Court Gives Green Light to Hospitals' Medicare DSH Lawsuit

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By Eric Topor

Nov. 3 — A challenge to a Medicare rule for calculating additional payments to hospitals that serve a disproportionate number of low-income patients will move forward after a federal district court ruled Oct. 29 that an administrative appeals board properly expedited the case for judicial review.

The lawsuit, filed by a group of hospitals, alleged that a June 2014 Medicare rule for calculating the disproportionate share hospital (DSH) payment improperly applied provisions regarding Medicare Part C (Medicare Advantage) patients from a 2004 DSH rule that was vacated by a federal appeals court in April 2014. The hospitals successfully argued against the Department of Health and Human Services' motion to dismiss the lawsuit for lack of jurisdiction after the Provider Reimbursement Review Board (PRRB) ruled that it had no statutory authority to hear the lawsuit, and granted the plaintiffs' motion for expedited judicial review in federal court.

The U.S. District Court for the District of Columbia held that the PRRB correctly determined that it didn't have authority to hear a challenge to the validity of the 2014 DSH regulation, and that the HHS was statutorily barred from challenging the PRRB's decision to grant expedited judicial review.

Challenged DSH Regulation

The HHS promulgated the 2014 DSH rule following a U.S. Court of Appeals for the District of Columbia Circuit ruling that upheld a lower court ruling vacating the prior DSH rule from 2004 (Allina Health Servs. v. Sebelius, 2014 BL 91516 (D.C. Cir. 2014)).

According to the HHS, the 2004 DSH rule clarified existing Medicare policy that Medicare Advantage beneficiaries should be counted in the Medicare fraction of the DSH payment calculation, rather than the Medicaid fraction. But the D.C. Circuit held that the 2004 DSH rule was a change in policy, not a clarification of existing policy, and therefore violated the Administrative Procedure Act's notice and comment requirements (64 HCDR, 4/3/14).

The 2014 DSH rule followed the D.C. Circuit's ruling, but the plaintiffs filed the current lawsuit challenging it as well on the grounds that it was based on the vacated 2004 rule and was adopted without the required notice and comment period under the APA.

The district court also denied the HHS's alternative motion to remand the case to the PRRB, and noted that the HHS failed to challenge the plaintiffs' secondary argument that the 2014 DSH regulation violated the APA.

The D.C. Circuit also recently ordered the HHS to revise the 2004 DSH rule in a May court order (98 HCDR, 5/21/15).

Akin Gump Strauss Hauer & Feld LLP represented the hospitals.

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To contact the editor responsible for this story: Janey Cohen at