In Becerra v. Empire Health Foundation, Supreme Court reaffirms reduction of disproportionate share payments to hospitals | Miles & Stockbridge PC

On June 24, 2022, the US Supreme Court ruled Becerra v. Empire Health Foundation and resolved a split between the US Courts of Appeals for the 6thth9th and the District of Columbia in favor of how the Department of Health and Human Services (“HHS”) determines hospital prorated payments (“DSH”).

The Medicare program accounts for the costs incurred by hospitals that serve a higher percentage of low-income patients by making DSH payments to those hospitals. The Medicare program calculates the DSH payment for each such hospital using the DSH supplemental payment formula (the “DSH Formula”). The DSH formula is calculated by combining two fractions—the Medicare fraction, which represents the percentage of a hospital’s Medicare patients who are low-income, and the Medicaid fraction, which represents the percentage of a hospital’s patients who are not eligible for Medicare and have low income.

Under discussion in Becerra v. Empire Health Foundation it was the language “who (for such days) were right [Medicare Part A] benefits” in the Medicare fraction. In 2004, HHS changed its position and maintained that patients “eligible” for Medicare Part A meant those patients for whom Medicare insures as opposed to those patients for whom Medicare insures and pays for a given day ( ie, HHS took the position that “eligible” for Medicare Part A benefits means “eligible” for Medicare Part A benefits). Echoing the US Court of Appeals for the 9thth Circuit, the Empire Health Foundation argued that HHS should interpret the language “who (for such days) were entitled to [Medicare Part A] benefits” means those patients currently receiving Medicare Part A benefits on a given day. This interpretation would likely greatly increase DSH payments because it would exclude those patients who are covered by Medicare but for whom Medicare will not pay for services (because, for example, the patient’s hospital benefits have been exhausted).

The Supreme Court gave deference to HHS’s interpretation of the complex language in Formula DSH and concluded that the word “eligible” in the Medicare fraction must include all patients who qualify for Medicare Part A benefits, even if the Trust Fund of Medicare Part A Hospital Insurance was not paying for services on a given day.

For many DSH hospitals, the Court’s decision to split the circuit in favor of HHS’s interpretation is a loss, as the Court’s decision reaffirms an interpretation of the DSH Formula that has the effect of reducing DSH payments- of. While the Court’s decision focused on the use of the word “entitlement” as it relates to Medicare Part A benefits, the word “entitlement” is used elsewhere in the DSH Formulary statute; for example, to be included in the Medicare fraction, a patient must be “eligible” for Supplemental Security Income (“SSI”) benefits. A patient is “eligible” for SSI benefits if the patient is actually receiving SSI payments. It is possible that the Court’s decision opens the door to arguments against this different and more restrictive interpretation of the word “fair”.

Hospitals in Maryland are under the jurisdiction of the Health Care Cost Review Commission and their charges for hospital services are determined through the Total Cost of Care Model (the “TCOC Model”). The TCOC model accounts for variations in costs associated with different poor patient populations (eg, Medicaid and charity care) in a way that is different from how the DSH formula accounts for such variations in costs in the rest of the country. As such, for Maryland hospitals, the decision in Becerra v. Empire Health Foundation it will not directly affect their reimbursement (at least while the TCOC Model is in effect). However, the Court’s decision serves to highlight the reimbursement struggle, nationwide, of hospitals that serve a higher percentage of low-income patients.

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