Close

September 13, 2019

Despite Early Success for Providers, August 2019 Appellate Court Decision Leaves Future Uncertain for Medicaid DSH Third-Party Payer Policy

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. Though hospitals succeeded in halting application of the third-party payer policy prior to 2017, the policy may ultimately take effect for 2017 and subsequent years following the D.C. Circuit’s recent decision in Children’s Hospital Association of Texas (CHAT) v. Azar.

Initially, providers and hospital associations in numerous states 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). After numerous unanimous district- and appellate-level decisions in favor of hosiptals, CMS formally withdrew the FAQs on December 30, 2018. As a result, the third-party payer policy is unenforceable for periods prior to 2017, preventing substantial recoupments from DSH hospitals across the country.

More recently, CMS attempted to adopt the same third-party payer policies in a Final Rule issued in April 2017, which will impact DSH payments in 2017 and subsequent years if it takes effect. The Final Rule lacks the procedural deficiencies of the FAQs, but hospitals have argued it is substantively invalid because it conflicts with the federal DSH statute. Providers obtained multiple favorable district court rulings vacating the Final Rule, including in the CHAT case, where the D.C. District Court invalidated the Final Rule on a nationwide basis in March 2018. However, the D.C. Circuit reversed in an August 2019 decision, reinstating the 2017 Final Rule after finding it to be consistent with the federal DSH statute. The CHAT plaintiffs have until September 27th to request a rehearing, during which time the court’s decision is effectively on hold. The Final Rule remains invalid in Mississippi and Missouri, where appeals before the Fifth and Eighth Circuits are pending.

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.

For a printer friendly version, click here.