Over the last several years, courts in various jurisdictions have issued favorable rulings in lawsuits challenging the Centers for Medicare & Medicaid Services’ (CMS’) policy requiring the inclusion of Medicare and commercial payments in the calculation of the Medicaid disproportionate share hospital (DSH) limit. This policy was permanently enjoined on a nationwide basis in March 2018, but the litigation is ongoing.
Initially, providers and hospital associations challenged CMS’ policy as issued in 2010 through a set of Frequently Asked Questions (FAQs), applicable to DSH payment years dating back to 2011. Hospitals argued that one or both of FAQs 33 (commercial) and 34 (Medicare) are unlawful because they were not issued through notice and comment rulemaking (a procedural argument), and because they conflict with the Medicaid DSH statute (a substantive argument). Seven district courts and one appellate court have issued decisions on the FAQs, all siding with hospitals. CMS is enjoined from applying its FAQ policy permanently in Minnesota, New Hampshire, Virginia, Tennessee, Texas, Washington, Mississippi, and Missouri, meaning hospitals facing disallowances for past periods in those states will be able to retain their DSH funding. CMS has appealed the rulings, and in the first ruling at the appellate level, the First Circuit affirmed the lower court’s decision to enjoin the FAQs on procedural grounds.
More recently, CMS attempted to adopt the same third-party payer policies in a Final Rule issued in April 2017, which would have impacted DSH payments for 2017 and beyond. The Final Rule lacked the procedural deficiencies of the FAQs. Nonetheless, two federal courts have now vacated the Final Rule, finding that it is contrary to the plain meaning of the federal DSH statute. The District Court in the D.C. Circuit expressly stated that its decision to vacate the Final Rule applies nationwide. CMS has filed a notice of appeal in both final rule decisions, now pending in the DC and 8th Circuit. Details of the cases vary and are summarized in the graphic that follows, which will be updated as new decisions are issued.