Hospital claims Medicare cheated it out of payments using flawed methodology

DCH Regional Medical Center in Tuscaloosa, Ala., has filed a federal lawsuit alleging the calculation used by Medicare to determine disproportionate share payments shortchanged hospitals involved in mergers.

Congress revised the DSH adjustment through the Affordable Care Act effective for fiscal year 2014. Under the revised adjustment, a hospital's payment is based on the traditional DSH adjustment — calculated by adding the hospital's so-called "Medicare fraction" and "Medicaid fraction" — and a prospective estimate of each hospital's amount of uncompensated care. To provide an estimate of uncompensated care, CMS multiples three factors, the third of which is at the center of DCH Regional's lawsuit.

The so-called "Factor 3" reflects each hospital's share of the aggregate amount of uncompensated care provided by qualifying hospitals. Congress tasked HHS with devising a methodology for calculating "Factor 3," and the agency adopted methodology that required CMS to use data from a particular period of time taken from a single hospital's CMS Certification Number.

Because DSH payments owed to hospitals were restricted to data associated with a single provider number, DCH Regional claims it did not receive full payment.

"In circumstances where a hospital underwent a merger during the relevant time period, as DCH did, CMS' methodology excludes data associated with the nonsurviving hospital, necessarily resulting in an understated calculation of the surviving hospital's disproportionate share payment," states DCH Regional in its complaint.

The methodology was adjusted for FY 2015, ensuring that both the surviving and nonsurviving hospital would be considered in the "Factor 3" estimate. DCH Regional said the change alleviated future problems but does not address the issues in FY 2014 that resulted in DSH adjustments that are severely diminished.

DCH Regional requested the court vacate its FY 2014 "Factor 3" payment, among other relief.

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