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

Moving forward, the government will have to complete notice-and-comment rulemaking for a broader set of its decisions.

Hospitals that treat high numbers of low-income patients secured a big win this week at the U.S. Supreme Court.

Seven of the justices agreed that officials in the U.S. Department of Health and Human Services stepped out of line when they rejiggered a Medicare reimbursement formula for disproportionate share hospitals (DSH) five years ago without a formal notice-and-comment process.

The decision carries implications well beyond the money hospitals say they are owed.

"It's a big deal for the hospitals, obviously," says Helen R. Pfister, JD, a New York–based partner with Manatt Health.

By the government's estimates, the dispute implicates $3-4 billion in payments over nine years. That's how much more the Centers for Medicare & Medicaid Services would have paid in DSH reimbursements, had the formula not been changed, according to court records.

"But I think it's also a big deal in terms of the fact that the Supreme Court has clearly indicated that, going forward, CMS is going to have to do notice-and-comment rulemaking for a much more expansive set of agency decisions than they thought and argued in this case that they would need to do," Pfister adds.

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

Precisely how much of the routine work completed by HHS and CMS will be affected by this broader take on notice-and-comment rulemaking remains to be seen. While some stakeholders have raised concerns the added burden could stifle the government's work, others contend any inconvenience imposed will be both manageable and beneficial.

In any case, the impact of Monday's decision will flow along two distinct paths, affecting not only hospital finances but also, for better or worse, the way HHS and CMS operate.

What's Next, Procedurally?
 

In 2016, nine hospitals led by Allina Health Services lost their case against HHS at the U.S. District Court in D.C., where a judge ruled that notice-and-comment rulemaking wasn't required. In 2017, however, three judges at the D.C. Circuit Court of Appeals reversed the lower court's decision and sent the dispute back for further proceedings.

In 2018, attorneys for HHS asked the Supreme Court to review the appellate decision. Now that the justices have affirmed the Circuit Court's decision, the parties have up to seven days to file a status report at the District Court level on where the case stands, according to court records. That filing, expected by early next week, could shed light on where things are headed procedurally.

Pfister says she doesn't think anyone knows for the time being whether the government will automatically revise DSH payments for the affected fiscal years, pursue another round of notice-and-comment rulemaking, or take some other course of action in response to the Supreme Court ruling.

And the parties themselves aren't saying much. When asked about the agency's plans, a CMS spokesperson told HealthLeaders on Wednesday that the agency is still reviewing the decision. Allina referred questions to its law firm, which declined to comment.

Beyond the nine plaintiff hospitals involved in this week's Supreme Court decision, there are hundreds of plaintiffs suing HHS on similar grounds. Dozens of follow-on lawsuits have been consolidated into a single docket pending before U.S. District Judge Amy Berman Jackson. Parties to that proceeding have up to 14 days to file a status report in light of the Supreme Court's decision, according to court records.

An Overly Burdensome Decision?
 

The government's attorneys had issued dire warnings about the potential consequences of the decision the Supreme Court ultimately reached.

The notion that CMS must go through a notice-and-comment process for the sort of routine process at issue in this case could "substantially undermine effective administration of the Medicare program" because it would apply not just to DSH formula calculations but to "nearly every instruction" the agency gives to its contractors as well, U.S. Solicitor General Noel J. Francisco argued on HHS' behalf.

Pfister largely rejects the government's dire take on the decision's impact.

"I think that might have been a little bit hyperbolic," she says.

But other stakeholders outside the government have taken the Supreme Court's ruling as a troubling sign of uncertainty to come.

"This is a frightening decision, that throws a lot of doubt on the validity of thousands of pages of Medicare sub-regulatory guidance," Adam Finkelstein, JD, MPH, counsel with Manatt Health and a former health insurance specialist with the CMS Innovation Center, wrote in a tweet.

Stephanie A. Kennan, senior vice president of federal public affairs for McGuire Woods Consulting in Washington, D.C., tells HealthLeaders that she thinks the government's argument "is somewhat overblown." Officials should be able to manage any added burden from this ruling, even if it slows them down a bit, she says.

"I think it may mean they cannot move as quickly on some policies as they would like to," Kennan says.

A Boon to Public Input?
 

The benefits of a more-transparent process justify any added hassle that may stem from having to go through a mandatory comment process more often as a result of this decision, Kennan says.

"In this case, they have to do 60-day comment periods, which can seem like an eternity if you want to keep the process moving, regardless of whether you're the agency or a stakeholder," she says. "The transparency is probably worth the 60 days."

But others reject the notion that this decision should be seen as balancing effective governance with transparency.

"Allina isn't a vindication of the importance of public participation in agency decision-making. It's a testimonial to the heedlessness of lawyers who impose silly procedural rules on an administrative state they only dimly understand," Nicholas Bagley, JD, a law professor at the University of Michigan who teaches on administrative law and health law, wrote in a series of tweets.

"Bear in mind," he added, "that CMS is a tiny, beleaguered agency … To further encumber it will make Medicare more capricious, not less, as staffers tend to senseless procedures instead of doing their jobs."

Moving forward, HHS and CMS will continue to have discretion to determine whether to go through notice-and-comment with a given action, Pfister says. The difference now, she says, is that there's a stronger incentive for government officials to cover themselves; otherwise, another case like Allina's could pull them into another round of prolonged litigation.

Clarification: This story has been updated to clarify that Helen R. Pfister, JD, is based in New York.