The fight about how Medicare compensates disproportionate share hospitals (“DSH”) is one of the longest-running reimbursement disputes of recent years, and it has generated copious work for judges around the country.  In a 5-4 decision, the U.S. Supreme Court settled one piece of the conflict:  the counting of “Medicare-entitled” patients in the Medicare fraction of the “disproportionate-patient percentage.”  Becerra v. Empire Health Found., 597 U.S. ___ (2022) (slip op.).  The Supreme Court concluded that the proper calculation, under the statute, counts “individuals ‘entitled to [Medicare] benefits[,]’ . . . regardless of whether they are receiving Medicare payments” for certain services.  Id. (slip op., at 18) (emphasis added).

DSH payments are made to hospitals with a large low-income patient mix.  “The mark-up reflects that low-income individuals are often more expensive to treat than higher income ones, even for the same medical conditions.”  Id. (slip op., at 3).  The federal government thus gives hospitals a financial boost for treating a “disproportionate share” of the indigent population. 

The DHS payment depends on a hospital’s “disproportionate-patient percentage,” which is basically the sum of two fractions: the Medicare fraction, which reflects what portion of the Medicare patients were low-income; and the Medicaid fraction, which reflects what portion of the non-Medicare patients were on Medicaid.  Historically, HHS calculated the Medicare fraction by including only patients actually receiving certain Medicare benefits for their care.  In 2004, however, HHS changed course and issued a new rule.  It counted, in the Medicare fraction, all patients who were eligible for Medicare benefits generally (essentially, over 65 or disabled), even if particular benefits were not actually being paid.  For most providers, that change resulted in a pay cut.

The new rule sparked several lawsuits.  Hospitals challenged HHS’s policy based on the authorizing statutory language.  These hospitals essentially argued in favor of the old methodology.  Appeals led to a circuit split, with the Sixth and D.C. Circuits agreeing with HHS, and the Ninth Circuit ruling that HHS had misread the statute.

The Supreme Court has now resolved the issue.  The majority opinion, authored by Justice Kagan, sided with HHS.  The majority concluded that, based on the statutory language, “individuals ‘entitled to [Medicare] benefits’ are all those qualifying for the program, regardless of whether they are receiving Medicare payments for part or all of a hospital stay.”  Id. (slip op., at 18).  The majority also explained that if “entitlement to benefits” bore the meaning suggested by the hospital, “Medicare beneficiaries would lose important rights and protections . . . [and a] patient could lose his ability to enroll in other Medicare programs whenever he lacked a right to [certain] payments for hospital care.”  Id. (slip op., at 11). 

Justice Kavanaugh dissented, joined by Chief Justice Roberts and Justices Gorsuch and Alito.  The dissent argued that those lacking certain Medicare coverage should be excluded from HHS’s formula, based on “the most fundamental principle of statutory interpretation: Read the statute.”  Id. (Kavanaugh, J., dissenting) (slip op., at 2).  According to the dissent, the majority’s ruling will also restrict hospitals’ ability to provide care to underprivileged communities.  “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.”  Id. (slip op., at 4). 

There was one point of agreement among the majority and dissenting justices: the complexity of the statutory language for DSH payments.  Echoing the thoughts often held by healthcare advisors, Justice Kagan found the statutory formula to be “a mouthful” and “a lot to digest.”  Id. (majority opinion) (slip op., at 4).  And in his dissent, Justice Kavanaugh called the statute “mind-numbingly complex,” and resorted to an interpretation that he found “straightforward and commonsensical”: that patients cannot be “simultaneously entitled and disentitled” to Medicare benefits.  Id. (Kavanaugh, J., dissenting) (slip op., at 1, 3).