FAQs 33 and 34 directed DSH auditors to subtract Medicare and private insurance payments received on behalf of Medicaid-eligible patients from the costs of DSH hospitals' IP/OP services to Medicaid-eligible patients; this reduces the hospital-specific DSH payment limit for many DSH hospitals.
The December 31, 2018 DSH audit guidance states:
As of December 31, 2018, and in light of four recent appellate court decisions, the Center for Medicare and Medicaid Services (CMS) is withdrawing questions 33 and 34 from the Medicaid Disproportionate Share Hospital (DSH) guidance that was issued in January 2010 titled "Additional Information on the DSH Reporting and Audit Requirements". . . .
As a result, questions 33 and 34 are no longer operative, and CMS will accept revised DSH audits that cover hospital services furnished before June 2, 2017. Ultimately, whether or not a state submits revised DSH audits, CMS expects states to comply with 42 C.F.R. § 433.312(a), and expects that any overpayments identified in the audits will either be redistributed to other DSH-eligible hospitals in accordance with the applicable state plan, see 73 Fed. Reg. 77904 (Dec. 19, 2008), or that the federal portion will be refunded to CMS in accordance with the regulation. At this time, CMS does not intend to provide additional guidance regarding whether individual states should submit revised DSH audits. States are encouraged to review any applicable district court or appellate court decisions. See, e.g., Tenn. Hosp. Ass'n v. Azar, 908 F.3d 1029 (6th Cir. Nov. 14, 2018); Children's Health Care v. CMS, 900 F.3d 1022 (8th Cir. Aug. 20, 2018); Children's Hosp. of the King's Daughters, Inc. v. Azar, 896 F.3d 615 (4th Cir. July 23, 2018); New Hampshire Hosp. Ass'n v. Azar, 887 F.3d 62 (1st Cir. Apr. 4, 2018). (Emphasis added.)
These statements by CMS raise a number of issues, especially as to states that are still processing or analyzing DSH audits for Medicaid State Plan rate years 2014 through 2017.
The THA v. Azar case was decided by the Sixth Circuit Court of Appeals. Tennessee, Kentucky, Ohio and Michigan are in the Sixth Circuit's jurisdiction. In this decision, the Sixth Circuit held that FAQs 33 and 34 caused Tennessee's DSH auditors to violate 42 C.F.R. § 447.299(c), CMS's DSH reporting requirement rule component promulgated on December 19, 2008. See Azar, at 908 F.3d 1029, 1045:
Yet, as plaintiffs detail in their briefs, none of the "data elements" set forth in 42 C.F.R. §§ 447.299(c)(6)-(c)(16) accounts for payments by Medicare or private insurance. There is thus a disconnect between the preamble – which assures hospitals that the 2008 rule identifies all the data necessary to calculate and report their respective DSH limits – and...
