Health Law Daily HHS may consider other ‘payment’ types in DSH offset calculations
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Tuesday, November 5, 2019

HHS may consider other ‘payment’ types in DSH offset calculations

By Anthony H. Nguyen, J.D.

Although HHS does not have "unfettered" discretion to determine "costs incurred" as it pertains to the DSH payments, HHS is directed statutorily to offset Medicaid payments with third-party payments.

The U.S. Court of Appeals for the Eighth Circuit held that Medicaid "costs incurred" payments for disproportionate share hospitals (DSH) could be offset with third-party payments, including payments by Medicare and private insurance. In reversing a previous district court’s opinion finding these offsets beyond statutorily conveyed authority, the appellate panel noted that the controlling statute, while specifically naming Medicaid payments or patient payments as offsetting payments, did not bar the consideration of other payment types as offsets (Missouri Hospital Association v. Azar, November 4, 2019, Loken, J.).

Background. Disproportionate share hospitals receive supplemental Medicaid payments to help ensure their financial viability for treating indigent patients. Under 42 U.S.C. §1396r-4(g)(1)(A) DSH payments may not exceed a hospital’s "costs incurred" in furnishing hospital services to eligible individuals as determined by HHS and the net of Medicaid payments. Subsequent regulations defined "costs incurred" – in a final rule promulgated in 2017 after notice and comment rulemaking – as "costs net of third-party payments, including, but not limited to, payments by Medicare and private insurance." The Missouri Hospital Association sought to invalidate this regulation. The district court granted summary judgment in favor of the MHA, and concluded that the regulation was contrary to the statute’s definition that the only payments that offset a hospital’s Medicaid costs are non-DSH Medicaid payments" (see FAQs were subject to notice-and-comment procedures, February 13, 2018).

Medicaid shortfall determination. In determining whether the regulation exceeded HHS’ statutory authority as outlined in §1396r-4(g)(1)(A), the appellate panel examined whether Congress had spoken to the issue of "costs incurred." The Missouri Hospital Association conceded that the statute expressly delegated discretion to HHS, but argued that the discretion was only to determine "costs incurred." The MHA argued that the statute unambiguously provided that the only "payments" that may reduce the determination of "costs incurred" are Medicaid payments other than non-DSH payments or payments by uninsured patients. The MHA argued that Congress unambiguously mandated a specific formula, specifically that Medicaid shortfall for a DSH was Medicaid costs minus Medicaid payments.

The appellate panel agreed with MHA that the statute specifically directed HHS to offset Medicaid payments. However, the statute did not state that the only payments used as an offset were payments by Medicaid or the uninsured. Other payments could be taken into consideration. HHS acted within the scope of the statute’s express delegation and the subsequent regulation, considered by the appeals court as a legislative regulation, and was as the Supreme Court noted "controlling weight" unless it was arbitrary, capricious, or manifestly contrary to the statute.

The panel noted that in the regulation, HHS specifically stated that under the statutory requirement limiting DSH payments on a hospital-specific basis to uncompensated care costs, it was inconsistent with the statute to assist hospitals with costs that have already been compensated by third party payments. HHS had noted at the time of the regulation that the policy was necessary to ensure that only actual uncompensated care costs wre included in the Medicaid hospital-specific DSH limit. As such, the appellate court found that it was not arbitrary for HHS to construe "uncompensated costs" as "costs" net of third party reimbursements, even if the reimbursements are called "payments."

The case is No. 18-1778.

Attorneys: Barbara D.A. Eyman (Eyman Associates PC) and Robert Ryan Harding (Husch Blackwell LLP) for Missouri Hospital Association. Samantha Lee Chaifetz, U.S. Department of Justice, for Alex M. Azar, II.

Companies: Missouri Hospital Association

MainStory: TopStory CaseDecisions CMSNews DSHNews MedicaidNews MedicaidPaymentNews ArkansasNews IowaNews MinnesotaNews MissouriNews NebraskaNews NorthDakotaNews SouthDakotaNews

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