Supreme Court Affirms HHS Calculation Method of Medicare Reimbursement to Hospitals

In a Friday decision, the Supreme Court upheld the Department of Health and Human Services’ (HHS) approach to calculating Medicare payments for hospitals who serve a greater percentage of low-income patients, specifically those who rely on Medicaid or are uninsured.

The decision centered around disproportionate share hospital adjustments (also called DSH payments), which provide reimbursements to hospitals that provide care to a higher number of Medicaid and uninsured patients. The reimbursements are calculated using the DSH payment statute, which is the contested formula. The case sought to determine if the DSH payments were being calculated using a misinterpretation of the formula, or if the existing statute was unclear and the court should merely defer to HHS for calculation purposes.

The challenge to HHS’s current method of calculation was brought by the Empire Health Foundation, who argued that HHS misinterpreted the formula by calculating one of the fractions, the Medicare fraction, incorrectly. Specifically, the case sought to determine “whether patients whom Medicare insures but does not pay for on a given day are patients who were entitled to benefits” for the purposes of calculating a fraction for the disproportionate patient percentage portion under the DSH payment statute. A patient can be insured by Medicare but not covered on a given day if their hospital stay extends past 90 days.

HHS’s existing and Supreme Court-affirmed method includes patients who are not covered by Medicare for certain days in the DSH payment calculation. Empire Health Foundation argued that by including this in the calculation, HHS was not only misinterpreting the statute, but hospitals were also receiving lower reimbursements than the DSH payment statute intends to provide.

The Supreme Court affirmed the current HHS method in a 5-4 decision, asserting that HHS did not misinterpret the formula, with Justice Elena Kagan noting that “HHS’s regulation correctly construes the statutory language at issue.” She was joined in her opinion by Justices Clarence Thomas, Stephen Breyer, Sonia Sotomayor, and Amy Coney Barrett.

A dissent was written by Justice Brett Kavanaugh, which the remaining three justices (Justices Samuel Alito and Neil Gorsuch, and Chief Justice John Roberts) joined. Justice Kavanaugh’s dissent explained that “HHS’s misreading of the statute has significant real-world effects: It financially harms hospitals that serve low-income patients, thereby hamstringing those hospitals’ ability to provide needed care to low-income communities.”

Kagan concluded that the ultimate opinion of the court was in approval of the existing HHS understanding of the Medicare fraction included in the DSH payment statute. The hospitals were represented by King & Spalding.