Hospitals’ Challenge to Medicare Payment Formula Tossed by Court

A challenge by two hospitals over how Medicare calculates reimbursements was properly dismissed by an administrative appeal board, a federal district court ruled.

The Medicare agency’s publication of the formula it used wasn’t a final action subject to appeal, the U.S. District Court for the District of Columbia said Friday, granting the government’s summary judgment bid on jurisdictional grounds.

The lawsuit, filed by two Indiana hospitals, concerned the way the Centers for Medicare & Medicaid Services adjusted reimbursements to provide additional support to hospitals that treat a large number of patients who are uninsured or on Medicaid.

Hospitals become eligible to receive additional payments—known as disproportionate share (DSH) payments—based on the proportion of inpatient services they provide to low-income patients eligible for Medicare Part A, and the proportion of inpatient services to Medicaid patients.

Medicare Part A covers inpatient hospital stays and post-discharge care in skilled nursing facilities. Medicaid is a joint federal-state health insurance program for low-income people.

Medicare Part C

The dispute between the Indiana hospitals and the CMS concerned how to factor into the DSH calculation the services provided to another class of patients—those enrolled in Medicare Part C, who aren’t eligible for benefits under Medicare Part A.

Under Medicare Part C, private health insurers cover inpatient hospital and outpatient services. Very few Medicare Part C patients qualify as low-income under the criteria used by the CMS.

The CMS formula included inpatient days for Medicare Part C patients in the DSH calculation in such a way that the hospitals’ DSH payments were reduced.

The issue of how to include Medicare Part C in DSH calculations “has been the subject of considerable litigation,” the court said.

Jurisdiction

An administrative appeals board within the Department of Health and Human Services dismissed the hospitals’ challenge to the CMS formula in 2020, ruling that the formula wasn’t a “final determination of the Secretary [of the HHS] as to the amount of the payment,” as required by the Medicare statute.

The court agreed.

The formula at issue in the appeal couldn’t be considered final because the agency rescinded it shortly after publication, the court said. The revised fractions that were actually used to calculate the hospitals’ payments weren’t published until three years later, it said.

The court also rejected the hospitals’ argument that the method of treating Medicare Part C inpatient days in the DSH formula should be treated as a final decision subject to appeal because it remained unchanged in the formula despite other elements that were revised.

An “interim decision is not rendered final simply by the fact that it remains unchanged throughout later revisions,” the court said.

The review board’s decision also was based on a reasonable interpretation of the Medicare statute, one that has guided the HHS since the 1980s, the court said.

The case is Memorial Hospital of South Bend v. Becerra, D.D.C., No. 1:20-cv-03461, Opinion 3/25/22.