Here's where the DSH payment lawsuits stand

By Bridget Early / August 26, 2024

Hospitals and the federal government have been engaged in years of back-and-forth legal battles over billions of dollars in Medicare and Medicaid payments meant to support providers that treat large numbers of low-income patients.

These disputes about Medicare and Medicaid disproportionate share hospital, or DSH, payments have found their way to the Supreme Court before and will again as different judges reach different conclusions.

In the meantime, a handful of lawsuits continue to wind through lower courts, delaying certainty for the hospital sector and the Centers for Medicare and Medicaid Services. The suits name Xavier Becerra as defendant in his capacity as Health and Human Services secretary.

These cases, at their core, are about the way CMS calculates how much hospitals should receive through DSH. Under law, the agency bases these payments on factors such as a hospital's location, its bed count and the number of low-income patients it serves.

While these issues are complex, technical and even wonky, they mean big money for safety-net hospitals: CMS distributed $16 billion in Medicaid DSH payments and $10.1 billion in Medicare DSH payments in fiscal 2023, according to federal data.

That's why lawsuits keep piling up in the absence of congressional intervention to clarify how DSH is supposed to work, said William Schpero, a Cornell University health economist who specializes in Medicaid and the social safety net.

“There are many hospitals where the payments have little effect on their bottom line. There are many hospitals, though, where those payments are the difference between whether they're in the black or the red,” Schpero said.

This is where several high-profile DSH lawsuits stand in the courts.

Baylor All Saints Medical Center v. Becerra

On Aug. 15, the U.S. District Court for the Northern District of Texas decided that CMS erred in its Medicare inpatient prospective payment system final rule for fiscal 2024, siding with Dallas-based Baylor Scott & White Health and its co-plaintiffs.

In that regulation, CMS did not include some Medicaid waiver patient days in its Medicaid DSH calculations, which the court ruled the agency does not have the authority to do. The court vacated the rule.

This case ties back to the Affordable Care Act of 2010 and the Supreme Court ruling in 2012 that made the law's Medicaid expansion optional for states. Because Congress anticipated the Medicaid expansion would be national and reduce the number of uninsured, low-income people in every state, the ACA also reduces DSH payments.

Except that 10 states, including Texas, have not broadened Medicaid eligibility under the ACA, meaning hospitals in those places are still treating large numbers of people with no health coverage. Texas and other states have deployed 1115 waivers — which enable states to deviate from federal Medicaid rules with CMS approval — to create programs that reimburse hospitals for uncompensated care.

CMS decided not to count patients receiving care under 1115 waivers in its Medicaid DSH calculations. The court ruled this was impermissible under federal statute and incompatible with the U.S. Court of Appeals for the 5th Circuit ruling on Forrest General v. Azar in 2019, which held that CMS could not exclude patient waiver days from DSH calculations. Alex Azar was HHS secretary at the time.

Alameda County Medical Center v. Becerra

In June, the U.S. District Court for the District of Columbia tossed out a lawsuit from the Oakland, California-based Alameda Health System facility and nearly four dozen safety-net hospitals on technical grounds.

The plaintiffs alleged CMS has not made up for Medicare DSH miscalculations in made in 2010 in a timely manner. The court ruled it does not have jurisdiction to consider the dispute and that hospitals would have to seek relief through the regulatory process.

Hackensack Meridian Health v. Becerra

Jurisdiction-based decisions such as Alameda County Medical Center v. Becerra are likely to get a lot more complicated in the wake of a sweeping Supreme Court ruling that invalidated the so-called Chevron deference courts had been expected to give federal agencies for 40 years, which undercut the executive branch’s power to interpret statutory language.

Hackensack Meridian Health seized on the June decision, filing its lawsuit the same day in the U.S. District Court for the District of Columbia that challenges how CMS sets Medicare DSH payments and cites the Loper Bright v. Raimondo decision.

The Edison, New Jersey-based health system contends that CMS should calculate DSH payments based on total patient days for people who are entitled to Social Security Supplemental Security Income, or SSI, benefits. CMS only counts those who received SSI payments during the same month they were in a hospital.

Moreover, the agency does not allow hospitals to see patient-level eligibility data before it issues DSH payments, Hackensack Meridian Health argues, which leads to less reimbursement than hospitals believe to be appropriate.

“With Chevron deference overruled, courts may no longer routinely uphold the decisions of agencies in technical fields simply because of the complexity of the statutory schemes they oversee," Hackensack Meridian Health wrote in its complaint. “In this new paradigm, more than ever, the secretary’s actions at issue here must fall, and the hospitals are entitled to the relief they seek."

Advocate Christ Medical Center v. Becerra

The Supreme Court is poised to tackle the program for the third time since 2019 in a Medicare DSH case brought by the Oak Lawn, Illinois, hospital, which belongs to the Milwaukee and Downers Grove, Illinois-based Advocate Aurora Health system. The lawsuit is similar to the Hackensack Meridian Health case.

The high court will seek to determine whether CMS should increase the number of patients who are counted in Medicare DSH calculations by including those eligible for SSI.

The U.S. Court of Appeals for the District of Columbia Circuit ruled in favor of the government last year, affirming the U.S. District Court for the District of Columbia decision from 2022.