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D.C. Circuit Court Reinstates 2017 DSH Payments Rule

By Jack O'Brien  
   August 14, 2019

The federal court overturned a lower court's ruling Tuesday, siding with the Trump administration over hospitals.

The D.C. Circuit Court sided with the Trump administration by reinstating a 2017 rule that changes how disproportionate share hospitals (DSH) are compensated for taking on lower-income patients.

The lawsuit consisted of four children's hospitals in three states which were led by the Children's Hospital Association of Texas (CHAT) against the Department of Health and Human Services (HHS).

The plaintiffs' argument centered on whether the administration overstepped the authority of the Medicaid Act, arguing the changes were "arbitrary and capricious."

CHAT charged that the rule did not grant HHS Secretary Alex Azar the authority to require Medicare and commercial insurance payments be included in a DSH hospital's "costs incurred."

Last year, a district court sided with CHAT, agreeing that the definition was inconsistent with the Medicaid Act and vacated the 2017 rule. 

However, in the court's 15-page ruling opinion Tuesday, issued by Judge Karen LeCraft Henderson, the rule was reinstated.

Henderson wrote that the court disagreed with all four arguments put forward by the plaintiffs: that the statute specifies which payments can be considered, the rule makes the statute's specification that certain payments must be considered "superfluous," that Congress required "consideration of third-party payments in a different statutory provision but not in the relevant provision," and that the statute "plainly distinguishes costs and payments."

Related: DSH Hospital Participation Could Be Halved Under Congressional Bill

Henderson's ruling came two months after the Supreme Court ruled in favor of hospitals that sued HHS over a DSH reimbursement formula change that was introduced by the Obama administration and subsequently defended by the Trump administration.

The ruling applied to about $3.4 billion in payments, according to HHS estimates, and was applauded by the American Hospital Association. 

Beyond the finances, many industry stakeholders saw the June ruling as one that will impact the way both HHS and CMS go about the notice-and-comment rulemaking process in the future. 

Related: Wonky Supreme Court Ruling on Medicare DSH Formula to Affect More Than Money

Related: Supreme Court Sides With Hospitals in Multi-Billion-Dollar DSH Formula Dispute

Relating to Tuesday's ruling, CHAT told Courthouse News in a statement that it would continue exploring its options going forward. 

“We are disappointed with the result because it will reduce critical Medicaid funding to safety net providers like children’s hospitals,” CHAT told Courthouse News. “These hospitals are heavily reliant on Medicaid payments because between 50% and 80% of their inpatient days are covered by Medicaid.”

Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.

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