December 14, 2018

Court Rulings Continue in Ongoing DSH Litigation, Now With Nationwide Impact and Several Appellate Court Decisions

As of December 30, 2018, CMS will no longer be enforcing FAQs 33 & 34 and has withdrawn them from its 2010 Medicaid DSH guidance.

Over the last several years, courts in various jurisdictions have issued 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. A final rule implementing this policy was permanently enjoined on a nationwide basis in March 2018, but litigation is still ongoing across the country.

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 four appellate courts have issued decisions on the FAQs, and all have held the FAQs invalid. 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. Although CMS has appealed the rulings, to date, the First, Fourth, Sixth and Eighth Circuits all have affirmed the lower courts’ decision to enjoin the FAQs on procedural grounds. The Sixth Circuit was the first appellate court to take up the substantive argument, and the first court to rule unfavorably in finding no statutory conflict between the FAQs and the federal DSH statute, though the FAQs remain invalid in the Sixth Circuit 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, three 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 all final rule decisions, now pending in the DC, Fifth, and Eighth Circuits. (The recent Sixth Circuit decision did not involve the Final Rule and thus does not impact the nationwide injunction that remains in effect.)

Details of the cases vary and are summarized in the graphic that follows, which will be updated as new decisions are issued.  If you have questions regarding the ongoing DSH litigation, or Medicaid DSH more generally, contact Eyman Associates attorneys.

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