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Justices Keep Medicare Payment Changes for Low-Income Hospitals (1)

June 24, 2022, 2:13 PMUpdated: June 24, 2022, 3:38 PM

The Supreme Court on Friday upheld a 2005 rule that decreased the amount of additional Medicare payments hospitals get for serving a larger share of poor patients.

The decision means some providers may not be able to recoup the higher costs they say they spend treating low-income patients.

In a split 5-4 decision, the court said Department of Health and Human Services regulation is consistent with the text, context, and structure of the DSH provisions. The court held in calculating the Medicare fraction that 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.

The Medicare statute maps out how the Department of Health and Human Services should calculate these annual supplemental payments, known as disproportionate share hospital (DSH) adjustments.

The formula is based on the sum of two percentages—the Medicare fraction and 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 changing its interpretation of one word. It said patients “entitled” to Medicare Part A mean those who are “eligible” for the benefits. But it kept its narrow interpretation of patients “entitled” to SSI as requiring actual receipt of SSI payments.

The upshot was that the number of people qualifying under the Medicaid fraction shrank—and few of those who were excluded qualified under the Medicare fraction.

The formula “accords with the statute’s attempt to capture, through two separate measurements, two different segments of a hospital’s low-income patient population,” the justices wrote in their opinion.

Empire Health Foundation, a Washington-based health system that challenged the rule, said disproportionate share hospitals across the country suddenly saw both their Medicare and Medicaid fractions decrease—even if there was no change in the number of poor patients they were treating.

The rule significantly decreases the number of hospitals receiving DSH payments and the payment amounts by undercounting the indigent patients those hospitals serve, Empire Health said in a brief to the court.

A ‘Term of Art’

Empire attempted to persuade the justices that being “entitled” to a benefit meant having an “absolute right” to its payment. “But throughout the Medicare statute, ‘entitled to benefits’ is essentially a term of art meaning ‘qualifying for benefits,” the opinion said.

The HHS had argued its interpretation reflected the best, most natural reading of the statutory text of the Medicare Act.

“Other provisions of the statute confirm, as HHS has long recognized, that a Medicare beneficiary’s ‘entitlement’ to Part A benefits does not depend on whether he or she has exhausted the maximum allotment of one particular benefit (hospital inpatient days) for a specific benefit period,” the agency said in its petition to the justices.

The difficult-to-interpret Medicare statute left justices confused and exhausted at an oral argument in November. Justice Elena Kagan nodded at its complexity in the majority opinion after outlining the background of the case. “With that under your belt, you might be ready to absorb the relevant statutory language (but don’t bet on it),” Kagan wrote, calling the statute a “mouthful.”

The HHS’s new interpretation of the statute, motivated by “trying hard to find ways to contain Medicare costs in light of increasing Medicare expenditures and the country’s fiscal situation,” is incorrect, Justices Brett Kavanaugh, Neil Gorsuch, Samuel Alito, and Chief Justice John Roberts said in dissent.

“HHS’s contrary interpretation boils down to the proposition that a patient can be simultaneously entitled and disentitled to have payment made by Medicare for a particular day in the hospital. That interpretation does not work,” Kavanaugh wrote.

The case is Becerra v. Empire Health Found., U.S., No. 20-1312, opinion 1/13/22.

(Updates with additional details throughout. )

To contact the reporters on this story: Lydia Wheeler in Washington at lwheeler@bloomberglaw.com; Allie Reed in Washington at areed@bloombergindustry.com

To contact the editors responsible for this story: Brent Bierman at bbierman@bloomberglaw.com; Alexis Kramer at akramer@bloomberglaw.com