On August 17, 2016 the United States District Court for the District of Columbia granted summary judgment in favor of HHS in a dispute over whether Part C days can be treated as “days entitled to benefits under Part A” for purposes of Medicare disproportionate share hospital (DSH) payments.  The plaintiffs, a group of nine hospitals, sued HHS challenging its 2012 DSH payment calculation as procedurally and substantively invalid in an attempt to build upon the D.C. Circuit’s previous invalidation of CMS’s regulation adopting the same policy.  (That previous case was remanded to the agency and is currently pending before the D.C. district court.) 

DSH payments are funds that Medicare provides to hospitals that serve a disproportionate share of low-income and uninsured patients. The amount that a hospital receives is based on a formula that takes into account the number of patients entitled to benefits under Medicare Part A who are also eligible for supplemental security income (SSI) benefits.  The main issue of contention is whether patients who have enrolled in a managed care plan under Medicare Part C are considered “entitled to benefits under Part A.”  If Part C patients are still entitled to benefits under Part A then they should be included in the DSH formula. This seemingly minor detail has a financial impact on hospitals measuring in the hundreds of millions of dollars of DSH funds.

The plaintiff hospitals challenged the 2012 DSH calculation, in which HHS included the Part C patients. The court, considering cross motions for summary judgment, rejected plaintiffs’ arguments that the 2012 calculation was administratively deficient and granted summary judgment in favor of HHS.  First, the court found that HHS did not base the 2012 calculation on a 2004 rulemaking that was previously overturned. Second, the court held that HHS was not required to make the interpretation through notice and comment rulemaking because the Medicare statute provides an adequate legislative basis to include Part C patients. Finally, the court held that HHS’s decision to include Part C patients was not arbitrary and capricious.

The case is Allina Health Servs. v. Burwell, No. 14-cv-1415 (D.D.C. Aug. 17, 2016).  Please click here for a copy of the opinion.