Missouri appeals court upholds changes to Medicaid DSH payment rules

A federal appeals court in Missouri on Nov. 4 held that a rule issued by CMS requiring Medicaid payments to Disproportionate Share Hospitals to be reduced based on payments hospitals receive from private payers and Medicare is valid.

Per federal law, DSH payments are made to hospitals that serve a disproportionate share of low-income patients. At issue is how Medicare and other third-party payments are treated when calculating the payments.

Under the hospital-specific limit on DSH payments, federal financial participation is limited to the uncompensated care costs of providing services to Medicaid-eligible or uninsured patients, according to Courthouse News Service.

But CMS, in a FAQ document issued in 2010, said the Medicaid shortfall component of the hospital-specific limit on DSH payments should also subtract Medicare and other third-party payments. The position was formalized in a 2017 CMS final rule. 

The Missouri Hospital Association, which has many disproportionate share hospital members, filed a lawsuit against the federal government seeking to invalidate the CMS position, according to a Nov. 4 ruling from the U.S. Court of Appeals for the Eighth Circuit, which is cited by the American Hospital Association's AHA Today newsletter.

The association told Becker's Hospital Review that its primary claim initially was that CMS didn't follow the public rulemaking process by issuing the policy through a set of FAQs rather than a traditional public rulemaking process.

The association said the agency has since enacted the 2017 rule through the correct rulemaking process. But the Missouri Hospital Association also alleged CMS overstepped its authority with the rule and wanted the rule voided, as did a group of children's hospitals in a separate but similar lawsuit.

In that case, a federal judge sided with the hospitals. Following an appeal by CMS, the U.S. District Court of Appeals for the D.C. Circuit overturned the lower court's ruling on Aug. 13. The U.S. Court of Appeals for the Eighth Circuit followed suit in the case brought by the Missouri Hospital Association and also overturned the lower court's ruling on Nov. 4.

In an opinion, U.S. Circuit Judge James B. Loken wrote Nov. 4 that the CMS rule is not contrary to language in the Medicaid Act and that the federal government "did exactly as instructed by 'determin[ing]' which payments to deduct in" DSH payment calculation.

Jane Drummond, general counsel for the Missouri Hospital Association, told Becker's Hospital Review that the association does not plan to appeal the Nov. 4 court decision. 

The CMS "rule adopted through the traditional rulemaking process is now in place and will be effective for 2017 DSH audits. At this time, we don't believe the rule will have a substantial impact because we don't believe Missouri had DSH longfalls for 2017 that would require returning funds to the federal government," Ms. Drummond said.


More articles on healthcare finance: 

CMS urged to cut prior authorization red tape
Washington hospital to move forward with expansion as payment cuts loom
Don't copy California's surprise-billing law, physicians there warn federal lawmakers

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