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High Court backs federal formula for reimbursing safety-net hospitals

The 5-4 ruling is a rare one with Democrats in a majority alongside Justices Clarence Thomas and Amy Coney Barrett.

WASHINGTON (CN) — The owner of a hospital that serves a disproportionately high number of low-income patients lost its challenge Friday against how the government calculates its reimbursement under Medicare.

Justice Elena Kagan notes in the outset of the 5-4 opinion that the issue is an extremely complex one involving the “disproportionate share hospital” adjustment that means more Medicare payments for hospitals whose percentage of low-income patients is “unusually high."

Complicating that rate, however, is how the Department of Health and Human Services "counts patients who qualify for
Medicare Part A — because they are over 65 or disabled — at times when the program is not paying for their hospital

"For most hospitals, the regulation has worked to decrease DSH payments, because as beneficiaries are added to the Medicare fraction’s denominator (even though poor beneficiaries are also added to its numerator), a hospital’s Medicare fraction generally (though not always) goes down," Kagan explained (parentheses in original).

Empire Health Foundation is one such hospital and filed suit over how it was reimbursed for the operation of Valley Medical Center. Though it prevailed at the Ninth Circuit, the high court majority reversed Friday on the basis that “text, context, and structure all support calculating the Medicare fraction HHS’s way.”

"Counting everyone who qualifies for Medicare benefits in the Medicare fraction — and no one who qualifies for those benefits in the Medicaid fraction — accords with the statute’s attempt to capture, through two separate measurements, two different segments of a hospital’s low-income patient population," Kagan wrote, joined by the other two Democratic appointees on the court and, in a rare grouping, by Joined by Justices Clarence Thomas and Amy Coney Barrett, Kagan wrote for the other two Democratic appointees to wrote Justices Clarence Thomas and Amy Coney Barrett.

Counting everyone
who qualifies for Medicare benefits in the Medicare fraction—and no one who qualifies for those benefits in the
Medicaid fraction—accords with the statute’s attempt to
capture, through two separate measurements, two different
segments of a hospital’s low-income patient population.

In the majority opinion, justices read “entitled” as those who eligible.

“That reading gives the ‘entitled’ phrase the same meaning it has throughout the Medicare statute,” Kagan wrote. “And it best implements the statute’s bifurcated framework by capturing low-income individuals in each of two distinct populations a hospital serves.”

To the contrary, Justice Brett Kavanaugh wrote in a dissent Friday that “HHS’s 2004 interpretation is not the best reading of this statutory reimbursement provision.”

For the dissenting justices, however, this take defies “both statutory text and common sense.”

“It financially harms hospitals that serve low-income patients, thereby hamstringing those hospitals’ ability to provide needed care to low-income communities,” Justice Brett Kavanaugh wrote, saying that HHS offers a reading under which a patient “can be simultaneously entitled and disentitled to have payment made by Medicare for a particular day in the hospital.”

Kagan meanwhile noted that Kavanaugh's reading of the statute, discounting all eligible for Medicare, would have far-reaching effects.

“Medicare beneficiaries would lose important rights and protections,” she wrote. “Perhaps most significantly, a patient could lose his ability to enroll in other Medicare programs whenever he lacked a right to Part A payments for hospital care. As noted earlier, a person’s entitlement to Part A benefits is usually the predicate for his enrollment in Part B (covering outpatient care), Part C (providing coverage through privately managed plans), or Part D (offering prescription-drug benefits).” (Parentheses in original)

“Consider what that might mean in the real world: A Medicare patient in the hospital for longer than 90 days—by definition, a very ill person — could not enroll in Part D’s prescription-drug coverage,” Kagan added. “Congress could not have wanted — and in fact did not provide for — that result.”

Kagan offers the hypothetical scenario of a 70-year-old patient who has exhausted Medicare benefits or who has a private insurance policy. This individual would be excluded from the Medicare fraction’s numerator because he is wealthy but kept in the denominator because he is over 65 by the government's standard — but excluded from both under Empire’s view. 

“That move increases payments to hospitals — but only because it fails to capture high-income Medicare patients, not because it better captures low-income ones,” Kagan wrote. “Or said otherwise, it increases payments because it distorts what the Medicare fraction is designed to measure — the share of low-income Medicare patients relative to the total.”

This complicated legal fight concerning the fate of safety-net hospitals left some of the justices exasperated during oral arguments in November.

The Department of Justice, which represented HHS in this case, did not respond to a request for comment on the ruling Friday. Empire Health’s attorney Daniel Hettich of King & Spalding declined to comment.

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