Medicaid DSH

***Congress has revised the requirements for treatment of Medicaid patients with third-party coverage effective October 1, 2021. Going forward, for most hospitals, both the costs and payments associated with Medicaid patients with third-party coverage will be excluded from the calculation of the Medicaid DSH hospital-specific limit.

**On August 13, 2019, the D.C. Circuit reversed the lower court’s decision in Children’s Hospital Association of Texas v. Azar. In the first significant legal loss for hospitals, the D.C. Circuit reinstated the 2017 final rule, concluding that the third-party payer policy is consistent with the federal DSH statute.

* As of December 30, 2018, CMS will no longer be enforcing FAQs 33 & 34 and has withdrawn them from its 2010 Medicaid DSH guidance.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. 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 August decision in Children’s Hospital Association of Texas (CHAT) v. Azar and the Eighth Circuit’s October decision in Missouri Hospital Association (MHA). 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 hospitals, 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 Eighth Circuit followed suit in November 2019 and, in April 2020, the Fifth Circuit became the third appeals court to uphold the Final Rule. The CHAT plaintiffs requested a rehearing in October 2019, which the court denied. On April 6, 2020, the plaintiffs filed a petition for writ of certiorari, which is now pending before the U.S. Supreme Court.

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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Updated June 23, 2021