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Supreme Court Hears Medicare DSH Formula Dispute: What's at Stake

Analysis  |  By Steven Porter  
   January 15, 2019

The case could result in hospitals receiving billions of dollars in additional money from the federal government.

Hospitals that serve a lot of low-income patients should pay attention this week to the U.S. Supreme Court, where oral arguments are set to begin Tuesday in a dispute over the formula used to calculate Disproportionate Share Hospital (DSH) payments.

What's at stake? In short, some $3-4 billion in Medicare funding, according to Health and Human Services.

HHS Secretary Alex Azar asked last April that the Supreme Court review an appellate ruling that found HHS violated the Medicare Act by changing the DSH reimbursement formula without going through a formal notice-and-comment rulemaking process. The justices agreed last September to take up the case.

Although the formula tweak in question occurred under the Obama administration, Azar has stood by his predecessors' position, arguing that the formal process wasn't legally necessary.

Unworkable Requirement?

Beyond the $3-4 billion implicated in this dispute, the case could have broader consequences that could "substantially undermine effective administration of the Medicare program" if the justices adopt the legal rationale presented by the hospitals involved, U.S. Solicitor General Noel J. Francisco wrote on Azar's behalf in a brief last week.

If the Centers for Medicare & Medicaid Services was required to conduct notice-and-comment rulemaking in this case, then the same requirement could be applied unreasonably to other routine and non-binding CMS actions, stymying the agency's ability to operate such a large and complex program, Francisco argued.

The nine hospitals that are party to the case, led by Allina Health Services, argued in a brief last month, however, that the question at hand is "a unique circumstance," so the impact "would be extremely limited" if the Supreme Court were to affirm the D.C. Circuit Court's decision.

Related: DSH Hospital Participation Could Be Halved Under Congressional Bill

The hospitals' allies are numerous and powerful, with amicus briefs filed by the American Hospital Association, the Federation of American Hospitals, and the Association of American Medical Colleges; 14 other state and regional hospital associations; Catholic Health; more than 77 other hospitals; and others.

The AHA amicus brief said the government's concerns about workability are "overblown."

"Not all CMS policies need go through notice and comment; just those, like the determination here, that substantively alter how providers are paid," the brief states.

2 Justices Sitting Out

Only seven of the nine justices are expected to participate in Tuesday's arguments.

Justice Brett Kavanaugh, the court's newest member, recused himself last October shortly after his contentious confirmation. His recusal was expected since he, as a D.C. Circuit Court judge in 2017, authored the appellate decision at issue in this case.

Justice Ruth Bader Ginsburg—the oldest and second-most-senior member of the Supreme Court—is expected to work from home this week, reviewing case documents and transcripts as she recovers from cancer-related surgery, as NBC News and others reported.

The case is Azar v. Allina Health Services, Docket No. 17-1484.

Steven Porter is an associate content manager and Strategy editor for HealthLeaders, a Simplify Compliance brand.


An appellate judge ruled in 2017 that HHS violated the Medicare Act when it tweaked the DSH reimbursement formula without formal rulemaking. That decision is being reviewed.

Only nine hospitals are party to the suit, but many more have filed follow-on litigation, raising the financial stakes.

Money aside, this case is a dispute over precisely which CMS tasks must go through notice-and-comment rulemaking.

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