How health systems are fighting for higher DSH payments

By Alex Kacik / March 21, 2025

More health systems are suing the federal government to recoup alleged underpayments for treating Medicare patients.

Dozens of hospitals and health systems allege the Health and Human Services Department collectively owes them billions of dollars in Medicare disproportionate share hospital payments, which are meant to bolster providers that treat many low-income patients. In at least three lawsuits filed over the last three months, more than 60 hospitals allege a June 2023 rule retroactively reduced DSH payments by wrongfully excluding Medicare Advantage patients in parts of those calculations.

Hospitals insist the Centers for Medicare and Medicaid Services should include all Medicare and Medicare Advantage patients as well as those eligible for Social Security Supplemental Security Income when figuring how much providers should get paid for treating low-income patients. However, CMS allocates DSH funding based on the number of fee-for-service Medicare patients who received SSI cash assistance during the time they were under hospital care, limiting revenue for hospitals in areas where Medicare Advantage plans are rapidly expanding.

As a result, hospitals have been underpaid from 2004 to 2013, when the retroactive rule took effect, providers allege. The suits name Robert F. Kennedy Jr. as defendant in his capacity as HHS secretary and Dorothy Fink, who was HHS acting secretary prior to Kennedy’s appointment.

HHS declined to comment.

The Supreme Court is reviewing a similar case brought by Advocate Christ Medical Center, and there are a series of other DSH lawsuits, including one filed by Edison, New Jersey-based Hackensack Meridian Health in June, winding their way through district and appellate courts.

If successful, the lawsuits could improve the finances of safety-net providers that typically have narrow margins, healthcare attorneys and experts said. Healthcare attorneys expect more hospitals to file DSH lawsuits since the Supreme Court overturned what’s known as the Chevron deference that undercut the executive branch’s power to interpret regulations.

The DSH program is particularly important for rural hospitals that typically treat many Medicare patients, said Brock Slabach, chief operating officer of the National Rural Health Association.

“DSH funding is a lifeline for many rural hospitals,” he said.

New Albany, Indiana-based Baptist Health Floyd was one of 60 hospitals named in a Jan. 23 lawsuit challenging HHS’ DSH payment calculations, Baptist Health Floyd v. Fink. The plaintiffs included providers spanning the Hoosier State, Alabama, Arkansas, Georgia, Kentucky, Michigan, Montana, North Carolina, Ohio, Oregon, Tennessee, Virginia, Washington and West Virginia.

The hospitals allege the Provider Reimbursement Review Board wrongfully denied reimbursement appeals. Providers asked the court to set aside the board’s dismissal and boost Medicare DSH payments.

Another lawsuit filed by New York City providers aims to leverage the Loper Bright v. Raimondo decision to overturn the 2023 rule and increase DSH payments.

Montefiore Medical Center and New York Presbyterian Hospital filed a lawsuit earlier this month against HHS, Montefiore Medical Center v. Kennedy. They claim the Loper Bright ruling, which effectively transferred the power to interpret statutory language from agencies to the courts, bolsters their case. The Loper decision discredits retroactive rules, such as the June 2023 regulation, the hospitals allege.

“The policy reflected in the 2023 rule thus conflicts with the DSH statute and must be set aside as contrary to law,” the lawsuit alleges, pointing to the Supreme Court's decision.

Some hospitals challenging the 2023 rule are alleging the federal government skirted their appeals.

Clovis Community Medical Center alleges in Clovis Community Medical Center v. Kennedy that HHS did not adequately review its appeal challenging DSH payment calculations linked to what the hospital described as an invalid 2023 rule.

In a lawsuit filed on March 14, the hospital in Fresno County, California, alleges HHS held its appeal in limbo, essentially freezing the hospital out. Clovis Community Medical Center asked the court to force the Provider Reimbursement Review Board to hear its appeal. Many hospital attempts to appeal Provider Reimbursement Review Board decisions fail, including those involved in the Baptist Health Floyd lawsuit, but providers need to lodge an appeal before they can sue.

“The secretary took a series of actions to thwart hospitals’ statutory right to board hearings on their jurisdictionally proper appeals challenging the invalid Part C policy,” the hospital alleges.