Two of Mercy Health System’s hospitals (Nazareth Hospital and the former St. Agnes Medical Center) successfully challenged, before Judge Ludwig of the U.S. District Court for the Eastern District of Pennsylvania, the Secretary of Health and Human Services’ exclusion of days of care provided to Pennsylvania’s General Assistance (GA) patients in fiscal year 2002 from the formula used to determine the hospitals’ Medicare disproportionate share hospital (DSH) payments (Nazareth Hosp. v. Sebelius, E.D. Pa. No. 2:10-cv- 03513-EL, April 8, 2013). The exclusion resulted in lower Medicare DSH payments.

The Centers for Medicare and Medicaid Services (CMS) refused to count days of care for the plaintiff hospitals’ Pennsylvania GA patients on the stated basis that those patients are not “eligible” to receive benefits under the federal Medicaid program. Yet CMS regulations enacted in January 2000 simultaneously and expressly permitted hospitals located in Section 1115 waiver states to count non-Medicaid eligible expansion patients. Patients eligible for benefits in Section 1115 waiver states may have incomes as high of 200 percent of the federal poverty level (FPL). Patients eligible for benefits under the Pennsylvania GA program had incomes below 50 percent of FPL. In both cases, the days are federally funded through payments for inpatient services made through the state medical assistance program. In Pennsylvania, payments for qualifying GA patients equivalent to those provided to “traditional” Medicaid beneficiaries are provided for expressly under Pennsylvania’s federally approved state Medicaid plan. Despite these facts CMS allows hospitals in Section 1115 waiver states – such as, for example, in Delaware – to count non-Medicaid eligible waiver patients in their Medicare DSH calculation, resulting in increased Medicare DSH payments, while simultaneously prohibiting Pennsylvania hospitals from counting days for even more impoverished GA patients who are otherwise indistinguishable in their Medicare DSH calculations.