Health Law Daily  Patient days in demonstration project should have been included in DSH calculations
News
Wednesday, July 24, 2019

 Patient days in demonstration project should have been included in DSH calculations

By Jeffrey H. Brochin, J.D.

Patients whose uncompensated inpatient hospital services were reimbursed by the Low Income Pool (LIP) as part of a demonstration project were "eligible for Medicaid" within the meaning of the statute and regulation.

A federal district court in Washington has ruled in favor of a group of Florida hospitals finding that uninsured and underinsured patients whose uncompensated inpatient hospital services were reimbursed by the LIP as part of a demonstration project were "eligible for Medicaid" within the meaning of the statute and regulation and should have had their patient days included in the relevant DSH calculations. The regulation was clear on its face, and the Medicaid-ineligible patients were found to be eligible for inpatient hospital services under a waiver authorized under section 1115(a)(2) (Bethesda Health, Inc. v. AzarJuly 23, 2019, Collyer, R.).

Role of ‘Medicaid-eligible’ patients. Hospitals that treat significant numbers of low-income patients receive a higher amount per Medicare patient as a disproportionate share hospital (DSH) adjustment. The size of the DSH adjustment to a given hospital is determined in part by the percentage of the hospital’s total patient days attributed to Medicaid-eligible patients, and therefore, the more patients a hospital treats who are deemed eligible for Medicaid, the greater its DSH adjustment and the greater its reimbursement rate under Medicare. The phrase "eligible for Medicaid" therefore plays an important role in determining the amount of federal funding a hospital receives.

Demonstration project ‘patient days.’ In 2006 Florida authorized, and the Secretary of the Department of Health and Human Services (HHS) approved, a Medicaid demonstration project --also known as a § 1115 waiver--which reformed Florida’s Medicaid program and established a federally-matched $1 billion LIP. Funds from the LIP were used to reimburse hospitals for the uncompensated inpatient hospital services provided to uninsured and underinsured patients who would typically not be considered eligible for Medicaid. Interestingly, the Medicare statute and its regulations allow patients to be deemed "eligible for Medicaid"—even if they are not—and counted towards a hospital’s DSH adjustment, if those patients are eligible for inpatient hospital services under a Medicaid demonstration project. Notwithstanding the statute and regulation, HHS refused to recognize patient days pertaining to those demonstration project patients in calculating the hospitals’ DSH reimbursement, and this lawsuit followed.

Other Circuit rulings referenced. The court noted that this same question has recently been addressed by two different courts. In HealthAlliance Hospitals, Inc. v. Azar, the court considered the same regulation in an almost identical Massachusetts hospital case and reversed the CMS Administrator based on the plain language of the regulation (see HHS disallowance of patients who were covered by Commonwealth Care was arbitrary and capricious, violated APA, October 29, 2018). The Fifth Circuit found the Secretary’s decision there to be arbitrary and capricious, holding that the unambiguous statute means that patients who are not actually Medicaid-eligible still count towards the Medicaid fraction’s numerator if they’re considered or accounted to be capable of receiving a demonstration project’s helpful effects. Even though the patients were uninsured or underinsured and otherwise Medicaid-ineligible, they nonetheless were capable of receiving inpatient health services as uncompensated care under a §1115 demonstration that was clearly authorized by the Secretary and so should have been included in the DSH calculation.

Likewise, in Forrest General Hospital v. Azar, 2019 WL 2417409, the Fifth Circuit considered the same regulation and statute and reached the same conclusion.

Plain meaning of the words. The court noted that the key words of the relevant subsection were not terms of art, but rather were plain to understand, with "eligible" generally construed to mean "capable of receiving," and "under" best read in context to mean "subject or pursuant to." Taken together, the phrase "eligible for inpatient hospital services . . . under a waiver authorized under section 1115(a)(2)" is plainly understood as describing those individuals who were capable of receiving inpatient hospital services pursuant to the project that the Secretary approved in the section 1115(a)(2) waiver. Based on the foregoing, the motion for summary judgment was granted to Bethesda Health, Inc.

The case is No. 1:18-cv-00875-RMC.

Attorneys: Christopher P. Kenny (King & Spalding LLP) for Bethesda Health, Inc. d/b/a Bethesda Memorial Hospital and Halifax Health. Johnny Hillary Walker, U.S. Attorney's Office, for Alex M. Azar, II.

Companies: Bethesda Health, Inc. d/b/a Bethesda Memorial Hospital

MainStory: TopStory CaseDecisions CMSNews DSHNews MedicaidNews EligibilityNews

Back to Top

Interested in submitting an article?

Submit your information to us today!

Learn More
Health Law Daily

Health Law Daily: Breaking legal news at your fingertips

Sign up today for your free trial to this daily reporting service created by attorneys, for attorneys. Stay up to date on health legal matters with same-day coverage of breaking news, court decisions, legislation, and regulatory activity with easy access through email or mobile app.

Free Trial Learn More