On November 15, 2012, the United States District Court for the District of Columbia released a 33-page opinion ruling in favor of a group of hospitals that had challenged CMS’s policy of including Medicare Part C patient days in the SSI fraction in the Medicare DSH formula. The effect of CMS’s policy, announced in 2004, but not applied until 2009, albeit retrospectively to 2006, was to reduce Medicare DSH payments.  While the effect of CMS’s policy varies considerably from hospital to hospital, the result of this case, if applied to all Medicare DSH hospitals, would likely have a material impact on improving Medicare DSH payments.  King & Spalding organized the appealing group of hospitals and was co-counsel in the case.  A copy of the opinion can be seen by clicking here.

Since SSI enrollees are less likely to be enrolled in a Medicare Advantage plan (formerly Medicare+Choice), including these Part C patients in the SSI fraction had the effect of reducing the value of that fraction, and hence, reduced Medicare DSH payments.  Virtually all hospitals were hurt by CMS’s policy, but there are some large hospitals with high DSH percentages for which the annual adverse effect is in excess of $1 million.

CMS has 60 days within which to appeal.  If CMS does appeal, it is extremely unlikely that it would apply the District Court’s decision vacating its policy to include Part C patients in the SSI fraction unless and until the hospitals win the appeal.  The appellate decision probably would not be issued until mid-2014.

All DSH hospitals should consider appealing this issue.  For cost reports filed in the future, all DSH hospitals should include this item as a “protested item” to avoid having CMS assert that the hospital failed to protect its appeal rights.  For prior years, there are strong arguments that hospitals can appeal regardless of whether they included a claim on their cost reports, but the government may contend that there is no jurisdiction over such appeals.