Supreme Court questions HHS interpretation of DSH formula

Supreme Court justices on Monday were skeptical that the Health and Human Services Department fairly interpreted Medicare law when it changed the formula for disproportionate share hospital calculations.

During oral arguments, the justices asked pointed questions about the specific language HHS interpreted to create its DSH formula. They wondered whether the department should receive a wide latitude for interpreting congressional language dictating the policy.

“So it strikes me as a situation where I think we ought to be particularly precise in interpreting the language Congress used without any gloss added by the agency,” Chief Justice John Roberts said.

HHS made procedural mistakes during the original rulemaking process in the early 2000s. DSH payments are determined by measuring the number of inpatient hospital days for which a patient is entitled to Medicare Part A and supplemental security income benefits. Those figures are combined with a measure of a hospital’s overall inpatient care days for beneficiaries who are eligible for Medicaid but not entitled to Medicare Part A.

HHS decided beneficiaries who’ve used up all their inpatient days covered by Medicare Part A would be included in the Medicare fraction, increasing the total number of Medicare patient days in a hospital. This potentially decreases DSH percentages for hospitals, depending on their patient population.

“It’s a laudatory motive, but the question is, [is] the statutory language getting in the way?” Justice Brett Kavanaugh said.

The justices also questioned Empire Health Foundation, which originally sued HHS over the rule, on whether “entitled to” and “eligible for” really have different meanings.

An earlier Ninth Circuit decision sided with hospitals. Medicaid law uses the phrase “eligible for” benefits and Medicare uses “entitled to” because Congress intended them to mean different things, the Ninth Circuit said. Because of that, beneficiaries who have exhausted their inpatient days shouldn’t be counted in the Medicare fraction.

Justice Elena Kagan said the government’s proposal to have two formulas for two separate populations makes more sense than the hospitals’ idea.

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But legal experts aren’t confident the high court will use this case to make broader statements about agency authority.

If the Supreme Court sides with HHS, hospitals with a large number of Medicare beneficiaries whose coverage is exhausted could see their DSH dollars decrease, according to said Thomas Barker, co-chair of the healthcare practice at Foley Hoag and a former CMS general counsel. Hospitals are concerned about further decreases in payments as cuts from the Affordable Care Act are set to start in 2024 and the Build Back Better Act proposes additional cuts for hospitals in states that haven’t expanded Medicaid.

But the case could ultimately affect HHS and other federal agencies’ future authority to interpret laws if the high court decides HHS was acting out of bounds.

The Supreme Court may have decided to hear this case, along with another one on cuts to 340B payments, to reel in federal agencies’ power to interpret congressional language, Barker said.

While many court watchers pair this case with the 340B case, which justices will hear arguments on Tuesday, the justices don’t have to come to the same conclusion about agency powers in both cases.

“If there’s a case where they want to say you’re being unreasonable, you know, where you’re not you’re not warranted deference—agency, you’ve gone too far—I think that tomorrow’s case is the better candidate for that,” said Allison Hoffman, a law professor at University of Pennsylvania.

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