California Hospitals File Disproportionate Share Payments Case Against HHS

On Monday a case was filed in District of Columbia District Court by Pasadena Hospital Association, Pomerado Hospital, Stanford Health Care- Valleycare, Washington Township Hospital, and Zuckerberg San Francisco General Hospital & Trauma Center against Xavier Becerra as Secretary of Health and Human Services. The case is regarding underpayment of the disproportionate share payments for inpatient treatments.

Inpatient treatments are paid by Medicare according to a formula that provides payment subject to certain factors that adjust the payment amount; one of these factors is the Disproportionate Share Hospital fraction. This fraction is intended to adjust the payment amount higher for hospitals that end up serving a larger than average number of patients of lower income.

To qualify for this disproportionate share, the hospital must file an end of year cost report. The report is then reviewed by a medicare contractor and a notice of program reimbursement is issued as to the amount of additional reimbursement which pertains to the number of patients who have state Medicaid, but who were also eligible under Medicare.

Prior to 2004, the agency did not treat patients enrolled in Medicare Part C as a part of the calculation of DSH benefits, which resulted in a higher payment to the hospital facilities. However, in 2003, a new proposed rule was issued that would include the Part C days in the calculation of benefits.

This new rule was disputed in three prior lawsuits: 1) Northeast Hosp. Corp. v. Sibelius (application of the 2004 rule cannot be retroactive); 2) Allina Health Services v. Sibelius (vacating the 2004 as it was not a logical outgrowth of the proposed rule); and 3) Allina Health Servs v. Price (stating that a rule with such a large impact must be subject to a notice and comment period).

However, no affirmative action has been taken as a result of these cases and the claims submitted during this time period remain processed at the lower payment amount. This case seeks the proper reprocessing and payment of the affected years from 2004-2008 as well as a return of the authority for the Medicare Contractors to properly review appeals and process these payments.

The plaintiffs seek declaratory judgment that the prior calculation of the DSH from 2004 through 2013 was incorrect, declaratory judgment that the previous ruling removing authority for review of appeals was incorrect, and repcoessing and payment of the underpaid amounts from the affected cases. Plaintiffs are represented by Ropes & Gray, LLP.