In a ruling dated June 10, 2019, the United States Court of Appeals for the Fifth Circuit sided with Mississippi hospitals in a dispute over the calculation of the Medicare DSH payment. Forrest General Hospital v. Azar, No. 18-60227, 2019 WL 2417409 (5th Cir. 2019). The question before the Court was whether inpatient days attributable to individuals who received benefits by means of payments made to hospitals from Mississippi’s uncompensated care pool (UCCP) established under a Section 1115 waiver should be included in the Medicaid fraction in the Medicare DSH payment formula. In a unanimous decision, the Fifth Circuit answered in the affirmative, holding that the outcome was dictated by the unambiguous text of the statute and regulation.
The Medicare program makes DSH payments to hospitals that treat a disproportionate number of low-income patients. Whether and to what extent a hospital qualifies for Medicare DSH depends on its “disproportionate patient percentage.” One component of the disproportionate patient percentage is the Medicaid fraction, which is calculated by taking the sum of a hospital’s days attributable to inpatients who are not entitled to Medicare benefits but are either eligible for Medicaid benefits or are “regarded as such” by the Secretary because they receive benefits under a Section 1115 demonstration project, and dividing that figure by the hospital’s total number of Medicaid inpatient days. A higher Medicaid fraction means a higher disproportionate patient percentage, which improves a hospital’s eligibility for DSH, increases the amount of DSH funding it will receive, and may qualify the hospital for 340B eligibility.
The plaintiffs in Forrest General, two Mississippi hospitals, argued that their Medicare DSH payments were understated because CMS calculated their Medicaid fractions without including days attributable to patients for whom the hospitals received payment from an uncompensated care pool that was established under a Section 1115 demonstration project.
Section 1115 of the Social Security Act authorizes CMS to waive certain Medicaid requirements for experimental demonstration projects to provide benefits to people who would not otherwise be eligible for Medicaid. In the aftermath of Hurricane Katrina, CMS approved a demonstration project permitting the Mississippi Medicaid program to expand Medicaid eligibility to individuals displaced or otherwise affected by the hurricane. That same demonstration project also...
