Appeals Court Digs Deep Into Medicare Payments for Treating Poor

The US Court of Appeals for the District of Columbia Circuit discussed the finer points of the rule used in Medicare to compensate hospitals for treating low-income patients during oral argument Friday.

A district court ruling went against 200 acute-care hospitals nearly a year ago in the case, Advocate Christ Medical Center v. Becerra. But after the US Supreme Court’s 5-4 decision on a similar issue in the Becerra v. Empire Health Found., issued two weeks after the district court ruling, hospitals revised their strategy in front of the three-judge panel of Gregory Katsas, Karen Henderson, and Florence Pan.

How the Department of Health and Human Services calculates the annual supplemental payments, known as disproportionate share hospital (DSH) adjustments, is a contentious issue with heated debate over the definition of “entitlement” and “eligibility.”

Hospitals had argued before the district court that the rule didn’t correctly interpret what it means for patients to be “entitled” to Supplemental Security Income benefits, which is used by the Department of Health and Human Services as a proxy for care provided to low-income patients.

However, the court granted summary judgment in June 2022 to the HHS, saying the rule was consistent with the Medicare statute and reasonable. In doing so, it denied the hospitals’ claim for recalculation of their compensation for fiscal years 2006-2009.

DSH Formula

The Medicare statute describes a mathematical formula for the DSH payments. The formula is based on the sum of two fractions—the Medicare fraction and the Medicaid fraction.

The Medicare fraction is the percentage of a hospital’s patients entitled to Medicare Part A and Supplemental Security Income (SSI). The Medicaid fraction is the percentage of a hospital’s patients who are eligible for Medicaid but not Medicare Part A, which covers inpatient hospital stays.

In its rule, the HHS changed how the Medicare fraction is calculated by offering a broad interpretation of one word after 2004. It said patients “entitled” to Medicare Part A means those who are “eligible” for the benefits. That includes patients who had already exhausted their Medicare Part A benefits like hospital inpatient days.

However, the HHS kept its narrow interpretation of patients “entitled” to SSI as requiring actual receipt of SSI payments.

SSI is a federal program providing monthly payments to low-income people with limited resources, including disabled children, disabled adults, and people 65 years and older.

Hospitals are fighting the rule because reducing the amount of care provided to people deemed to be low income also led to a reduction in reimbursements for them.

‘Trust Us’

Daniel Miller, the attorney representing hospitals, argued the agency’s interpretations in the Medicare fraction is inconsistent and that its definition of entitlement to SSI benefits should not be limited to receipt of payment.

Miller, a shareholder with Hall Render, also said the SSI data, compiled by the Social Security Administration, was not shared with hospitals, preventing them from authenticating it.

“The government says ‘trust us,’ but they don’t give us the information,” he said. " We are supposed to be able to challenge or verify the DSH calculation.”

But Pan questioned whether it was possible for the HHS to obtain the data, suggesting that hospitals were asking for information agencies don’t have.

The HHS received some scrutiny toward the end of the oral argument, with Katsas weighing whether the agency ought to broaden its definition of entitlement to SSI benefits. He discussed a scenario where an individual met the status-based requirements of the program but wasn’t enrolled because he or she didn’t complete the necessary forms.

“Wouldn’t you say that person is entitled to the benefit, and is the kind of person Congress had in mind?” he asked.

“Seems like a matter of paperwork,” he said after Stephanie Marcus, a Justice Department attorney representing the HHS, disagreed.

The case is Advocate Christ Medical Ctr. v. Becerra, D.C. Cir., No. 22-5214.