Hospitals Sue Health and Human Services Secretary in Medicare Policy Dispute

Over half a dozen hospitals filed a lawsuit against the secretary of the United States Department of Health and Human Services (HHS), Xavier Becerra on July 23 in the District of Columbia. The complaint disputed the way the HHS allocated disproportionate share hospital (DSH) payments and claimed that the determination methods for the total payment amount were flawed at best. 

The determination of DSH payments hinges on the implementation of a 2004 rule that has been the source of litigation for years, the filing explained. The Medicare program is designed in a way that pays hospitals for the “operating costs of inpatient hospital services.” At the end of a fiscal year, designated hospitals are required to file cost reports with the HHS so that they can receive a reimbursement or DSH payment, at an amount determined by the Medicare Administrative Contractor. If the hospital is dissatisfied with its reimbursement amount, they can request a hearing with the Board. The appeal, however, only has jurisdiction if it is filed within a timely manner and disputes at least a certain amount. 

Beneficiaries of Medicare can choose to receive benefits through Parts A and B, or through Part C, Medicare Part C encompasses the Medicare + Choice program, or Medicare Advantage. In 2004, policy around DSH payments changed when the HHS announced that Part C patient days would be included in DSH adjustment determination, the filing claimed. 

The HHS had repeatedly been attempting to implement its Part C days policy change in order to deny Medicare DSH payments to hospitals, the plaintiffs alleged. Despite multiple decisions ruling against the agency by appeals courts, they have reportedly continued to apply the Part C policy to the hospitals. The plaintiff contended that the attempts should be “rejected because they are procedurally invalid, as the Court of Appeals has now twice ruled, fail any test of reasoned decision-making, and are inconsistent with congressional intent in adopting the Medicare DSH statute.”

The complaint cited two counts, one asserting that part C days determinations in the DSH calculations are invalid and should be set aside, the other explaining that Centers for Medicare & Medicaid Services rulings and the accompanying board decisions that apply it are invalid and should be set aside. 

The plaintiffs are seeking a declaration that the DSH payments are invalid, the Centers for Medicare & Medicaid Services rule is invalid, that the agency must recalculate DSH payments in a consistent manner, and an award of litigation fees.

The plaintiffs are represented by Ropes & Gray.