DC Circuit Revives Changes to Cap in Medicaid Reimbursement

WASHINGTON (CN) – The D.C. Circuit overturned a lower court decision Tuesday that struck down a change in how hospitals that serve large numbers of low-income patients are reimbursed under Medicaid.

Hospitals that take care of large numbers of low-income patients receive supplemental payments called Disproportionate Share Hospital (DSH) payments. Under the law, hospitals cannot receive more money in DSH payments than they had to spend to care for people who are either eligible for Medicaid or have no insurance.

To calculate that limit in the past, the federal government looked at the costs the hospitals incurred while caring for people eligible for Medicaid, and subtracted Medicaid payments the hospital received other than DSH payments.

But in 2010, the Centers for Medicare & Medicaid Services published a FAQ document that stated the DSH payments cap formula should also subtract payments hospitals received under Medicare and from private insurers. That change brought a host of lawsuits from hospitals that said it did not go through the proper administrative procedures.

In 2017, the Trump administration issued a rule that formalized the policy included in the FAQ. In response, a group of children’s hospitals filed suit in the U.S. District Court for the District of Columbia, claiming CMS had overstepped its authority.

A federal judge ruled in favor of the hospitals, finding the Medicaid Act does not say other payments should be subtracted from the total cost a hospital incurred.

But in a 15-page opinion filed Tuesday, U.S. Circuit Judge Karen LeCraft Henderson wrote the rule does not violate the intent of the statute.

“By requiring the inclusion of payments by Medicare and private insurers, the 2017 rule ensures that DSH payments will go to hospitals that have been compensated least and are thus most in need,” Henderson wrote on behalf of a three-judge panel.

Henderson, an appointee of President George H.W. Bush, found Congress did not explicitly say what types of payments should be factored into the DHS calculation and that the agency reasonably explained its decision to include the additional types of payments in the 2017 rule.

The Children’s Hospital Association of Texas, the lead challenger to the rule, said in a statement that it is exploring its options after the decision.

“We are disappointed with the result because it will reduce critical Medicaid funding to safety net providers like children’s hospitals,” Children’s Hospital Association of Texas President Stacy Wilson said. “These hospitals are heavily reliant on Medicaid payments because between 50% and 80% of their inpatient days are covered by Medicaid.”

The Centers for Medicare & Medicaid Services did not immediately return a request for comment.

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