Supreme Court Rules Against 2014 DSH Reimbursement Rule

The United States Supreme Court in a 7-1 decision last week determined that the U.S. Department of Health and Human Services (HHS) violated the law in 2014 when it changed a formula used to set Medicare reimbursements to disproportionate share hospitals (DSH) without first carrying out the required public rulemaking process. The Centers for Medicare and Medicaid Services (CMS) had issued a rule that would include Medicare Part C patients (those in Medicare Advantage health plans) as part of its calculation to determine a hospital’s share of low-income Medicare patients. Medicare Advantage patients typically are not low-income and therefore would have negatively affected hospital DSH reimbursement.
"In 2014, the government revealed a new policy on its website that dramatically—and retroactively—reduced payments to hospitals serving low-income patients. Because affected members of the public received no advance warning and no chance to comment first, and because the government has not identified a lawful excuse for neglecting its statutory notice-and-comment obligations, we agree with the court of appeals that the new policy cannot stand,” Justice Neil Gorsuch wrote in the majority opinion. The D.C. Circuit Court in 2017 found that HHS had violated the Medicare Act by imposing the reimbursement change outside of the rulemaking process. The government appealed to the U.S. Supreme Court. (Current Supreme Court Justice Brett Kavanaugh wrote the Circuit Court opinion, and therefore recused himself from the Supreme Court vote.) 
Nine hospitals, led by Minneapolis-based Allina Health, originally brought the suit. MHA was one of 14 hospital associations that signed on to a friend of the court brief in support of the disproportionate share hospitals.
The ruling affects up to $4 billion in DSH payments, according to HHS.