The President’s proposed budget for FY 2014, released last week and available here, includes a line item at page 197 that proposes to "Clarify the Medicare Fraction in the Medicare Disproportionate Share Hospital (DSH) statute." This line item is listed as budget neutral for all years but neither the budget itself nor its 1300+ page “appendix” contains any further discussion of the issue. HHS, however, in its own summary of the President’s budget, available here, explains that “[t]his proposal would clarify that individuals who have exhausted inpatient benefits under Part A or who have elected to enroll in Part C plan [MA days] should be included in the calculation of the Medicare fraction of hospitals’ Disproportionate Share Hospital (DSH) patient percentages.” Including Part A exhausted days and MA days in the Medicare fraction significantly decreases DSH payments for the majority of hospitals. It is probably no mere coincidence that this proposal comes when both these issues are currently pending in Federal court. It is unclear, therefore, whether this is a serious attempt to change the law or merely “saber rattling” designed to weaken the position of the plaintiff hospitals in those pending cases.

The administration’s tactic is not without precedent. Litigation on how Section 1115 Medicaid waiver days should be treated in the DSH formula was also pending in Federal court when the law was changed, through Section 5002(a) of the Deficit Reduction Act (DRA) of 2005, to “clarify” the law consistent with the Secretary’s interpretation. The D.C. district court in that case, which had previously decided in favor of the hospitals, felt itself bound by the DRA and reversed course and found in favor of the Secretary. See Cookeville Reg’l Med. Ctr. v. Leavitt, 2006 U.S. Dist. LEXIS 68961 (D.D.C. Sept. 26, 2006), aff’d, 531 F.3d 844 (D.C. Cir. 2008).

Although the general consensus is that the President’s budget as a whole will not be adopted by Congress, individual items may nevertheless be enacted in other legislation. It therefore behooves hospitals and hospital associations to lobby their congressional delegations now against adopting this element of the President’s budget proposal.