On August 15, 2024, the U.S. District Court for the Northern District of Texas in Baylor All Saints Med. Center v. Becerra (“Baylor“), vacated a 2023 regulation by the Department of Health and Human Services (“HHS”) that excluded certain Medicaid-covered patient stays when counting a hospital’s Medicaid patient population for Medicare payment purposes.
Medicare DSH Payments and Medicaid Demonstration Projects
Hospitals that treat an unusually large number of low-income patients, known as disproportionate share hospitals (“DSH”), receive additional Medicare payments (“DSH adjustments”) to help with the higher costs of treating low-income patients. The DSH calculation measures two low‑income patient populations: Medicare patients, counted in the Medicare Fraction, and non‑Medicare patients, counted in the Medicaid Fraction. The resulting figure determines a hospital’s eligibility for DSH adjustments as well as other federal programs, including the 340B drug pricing program.
The Medicaid Fraction measures the percentage of a hospital’s total inpatient days or services provided to Medicaid beneficiaries. Since 2005, this fraction has also included inpatient care provided to patients who are not enrolled in Medicaid but whose treatment is paid for by Medicaid through a demonstration project approved by the Secretary of HHS under Title XI § 1115 of the Social Security Act. That section authorizes the Secretary to waive certain federal Medicaid program requirements for experimental, pilot or demonstration projects that could test new approaches to delivering Medicaid services and coverage.
Texas is one of several states that, under an approved § 1115 waiver, maintains a pool of funds to pay hospitals for inpatient services provided to indigent patients whose care costs would otherwise be uncompensated per 42 C.F.R. § 438.66(E)(1)(ii). Until recently, inpatient days covered by Texas’s Uncompensated Care Cost pool counted as Medicaid Days. When HHS published a regulation that would exclude these days, effective October 1, 2023, 12 Texas-based hospitals filed an appeal challenging the legality of the Exclusion Rule.
Exclusion Rule Violates the DSH Statute and Binding Court Precedent
The court in Baylor agreed with the hospital’s assertion that the Exclusion Rule conflicts with the clear wording of 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II), and the D.C. and Fifth Circuits’ binding interpretation of the same in Forrest Gen. Hosp. v. Azar (“Forrest“) and Bethesda Health, Inc. v. Azar. The Baylor court vacated the Exclusion Rule.
Applying the reasoning of Forrest, the Baylor court highlighted that, statutorily, the Medicaid Fraction includes inpatient days of: “patients who . . . were eligible for medical assistance under a State plan approved under [Title XIX, the federal Medicaid program]”, and the Secretary “may” include “days of patients not so eligible but who are regarded as such because they receive benefits under a demonstration project approved under title XI.” The court said the determination of whether to count the days occurred when the Secretary chose to approve the § 1115 Waiver.
The fall of judicial deference following the overturn of the Chevron doctrine will continue to place pressure on HHS and all agencies that their rulemaking follows the relevant statutory instruction. Additionally, the Baylor opinion is the latest in a recent string of federal court decisions that have ruled for hospitals, noting that the Provider Reimbursement Review Board has failed to follow controlling regulations of either substance or jurisdiction.
Practical Takeaways
- Because the Exclusion Rule was vacated, that vacatur applies to hospitals nationwide.
- Hospitals should consider the Medicare cost report implications of the vacatur.
- Hospitals should also consider related implications of the vacatur such as 340B Program eligibility based on DSH percentages reported on the Medicare cost report.
If you have questions or would like more information about this topic, please contact:
- Drew Howk at (317) 429-3607 or dhowk@hallrender.com;
- Kennedy Bunch at (317) 977-1420 or kbunch@hallrender.com;
- Heather Mogden at (414) 721-0457 or hmogden@hallrender.com;
- Liz Elias at (317) 977-1468 or eelias@hallrender.com;
- Todd Nova at (414) 721-0464 or tnova@hallrender.com;
- James Junger at (414) 721-0922 or jjunger@hallrender.com;
- Maureen Griffin at (317) 977-1429 or mgriffin@hallrender.com; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot give legal advice outside of an attorney-client relationship.
