On March 27, 2013, the 6th Circuit, sitting en banc, issued its decision in Metropolitan Hospital v. U.S. Department of Health and Human Services, Case Nos. 11-2465\2466. At issue in the case was whether the HHS Secretary’s exclusion of dual-eligible patients with exhausted Medicare benefits from the Medicaid fraction of the disproportionate patient percentage (DPP) was appropriate. While the District Court ruled in favor of the provider, the 6th Circuit reversed and entered judgment for HHS.

Made up of the statutorily defined Medicare and Medicaid fractions, the DPP adjusts Medicare reimbursements for providers serving a disproportionate share of low-income patients. The Medicare fraction includes in the numerator the number of a hospital’s patient days for patients entitled to benefits under both Medicare Part A and Supplemental Security Income. The denominator is the total number of patient days attributable to patients entitled to Medicare Part A. The numerator of the Medicaid fraction includes the number of a hospital’s patient days for patients eligible for Medicaid, but not entitled to Medicare Part A benefits. The Medicaid fraction’s denominator is the total number of the hospital’s patient days for all patients.

Central to the case was the interpretation of 42 C.F.R. § 412.106(b), which governs the implementation of the DPP statute at 42 U.S.C. § 1395ww(d)(5)(F)(vi). The regulation currently interprets the statutory language “entitled to benefits under [Medicare] Part A” as requiring the inclusion of patient days for all Medicare beneficiaries, even if a beneficiary has exhausted his or her Medicare coverage. This interpretation requires the exclusion from the Medicaid fraction of patient days for those individuals who are eligible for both Medicare and Medicaid, but who have exhausted their Medicare benefits. As applied to Metropolitan Hospital, the interpretation reduced its DPP, resulting in a negative reimbursement impact of over $2 million.

The district court determined that the interpretation at section 412.106(b) was invalid as contrary to the plain meaning of the DPP statute, reasoning that entitled requires payment for hospital services, rather than mere eligibility. Thus, dual-eligible patients with exhausted Medicare benefits would be included in the numerator of the Medicaid fraction. The district court’s determination was based largely on 6th Circuit precedent interpreting the DPP in Jewish Hospital v. Secretary of Health and Human Services, 19 F.3d 270 (6th Cir. 1994). However, the 6th Circuit found that it was not bound by Jewish Hospital as the court’s statutory interpretation discussion in that case was dicta. Further, the 6th Circuit reasoned that Congressional intent regarding the interpretation of eligible versus entitled was not clear, nor was the purpose of the DPP statute enlightening. As a result, the court held that the Secretary’s current interpretation was a permissible construction of the DPP statute and was not the result of arbitrary and capricious rulemaking. Judge McKeague dissented and would have found for Metropolitan Hospital, with the Jewish Hospital court’s interpretation controlling as precedent. A similar issue will be argued before the D.C. Circuit in Catholic Health Initiatives v. Sebelius on April 15, 2013.

To read the 6th Circuit’s opinion, please click here.