On April 29, 2025, the U.S. Supreme Court issued an opinion upholding the formula the U.S. Department of Health and Human Services (HHS) utilized to calculate Medicare hospitals’ disproportionate share hospital (DSH) payment adjustments, denying a challenge brought by hospitals seeking higher DSH reimbursement. In Advocate Christ Medical Center v. Kennedy, No. 23-715 (S. Ct. Apr. 29, 2025), the Court held, based on a highly technical analysis, that the DSH formula endorsed by HHS was consistent with congressional intent, and accordingly rejected an argument from the hospitals premised on how DSH adjustments are calculated arising from a hospital’s treatment of patients eligible for social security benefits.

Background on Disproportionate Share Hospital Rate Adjustments

Under Medicare, hospitals that treat a disproportionate share of low-income Medicare patients are entitled to a rate adjustment above the fixed Medicare amount for each Medicare patient treated, which is calculated by adding two fractions: the “Medicare fraction” plus the “Medicaid fraction.”

This dispute arose when over 200 hospitals claimed that HHS miscalculated the hospitals’ DSH adjustments from 2006 to 2009 due to the department’s misinterpretation of the “Medicare fraction” calculation. The numerator used to calculate the “Medicare fraction” is defined by statute as “the number of [a] hospital’s patient days’ attributable to patients ‘who (for such days) were entitled to benefits under [Medicare] Part A’ and ‘entitled to supplementary security income [SSI] benefits. . . under subchapter XVI.” HHS interpreted the phrase “entitled to [SSI] benefits” to mean patients who are entitled to receive an SSI payment during the month they were hospitalized.

Conversely, the hospitals argued that the phrase includes all patients enrolled in the SSI system at the time of their hospitalization, even if they were not entitled to an SSI payment during their month of hospitalization. The net result of the hospitals’ position would’ve been to expand the number of patients in that numerator, thus increasing the “Medicare fraction” and correspondingly increasing the DSH rate adjustment for such hospitals.

After the hospitals were repeatedly unsuccessful in administrative challenges and federal district court, the D.C. Circuit Court of Appeals held for HHS, stating that SSI benefits are “about cash payments for needy individuals” and that “it makes little sense to say that individuals are ‘entitled’ to the benefit in months when they are not even eligible for [a payment].”

Supreme Court Analysis and Holding

The Supreme Court upheld the D.C. Circuit ruling in favor of the government, rejecting the hospitals’ position. The Court clarified that the relevant text stipulates that SSI benefits are cash benefits and that eligibility for such benefits is determined monthly. Due to these eligibility requirements, an individual is considered “entitled to [SSI] benefits for purposes of the Medicare fraction when she is eligible for such benefits during the month of [their] hospitalization.”

The Court declined the hospitals’ characterization of SSI benefits as including non-cash benefits such as vocational rehabilitation services and continued Medicaid coverage. In examining the description of an SSI benefit, the Court concluded that non-cash benefits are not identified under subchapter XVI of the Social Security Act. Turning to the hospitals’ inclusion of individuals with continued Medicaid coverage during periods of ineligibility for SSI benefits, the Court determined that this also does not create an SSI benefit but rather aids in administering the Medicaid program.

Notably, two Justices dissented from the Court’s majority holding. They observed that the ultimate goal of the DSH formula is to “provide hospitals that serve the neediest among us with the appropriate level of critical funds” before concluding that the Court’s holding “arbitrarily undercounts a hospital’s low-income patients.”

Takeaways

This decision stops the hospitals’ ability to seek higher reimbursement via an enhanced DSH rate adjustment for the challenged claims. Moreover, the HHS’s methodology for calculating the DSH rate was affirmed; therefore DSH hospitals will receive a DSH rate adjustment based in part on the number of patients treated who are receiving a cash payment under an SSI program during the month of treatment, and not based on the number of such patients who are just eligible for SSI benefits.

Though the provision at issue was highly technical, the impact of this decision is potentially significant for DSH hospitals at a time of funding and reimbursement challenges, as more patients seek access to critical services often provided by such DSH hospitals. 

Victoria Larson contributed to this article