5th Circuit upholds CMS rule tweaking DSH payment calculations 

A federal appeals court has upheld a Centers for Medicare & Medicaid Services rule targeting disproportionate share hospital payment calculations. (Pixabay)

A federal appeals court has upheld a rule that would allow the Centers for Medicare & Medicaid Services (CMS) to include payments from Medicare and private payers in calculating disproportionate share hospital (DSH) payment caps. 

The opinion (PDF), issued Monday, reversed a lower court win for eight Mississippi hospitals challenging the payment changes. The 5th Circuit Court argues that wording in the Medicaid Act on how the payments must be calculated is ambiguous, giving the Department of Health and Human Services (HHS) room to interpret it. 

“Affording the secretary this discretion makes sense given the array of private and public payers (Medicare, private health insurance, TRICARE, etc.) and the potential for unforeseeable challenges in how these payers reimburse hospitals,” the judges said. 

RELATED: CMS finalizes rule on DSH cuts worth up to $8B annually through 2025 

DSH payments have traditionally been calculated using the costs incurred to treat Medicaid and uninsured patients. However, CMS’ 2017 rule says costs incurred treating patients with other types of patients are applicable. 

For example, a dually eligible patient who’s admitted to the hospital will likely have their stay paid for by Medicare, the agency said, as Medicaid is treated as the “payer of last resort.” As such, those costs would be eligible to be subtracted from DSH payouts. 

Hospitals sued, arguing that federal officials did not have the authority to make such a change. A District Court agreed, and HHS appealed the case to the 5th Circuit. 

The 5th Circuit panel argued that offering some freedom to HHS to adjust payment methodologies allows the agency to adapt to an evolving payer mix. 

The case could make its way to the Supreme Court.