Court Strikes Down HHS Change To Low-Income Payment Formula In Win For Texas Hospitals

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Dive Brief:

• A Texas district court has overturned a Biden administration regulation from 2023 tweaking how hospitals that serve a large low-income population are paid by Medicare.
• Baylor All Saints Medical Center in Fort Worth, Texas, and roughly a dozen other hospitals in the state sued the HHS in May arguing the change was illegal and would cost them a significant amount of their DSH revenue. On Thursday, a judge agreed the provision was illegitimate in striking it down.
• It’s a big win for hospitals in the state, more of which should qualify for add-on payments for disproportionate share hospitals as a result.

Dive Insight:

How the federal government divvies out DSH payments has been a major source of litigation in past years, with some cases reaching the Supreme Court. Many of the suits center on how the HHS should calculate DSH funding, which gives additional reimbursement to hospitals that serve disproportionately low-income populations.

The suit in Texas Northern District Court decided Thursday focuses on a 2023 hospital payment rule in which the HHS carved out a portion of low-income patients in the state from qualifying for DSH reimbursement.

Medicare adjusts payments higher to hospitals that serve more vulnerable patients to account for those facilities’ generally higher costs and lower revenues. Regulators calculate whether a hospital qualifies (and the corresponding size of their adjustment) through a measure called the DSH percentage.

Since 2006, hospitals in Texas were allowed to include patients in that calculation that receive benefits through Medicaid demonstration waivers, which let states test changes to their Medicaid program. A Texas waiver approved in early 2021 allowed the state to create a bucket of funds for hospitals to help cover uncompensated care. As a result, patients could have their medical costs offset by payments from the pool, while hospitals could include those patients in calculating their DSH percentage.

But last August, the HHS excluded patients receiving benefits from that pool from the DSH percentage calculation, sparking the hospitals’ suit earlier this year.

The court agreed that the HHS doesn’t have the discretion to carve out patients from the calculation that the statute allows to be included. Since the HHS approved Texas’ demonstration project, any beneficiaries should be included in the DSH calculation, Judge Mark Pittman decided.

“No take-backs,” the judge wrote in his opinion.