June 29, 2022

Enjoy life’s triumphs while you can, because they are often fleeting.  The greatest comedian occasionally bombs.  The major leagues’ top slugger will sometimes strike out.  In other words, even those individuals and entities that have obtained recent success—even a string of successes—will eventually experience a loss.  That is the circumstance now facing America’s hospital community.  Even though we announced a victory in the U.S. Supreme Court for the American Hospital Association (AHA) just last week (relative to drug payments), this week we must report that the high court sided against a certain class of hospitals in favor of the government.

Legislative and Legal Background

Becerra v. Empire Health Foundation is a case that sought to clarify the proper calculation methodology that the U.S. Department of Health and Human Services (HHS) must use when determining Medicare payments to disproportionate share hospitals (DSHs).  For those readers who are not familiar with the above classification, DSH facilities are those that provide care to a significant percentage of low-income patients.  Due to this factor, these facilities receive extra Medicare funding to account for the increased costs associated with such patients.  The primary issue in Becerra involves how much extra funding DSHs may receive.  Here’s where things get sticky.  The additional funding amount is calculated based on a complex formula set out by the Medicare statute.  Because of the complexity of the formula and a perceived lack of clarity in the law, there has been a historical debate over how to correctly undertake these calculations.

According to MSN, Washington-based Empire Health Foundation sued the government, arguing that HHS’s calculations intentionally deprived DSH hospitals of over $600 million, thereby circumventing Congress’ statutory intent.  The plaintiff’s complaint noted that, in order to correctly calculate DSH adjustments, HHS is required to add together two statutorily described fractions: (a) the Medicare fraction, representing the proportion of a hospital’s Medicare patients who are low-income; and (b) the Medicaid fraction, representing the proportion of a hospital’s total patients who aren’t on Medicare but who are low-income. 

Essentially, the plaintiff questioned whether HHS should take Medicare patients who aren’t paid for on a given day into account when calculating a facility’s DSH adjustment—something the department has been doing since 2004, effectively lowering Medicare payments to most DSH hospitals.  The U.S. Ninth Circuit Court of Appeals agreed with the Empire’s argument, ruling in its favor in May 2020.  As noted by MSN, this decision conflicted with two previous circuit court decisions that had sided with HHS relative to the DSH calculation.

The Supremes Rule

In a 5-to-4 ruling, the Supreme Court overturned the decision of the Ninth Circuit and found in favor of HHS.  This may come as a surprise to observers who noted what had been termed as a “chilly reception” the justices gave HHS attorneys during oral arguments.  The decision essentially clears the way for HHS to continue to use its preferred methodology for calculating the additional funding DSHs will receive for Medicare services.

Justice Elena Kagan wrote the court’s opinion on behalf of the majority.  The justice devoted a good amount of space to describing the DSH formula.  Interestingly, she made frequent references to the formula’s complexity, echoing Justice Clarence Thomas’ statements during oral arguments that characterized the statute as “indecipherable.”  In the end, the court ruled that, despite the confusing verbiage of the law and complexity of the calculation formula, HHS is correct in its application of both.  The following excerpt from the opinion is particularly instructive as to the fractional calculation at issue:

HHS’s regulation is consistent with the text, context, and structure of the DSH provisions.  Counting everyone who qualifies for Medicare benefits in the Medicare fraction—and no one who qualifies for those benefits in the Medicaid fraction—accords with the statute’s attempt to capture, through two separate measurements, two different segments of a hospital’s low-income patient population.

The decision held that HHS’s interpretation of the calculation was consistent with definitions “throughout the Medicare statute.” 

Conversely, the court found that Empire Health’s reading of the statute would render other provisions of healthcare law “unworkable or unthinkable or both.”  For example, Empire’s reading of the statute would mean that the phrases “eligible for benefits” and “entitled to benefits” are synonymous.  As the opinion noted, “that reading, even if plausible in the abstract, does not work in the Medicare statute.”

Justices Clarence Thomas, Stephen Breyer, Sonia Sotomayor and Amy Coney Barrett joined Kagan in the majority.  Justice Brett Kavanaugh issued a scathing dissent, and he was joined by Chief Justice John Roberts and Justices Samuel Alito and Neil Gorsuch.

If you would like to reach out to us concerning our hospital-specific services, please go to the following link: info@miramedgs.com.