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Supreme Court Takes Up Multi-Billion-Dollar DSH Payments Dispute

Analysis  |  By Steven Porter  
   September 27, 2018

The justices agreed to review a Circuit Court ruling that HHS had violated the Medicare Act in its reimbursement calculation for disproportionate share hospitals.

The U.S. Supreme Court agreed Thursday to review a case with major consequences for hospitals that serve high numbers of low-income patients.

The justices granted a request from Health and Human Services to revisit a lower court's decision that had invalidated a piece of the government's Medicare reimbursement calculations for disproportionate share hospital (DSH) payments.

Only nine hospitals, led by Allina Health Services, are party to the case. But their claims total $48.5 million in additional reimbursement for a single year. Since hundreds of similarly situated hospitals have filed dozens of follow-on lawsuits making similar claims, the total amount implicated in this dispute is $3-4 billion for fiscal years 2005 through 2013, HHS said in court filings.

By taking up the case, the Supreme Court agreed to review a ruling issued last year by the D.C. Circuit Court, which declared HHS in violation of the Medicare Act for changing the reimbursement formula without going through a public notice-and-comment rulemaking process for fiscal year 2012.

That decision, which overruled a District Court judgment in favor of HHS, was written by Judge Brett Kavanaugh, who is now President Donald Trump's nominee to replace recently retired Justice Anthony Kennedy on the Supreme Court.

"Unlike the [Administrative Procedure Act], the text of the Medicare Act does not exempt interpretive rules from notice-and-comment rulemaking. On the contrary, the text expressly requires notice-and-comment rulemaking," Kavanaugh wrote, knocking down a series of arguments HHS had raised.

This position is not universally agreed upon, however, as even Kavanaugh acknowledged.

"We recognize that we are breaking with several other courts of appeals by holding the Medicare Act does not incorporate all of the APA's exceptions to the notice-and-comment requirement. … But we respectfully disagree with those opinions," he wrote.

Related: About 30 New Lawsuits Await Supreme Court Input in High-Stakes DSH Payments Case

This disagreement among the circuit courts was one reason HHS cited in its request for the Supreme Court to review the case. But there were also suggestions that the eight sitting justices could shy away from reviewing this case at this time if they would expect a 4–4 tie.

"If the justices saw themselves as likely to be evenly divided on the merits in Allina, they could well decide to leave the issue for another day," A.E. Dick Howard, a professor at the University of Virginia School of Law, told Bloomberg Law in August.

There were concerns, also, that Kavanaugh's pending nomination could factor into the justices' decision, since he is likely to recuse himself from the case, if confirmed.

The court's order states that the justices will review one very specific question: "Whether 42 U. S. C. §1395hh(a)(2) or §1395hh(a)(4) required the Department of Health and Human Services to conduct notice-and-comment rulemaking before providing the challenged instructions to a Medicare Administrator Contractor making initial determinations of payments due under Medicare."

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


The Supreme Court agreed to review the appellate ruling written by Judge Brett Kavanaugh.

At issue in this case is whether HHS has the discretion to engage in "interpretive rulemaking" without public notice-and-comment steps.

The dispute implicates up to $4 billion in reimbursements.

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