Supreme Court Decision Strikes at Healthcare

The recent ruling is expected to impact DSH payments.

The Supreme Court has been busy dealing with healthcare lately. One of its recent decisions will have an impact on hospitals and their audits going forward. It reversed and remanded a 9th Circuit decision. Disproportionate share hospital or DSH adjustments are one of the many payments from the federal government to hospitals that are targeted in audits of hospitals.

In Becerra versus Empire Health Foundation, the Supreme Court held that in calculating the Medicare fraction, individuals “entitled to [Medicare Part A] benefits” are all those qualifying for the program, regardless of whether they receive Medicare payments for part or all of a hospital stay.

It was a 5-4 decision published June 24, 2022, by Justice Kagan.

Medicare pays hospitals a fixed rate for such treatment based on the patient’s diagnosis, regardless of the hospital’s actual cost and subject to certain adjustments. One such adjustment is the “disproportionate share hospital” (DSH) adjustment, which provides higher than-usual rates to hospitals that serve a higher-than-usual percentage of low-income patients. To calculate the DSH adjustment, HHS adds together two statutorily described fractions: the Medicare fraction—which represents the proportion of a hospital’s Medicare patients who have low incomes—and the Medicaid fraction—which represents the proportion of a hospital’s total patients who are not entitled to Medicare and have low incomes. Together those fractions produce the “disproportionate patient percentage,” which determines whether a hospital will receive a DSH adjustment, and how large it will be.

These DSH adjustments will be audited to ensure accuracy.

The case was basically challenging a rule created by the U.S. Department of Health and Human Services (HHS) in 2004. HHS issued a regulation instructing that patients whom Medicare insures but does not pay for on a given day (e.g., because a hospital stay exceeds 90 days or a patient is otherwise insured) are “entitled to” Medicare Part A benefits for purposes of computing the Medicare fraction.

Practically, this regulation has generally decreased hospital reimbursements from Medicare. Empire Health Foundation challenged the HHS regulation as contrary to the text of the underlying statute. The Ninth Circuit agreed. The Supreme Court did not.

HHS rules are not law. They are not promulgated. They are not issued by Congress. These rules are created by an administrative agency. The Supreme Court was correct in holding that statutes are law and surpass the weight of an HHS Ruling. This decision will also lead to higher payments to hospitals, which, as we all know, will make auditors salivate.

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