Additional Hospitals File Complaint Against HHS Secretary Regarding Medicare DSH Payments

In the District of Columbia District Court on Monday, Brooks-TLC Hospital System Inc. and 14 other hospitals filed a complaint against the Secretary of the Department of Health and Human Services (HHS), Alex M. Azar, requesting judicial review and declaratory and injunctive relief regarding a previously vacated rule that the plaintiffs alleged has resulted in miscalculated disproportionate share hospital (DSH) payments under Medicare and alleging that HHS violated the Medicare Act by not engaging in notice-and-comment rulemaking. The case largely echoes one filed late last month, by a different set of hospital plaintiffs.

DSH payments are calculated through the Medicaid fraction — “the numerator of which is the number of the hospital’s patient days for such period which consist of patients who (for such days) were eligible for medical assistance under a State plan approved under (the Medicaid statute, title XIX of the Social Security Act), but who were not entitled to benefits under part A of (the Medicare statute, title XVIII of the Social Security Act), and the denominator of which is the total number of the hospital’s patient days for such period” — and the Medicare Part A/SSI fraction — of which “(t)he denominator includes all Medicare Part A days, whereas the numerator includes only those Part A days for patients who are also entitled to social security income (‘SSI’) benefits under title XVI of the Social Security Act.”

According to the complaint, the Court of Appeals has made three rulings against HHS after actions challenging attempts by it to apply a policy change under Medicare Part C, first adopted in 2004, that would deny DSH payments to hospitals for inpatients; before 2004, a DSH regulation existed that “limited part-A-entitled days in the Medicare Part A/SSI fraction to patient days that were ‘covered,’ or paid, by Medicare Part A,” the complaint said.

The 2004 rule in question announced that HHS would begin to include Part C days in in the Medicare Part A/SSI fraction while excluding them from the Medicaid fraction. The multiple rulings by the appeals court vacated the rule; two such rulings came from Allina Health Services v. Sebelius (Allina I) in 2014, which vacated the 2004 rule “because it was not a logical outgrowth of proposed rule,” and Allina Health Services v. Price (Allina II) in 2017, which held that HHS must use notice-and-comment rulemaking before the policy in the 2004 vacated rule can take effect.

However, “(o)n August 6, 2020, nearly a year after this Court entered judgment in the Allina II plaintiffs’ favor, the agency published in the Federal Register a notice of proposed rulemaking announcing a proposal to adopt retroactively for periods prior to October 1, 2013 (and even prior to the vacated 2004 rule) the same Part C policy change as that previously adopted in the publications vacated in Allina I and Allina II,” the plaintiffs argued, in a purported refusal by HHS “to acquiesce in those decisions or in the Supreme Court’s recent decision in Allina II affirming the Court of Appeals’ decision.”

HHS’s publication of its notice of proposed rulemaking violated 42 U.S.C. § 1395hh(a)(2) of the Medicare Act, the plaintiffs alleged, which requires any “rule, requirement, or other statement of policy … that establishes or changes a substantive legal standard” to be “promulgated” through notice-and-comment rulemaking so that affected parties have the ability to comment on the ruling in question.

The plaintiffs requested a declaration that the calculations of the final Medicare payment determinations set forth by the vacated 2004 rule are invalid, among other declarations, legal fees, and other relief the court deems reasonable.

The plaintiffs are represented by Ropes & Gray LLP, which also represented plaintiffs in the earlier-filed case.