Supreme Court: HHS can maintain DSH formula approach that results in lower payments

The Supreme Court dealt hospitals a loss in a case about Medicare disproportionate share hospital (DSH) payments, saying HHS can continue using a disputed interpretation of the payment formula.

Published April 29, a 7-2 decision for the federal government in Advocate Christ Medical Center, et al. v. Kennedy allows for continuation of a policy whereby patients are counted in the numerator of the Medicare fraction only if they receive Supplemental Security Income (SSI) cash benefits during the month of a hospitalization.

In a 2024 brief filed on behalf of the plaintiffs, hospital advocacy groups said HHS’s longstanding application of the formula “results in significant cuts to hospitals’ DSH payments.” Per estimates, HHS’s interpretation lowers DSH payments by 15%, or roughly $1.5 billion annually, when extrapolated nationwide.

That computation does not account for hospitals that became DSH-ineligible as a result of how the formula was applied, the groups wrote. Ineligibility also disqualifies a hospital from receiving uncompensated care payments and 340B Drug Pricing Program discounts.

The newly decided case dates back more than 15 years, having originated in a dispute about Medicare reimbursement spanning FY06-09. Hospitals have fallen short in an administrative hearing before Medicare’s Provider Reimbursement Review Board, then in rulings at the district court level and the U.S. Court of Appeals for the Washington, D.C., Circuit.

As the final word on the matter, the Supreme Court’s decision stands to “deprive hospitals serving the neediest among us of critical funds that Congress plainly attempted to provide,” according to the dissenting opinion written by Justice Ketanji Brown Jackson.

HHS 2, hospitals 0

In a span of three years, HHS has prevailed in one Supreme Court case about the Medicare fraction’s denominator and now one about the numerator. The plaintiffs and hospital advocates have said the government used conflicting arguments in the two cases.

In a 2022 case, HHS v. Empire Health Foundation, the court ruled, 5-4, that HHS could count patients in the denominator of the Medicare fraction if they were entitled to Medicare Part A, regardless of whether they were receiving Medicare benefits amid their hospitalization.

Meanwhile, in the latest case, the court said patients can be included in the numerator only if they are receiving SSI cash benefits more or less concurrently to their hospitalization.

“The only open question is whether the same phrase, in the same sentences, means the same thing for SSI benefits,” the more than 200 plaintiff hospitals wrote in their legal brief. “The answer should be obvious: entitled to SSI benefits means eligible or qualifying for the SSI program.”

Disregarding that argument, Justices Amy Coney Barrett, Elena Kagan and Clarence Thomas saw fit to back HHS in both the 2022 and 2025 rulings.

Chief Justice John Roberts and Justices Samuel Alito, Neil Gorsuch and Brett Kavanaugh dissented for the hospitals in the first case and ruled for HHS in the second, suggesting they agree with the more restrictive views of eligibility for both Medicare and SSI, as applicable to the DSH formula.

Justice Sonia Sotomayor went the opposite way, siding with the majority for HHS in the earlier case and dissenting for hospitals in the latest decision, indicating her view that the formula components at issue both should be viewed more expansively. Jackson ruled for hospitals in the latest case and was not yet on the bench for the first case.

Threading the needle

Barrett authored the majority opinion in the latest decision and, in part, sought to explain the dichotomy between the two cases.

“Just as Empire Health turned on the specific features of Medicare Part A, this case turns on the specific features of SSI benefits under subchapter XVI [of the Social Security Act],” states the Advocate opinion. “Unlike Medicare Part A, which provides automatic, ongoing health insurance that ‘never goes away’ absent diminished disability, SSI benefits require recipients to apply for and be deemed eligible for benefits, and recipients can (and do) fluctuate in and out of eligibility based on monthly income and resources.”

Distinctions between the two programs make it untenable to view both the same way, according to the opinion. Eligibility for SSI cash payment does not hinge on mere enrollment in the program, even if a patient is receiving non-cash benefits (e.g., vocational training) at the time.

“The hospitals and the dissent urge us to think of SSI benefits as an ‘income-insurance program,’” the majority opinion states. “The shoe does not fit” because SSI benefits “do not provide an ongoing backstop against unexpected costs — they operate as a welfare payment that directly subsidizes’ recipients’ income.”

Referring to the plaintiffs and the dissenting justices, Barrett wrote, “They regard our reading as inconsistent with the overall purpose of the Medicare fraction and DSH adjustment, because people who happen not to qualify for an SSI cash payment in a given month are unlikely to be any healthier or less costly to treat from one month to the next. As they see it, including these patients in the numerator of the Medicare fraction better measures a hospital’s burden.

“This argument overlooks that Congress chose a specific means [i.e., SSI as a proxy measure] to advance its end of better funding hospitals that care for a disproportionate percentage of needy Medicare patients.”

The other perspective

In her dissent, Jackson (joined by Sotomayor) wrote that the majority’s interpretation of the DSH formula “is based upon a fundamental misunderstanding of how SSI’s cash-benefit program works. And that misunderstanding has led the majority to evaluate the Medicare statute without regard to the function of the formula’s reference to the SSI program, causing it to reach the wrong conclusion.”

The dissent adds, “No one disputes that Congress’s ultimate goal was to provide hospitals that serve the neediest among us with the appropriate level of critical funds. The only logical basis for the formula’s reliance on SSI, then, is to draw from that program’s preexisting pool of individuals that have already been designated as our society’s neediest — not to assess the wholly irrelevant fact of whether any such individual actually received a cash payment under the SSI program during the month of their hospitalization.

“[But] the majority’s interpretation both ignores this critical context and endorses an interpretation of the Medicare formula that arbitrarily undercounts a hospital’s low-income patients.”

The named provider in the 2022 case, Empire Health Foundation, sent an amicus brief for the latest case and pointed out that HHS’s interpretation of the SSI component could lead to situations where part of a patient’s stay is lopped out of the DSH formula:

“Should a Medicare beneficiary [have been] an inpatient in a Medicare-certified short-term acute care hospital from April 29 through May 6, 2022, and, by the time the SSA [Social Security Administration] eligibility file is constructed for that year, was, in SSA-speak, ‘due a check’ for April but not for May, the days April 29-30 would be counted in the numerator of the SSI Fraction, and the days May 1 through 6 would not be counted.”