US Supreme Court reviews case impacting billions in Medicare DSH payments for hospitals

By Heather Landi / Novembert 6, 2024

The U.S. Supreme Court heard oral arguments Monday in a case centered on Congress’ formula for calculating disproportionate share hospital payments. The outcome has implications for hospitals that serve a high number of low-income patients, particularly rural and safety-net hospitals.

The suit, Advocate Christ Medical Center v. Becerra, was originally filed in 2017 by a group of more than 200 hospitals over the Department of Health and Human Services' formula used to calculate outlays. They argued the method did not fully account for care provided to patients eligible for Supplemental Security Income (SSI) patients.

Medicare Part A, as a federal health insurance program, covers inpatient hospital services for the elderly and disabled. Because low-income patients are often costlier to treat, Congress directed the government to reimburse hospitals that treat a disproportionate share of low-income patients at higher Medicare rates. HHS makes DSH payments to hospitals that serve a high number of low-income patients. The payments are calculated based on two factors: the hospital’s Medicare patients with low incomes and those with low incomes but not on Medicare. 

In their petition to the Supreme Court, the hospitals claim (PDF) that the government’s interpretation takes a narrow view about which patients should be counted for the DSH methodology and that, for the years in question, it has cost them “approximately $1.5 billion annually nationwide", representing a substantial strain on safety net hospitals.

The case centers on the phrase "entitled to supplemental security income benefits.” 

According to the plaintiffs, the phrase includes any individuals who are enrolled in SSI, even if they don’t receive cash benefits for the month in question, according to an American Bar Association case summary (PDF) written by Stephen D. Schwinn, a law professor at the University of Illinois Chicago School of Law.

By the government’s reckoning, the phrase only includes individuals who are enrolled in SSI and who are entitled to cash benefits for the month in question. 

Six hospital groups, including the American Hospital Association, previously urged the Supreme Court to review the 2022 ruling on the case, which sided with HHS. They argued that HHS has adopted the view that a patient is entitled to SSI benefits only if they get cash SSI payments during a hospital stay.

The hospital groups claimed this approach was inconsistent with the Supreme Court’s previous ruling in Becerra v. Empire Health Foundation, which held that individuals entitled to Medicare part A benefits include all those qualifying for Medicare, whether or not Medicare pays for their hospital stay. 

As such, the organizations argued that there are SSI-eligible patients who are excluded under HHS’ approach, estimating a loss of more than a billion dollars annually. They also argued their eligibility for DSH payments affects their entitlement to other benefits programs, like 340B. 

"In the end, this is about DSH, and DSH is about ensuring that hospitals are reimbursed for low-income patients that are less healthy and that are costlier to treat, and health does not change overnight," plaintiffs’ attorney Melissa Arbus Sherry, a partner at Latham & Watkins, argued Tuesday.

"The government's interpretation simply does not count that low-income population. A DSH proxy that does not measure the low-income population is no proxy at all," Sherry said.

Sherry argued that two terms ago, in Empire Health, the Supreme Court looked at the words "entitled to benefits under Medicare Part A" and said that it means qualifying for the Medicare Part A program.

"'Entitled to SSI benefits' in the same sentence should mean the same thing, qualifying for the SSI program," Sherry said.

During the 70-minute hearing on Tuesday, Justice Samuel Alito pushed back on Sherry's argument. "Your lead argument—it's catchy when you read it—that the phrase 'entitled to benefits' can't mean two things. I don't see how the government's argument does that at all. What you're saying seems to me, when you think about it, terribly superficial," Alito said.

"It's the nature of the entitlement. So, if the entitlement is different under Medicare and under SSI, then that argument falls apart," Alito said.

The government, represented Tuesday by Ephraim McDowell, a Department of Justice attorney, counters that “entitled to benefits” includes only those individuals who are enrolled in SSI and who are entitled to SSI cash benefits for the month in question. 

"In its starkest form, in the end, this is a question about the nature of SSI, right? If you're right, you win. If the government is right, the government wins," Justice Elena Kagan said Tuesday. "In the sense of, is SSI a program that gives you lots of different kinds of benefits once you qualify for it, one might go away, but you retain the others, or is SSI just a monthly check that you get in the mail?"

Sherry said the nature of SSI is a "key part" of the analysis. "I would hesitate to say it's everything because I think you still have to come back to the text of DSH, and I think you still have to come back to the purpose of DSH," she argued.

McDowell said the government's rule does not turn on whether a patient actually receives the payment. "Our rule is not an actual receipt rule. We've explained that extensively in the 2010 regulation. We do not apply an actual receipt test. We look to whether someone satisfies the statutory requirements for a cash payment during the relevant month in question. Whether they actually receive a check is irrelevant," he argued.

In Becerra v. Empire Health Foundation, SCOTUS agreed with HHS that "entitled to [Medicare part A] benefits" included "all those qualifying for the [Medicare] program," whether or not Medicare paid for that hospital stay. But Empire expressly left open the question of whether "entitled to [SSI] benefits" likewise includes all those who qualify for the SSI program, according to a Supreme Court case summary of the main issue before the Court.

During oral arguments Tuesday, justices probed the impact of DSH payments on rural hospitals and potential hospital closures.

"If you lose, what's going to happen, realistically, to rural hospitals and urban hospitals that serve as safety nets?" Justice Brett Kavanaugh asked Sherry during the hearing.

"The point is to incentivize them to provide the services that are needed to service this vulnerable and at-risk population, and without a proper reimbursement under the formula, that's going to be very difficult and has been very difficult for hospitals to do," Sherry said. 

In an amicus brief (PDF), the American Hospital Association, America's Essential Hospitals and other provider groups wrote that HHS' DSH calculation has far-reaching implications for hospitals, patients and the healthcare system. 

"Those harms will fall hardest on America’s rural and safety-net hospitals, many of which are already in extreme financial distress. In the last 20 years, hundreds of hospitals in rural and low-income communities have closed their doors. Those closures have harmed patients, denying them access to care and forcing  already-vulnerable populations to travel long distances to receive essential services, the hospital groups wrote. "And they have harmed the healthcare system more broadly, causing overcrowding at nearby hospitals and discouraging hospitals from investing in programs to benefit low-income patients. By reversing the decision below, this Court can prevent further harm to hospitals and the communities they serve.

Questioned about the impact of the case on rural and urban hospitals, McDowell responded, "We understand the DSH payments are critical to hospitals. And we provide billions of dollars in DSH payments each year. In 2024, it was approximately $9.2 billion for hospitals under this program, under DSH."

"What the Court said, though, in Empire Health is that the point of the DSH provision is not to provide the most money possible to hospitals. It's to compensate hospitals for serving a disproportionate share of low-income patients. We don't think that the statute authorizes us to provide any more DSH payments. We think that the statutory text unambiguously prevents us from putting out more DSH payments under this provision," McDowell said.