The Supreme Court found Medicare’s system of paying safety net providers is lawful, dealing a major blow to hospitals that have faced cuts to their payments.
The court ruled 5-4 (PDF) Friday that the Department of Health and Human Services (HHS) followed correct procedures when it drafted a 2004 rule on the calculation of disproportionate share (DSH) payments to safety net hospitals.
HHS makes DSH payments to hospitals that serve a high number of low-income patients. The payments are calculated based on two factors: the hospital’s Medicare patients with low incomes and those with low incomes but not on Medicare.
However, not all patients qualifying for Medicare Part A—which covers inpatient hospital stays—get their hospital stay paid for by the program, according to the ruling. A patient, for instance, might pay via a private plan.
HHS issued a rule in 2004 that said if patients meet the basic criteria for Medicare like their age or are disabled then they count in calculating the DSH payment, regardless of whether Medicare was the primary payer for hospital care. Since the rule included all patients that were entitled to Medicare benefits, it cut DSH payments to hospitals, according to an analysis from the Commonwealth Fund.
But Empire Health Foundation, a private health foundation based in Washington state, challenged the calculation of its 2008 DSH payments. The foundation had argued the rule violates the Medicare statute, and HHS didn’t follow the correct procedures when the regulation was crafted.
The Ninth Circuit Court of Appeals voided the rule and sided with Empire.
However, the Supreme Court found Empire’s interpretation “fits poorly with the statutory structure,” according to the opinion delivered by Justice Elena Kagan. Justices Clarence Thomas, Stephen Breyer, Sonia Sotomayor and Amy Coney Barrett sided with Kagan in the opinion.
Kagan wrote that under Empire’s interpretation of the statute a patient could go back and forth between Medicare or Medicaid fractions “based on the happenstance of actual Medicare payments.”
The patient, though, would remain “just as low-income and impose just as high costs on the hospital treating him. Empire’s only response is to insist that its interpretation must be right because it usually (though not always) leads to higher DSH payments,” the opinion added. “But the point of the statute is not to pay hospitals the most money possible; it is to compensate them for serving a disproportionate share of low-income patients.”
But Kavanaugh argued in his dissenting opinion that HHS changed the process in 2004 “presumably to save money.”
He added that a patient can’t just be entitled to benefits but not entitled to such benefits on the day that patient is in the hospital.
“That interpretation does not work,” Kavanaugh wrote. “And HHS’s misreading of the statute has significant real-world effects: It financially harms hospitals that serve low-income patients, thereby hamstringing those hospitals’ ability to provide needed care to low-income communities.”