, liability insurance, etc.). Thus, even if a patient is enrolled in Medicare, the hospital would not receive payments from Medicare in those instances, but HHS’s position, nevertheless, required that those patients be included in the numerator and denominator of the Medicare fraction for those days. This, in turn, reduced the Medicare fraction and meant that low-income Medicare patients could not be included in the Medicaid fraction, even though no Medicare payments were made on their behalf.

Empire Health owned a safety-net hospital impacted by this interpretation of the statute. It argued that HHS was being overinclusive and that the statute should only apply to those patients who were actively insured, and paid for, by Medicare. Empire Health argued that the law would have said “eligible for benefits” if it meant that a patient need only be enrolled or eligible for Medicare, despite not receiving benefits. But the statute specified that the patient be “entitled to benefits,” which Empire Health argued meant that the patient should actually receive the benefits. The Supreme Court upheld HHS’s interpretation, holding that all Medicare patients are to be included in the Medicare fraction when calculating DSH payments, regardless of Medicare actually paying the hospital for the patient.

Many will view this decision as a loss because HHS’s approach results in lower payments to some hospitals, and in the worst of cases, potential disqualification from the DSH adjustment altogether. Hospitals relying on DSH adjustments could lose billions of dollars in Medicare funding, increasing pressures on some safety-net hospitals. Some are also concerned that this ruling could affect how courts interpret the language “entitled” elsewhere in the Medicare statute if it arises in future litigation.

The Empire Health case is also notable in an administrative law context. Often, where a statute or regulation is ambiguous, courts give deference to the interpretation of the regulating/enforcing agency, believed to be a specialist in the field. This is referred to as the Chevron deference doctrine. Here, however, even though the arguments by the parties involved the ambiguity of the statute (and the Supreme Court discussed at length how confusing the statute was), the Supreme Court agreed with HHS without discussing judicial deference to the agency’s interpretation. Even though the Supreme Court sided with the agency in this case, this failure to defer, or even address Chevron deference, could lead to the Court determining its interpretation of a statute or regulation in the future, over the agencies that know the system best.

Jackson Kelly attorneys are ready to serve as trusted advisors to help you navigate the potential impacts of this decision, and to help you meet all of your health care compliance goals.


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