Health Law Daily Court approves HHS’ disparate treatment of disproportionate share hospital
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Tuesday, April 12, 2016

Court approves HHS’ disparate treatment of disproportionate share hospital

By Bryant Storm, J.D.

CMS acted rationally in its denial of a hospital’s disproportionate share hospital (DSH) reimbursement request for services provided to Medicare beneficiaries who were not eligible for Medicaid but were covered under New Jersey’s charity care program (NJCCP). The court concluded that the hospital did not receive disparate treatment compared to other hospitals that obtained DSH reimbursement for services provided to Medicaid-ineligible beneficiaries because, in those other cases, the reimbursement was made for services provided to beneficiaries eligible through a different program—a waiver request under Section 1115 of the Social Security Act (SSA) (Cooper Hospital v. Burwell, April 11, 2016, Boasberg, J.).

DSH reimbursement. Cooper Hospital / University Medical Center is a 560-bed facility that participates in Medicare and Medicaid. More than one-third of the hospital’s patients are indigent. The hospital challenged HHS’ calculation of its Medicare DSH-reimbursement rate for the fiscal year ending December 31, 2001. Specifically, the hospital asserted that the Medicaid disproportionate patient percentage (DPP) component of the DSH reimbursement calculation should have been higher because it should have included patients eligible under NJCCP. HHS excluded those patients on the grounds that, under 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II), only Medicaid-eligible patients could be included in the Medicaid DPP calculation for 2001.

Administrative challenge. The hospital challenge the determination at administrative levels, asserting that an additional 5,559 inpatient days attributable to NJCCP patients should have been added to the DPP. The Medicare contractor’s disallowance of those days decreased the hospital’s reimbursement by $1,431,228. The Provider Reimbursement Review Board (PRRB) upheld the disallowance and the hospital appealed the matter to federal court. HHS moved for summary judgment. The provider argued that the determination needed to be set aside because it was inconsistent with the Secretary’s DSH determinations for other hospitals, namely those in other states where Medicaid-ineligible patient days—the days of individuals eligible for Medicaid under Section 1115 waiver—were included in the DPP component of a hospital’s DSH reimbursement calculation. The hospital asserted that the determination was therefore arbitrary, capricious, and in violation of both the Administrative Procedure Act (APA) (5 U.S.C. § 706(2)(A)) and the hospital’s equal protection rights.

DPP calculation. The court explained that, “in plain English,” the Medicare statute defined the Medicaid DPP percentage as “the percentage of all hospital patients who are eligible for medical assistance under a Medicaid state plan but not eligible for Medicare Part A.” Thus, the court reasoned, the Medicare reimbursement determination turned on eligibility rules under the Medicaid statute. The court explained that in addition to providing for the disallowance of Medicaid-ineligible patient days, the Medicare statute granted the Secretary the authority to include Section 1115 expansion waiver patient days in the Medicaid DPP fraction differently than the NJCCP patient days. The court concluded that unlike Section 1115 expansion waivers, the NJCCP was not part of the state’s Medicaid plan and therefore did not warrant inclusion in the DPP fraction. The hospital asserted that just because Section 1115 expansions permitted a state to treat the costs of those Medicaid-ineligible patient services as Medicaid costs, it did not follow that the patients were Medicaid-eligible for DSH purposes, if the NJCCP patients were not also considered eligible.

Different treatment. The court disagreed with the provider’s position and explained that under the Deficit Reduction Act of 2005 (P.L. 109-171) Congress’ expresses ratification of the Secretary’s DPP treatment of Section 1115 patients meant, to prevail, the Secretary only needed to give a legitimate governmental purpose for its different treatment the NJCCP patient days and Section 1115 patient days. The court found several legitimate purposes, including the fact that expansion waivers further Medicaid goals, receive more HHS oversight than state charity programs, and approval of such waivers is made on a case-by-case basis. Thus, the court explained, the Secretary has sufficient basis to treat Section 1115 waiver programs differently from the NJCCP for purposes of the DPP component of a hospital’s DSH reimbursement. The court granted the Secretary’s motion for summary judgment.

The case is No. 14-1991 (JEB).

Attorneys: John Zen Jackson (McElroy, Deutsch, Mulvaney & Carpenter, LLP) for Cooper Hospital University Medical Center. Johnny Hillary Walker, III, U.S. Attorney's Office, for Sylvia M. Burwell, Secretary, U.S. Department of Health and Human Services.

Companies: Cooper Hospital University Medical Center; U.S. Department of Health and Human Services

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