Becerra v. Empire Health Foundation: Supreme Court Validates HHS Read Of Medicare DSH Fraction Statute

• Published date: 28 June 2022
• Subject Matter: Food, Drugs, Healthcare, Life Sciences
• Law Firm: Foley Hoag LLP
• Author: Mr Thomas Barker, Erin Estey Hertzog and Andrew London

Key Takeaways:

• The Supreme Court backed HHS's interpretation of the Medicare statute establishing payments for hospitals that treat a statistically significant share of low-income patients.
• HHS can therefore continue to calculate the disproportionate share hospital (DSH) adjustment in a manner that generally reduces DSH payments to hospitals.
• The Supreme Court reached its decision with no apparent deference to the agency - and without even mentioning Chevron - leaving open the question of whether the Court will give agencies Chevron deference in future cases.

Late last week, the Supreme Court released its opinion in Becerra v. Empire Health Foundation, a case that involves the complex but important question regarding how to calculate the Medicare and Medicaid fractions of a hospital's Disproportionate Share Hospital (DSH) adjustment. Medicare's DSH adjustment is an additional payment made to hospitals that treat a statistically significant share of low-income patients. The specific question presented was how to count patients who qualify for Medicare Part A at times when Medicare is not paying for their hospital treatment. The Department of Health and Human Services (HHS) had issued a regulation interpreting the Medicare statute to count these patients, resulting in lower DSH payments for most hospitals. In considering Empire Health's challenge to this regulation, the Ninth Circuit invalidated HHS's interpretation on the grounds it was inconsistent with statute. However, two other Courts of Appeals had previously deferred to HHS' statutory read. In a 5-4 decision by Justice Kagan, joined by Justices Thomas, Breyer, Sotomayor, and Barrett, the Court settled this circuit split and upheld HHS' regulation.

Background

The Medicare program originally paid for hospital inpatient services on a reasonable cost basis. However, in 1983, Congress adopted the inpatient prospective payment system, or IPPS, which pays hospitals at a fixed rate based on diagnostic-related groupings (DRGs). As initially conceived, the flat payment rate under IPPS did not recognize the higher costs incurred by hospitals treating low-income patients. However, in 1985, Congress added the "disproportionate share hospital" (DSH) adjustment for those hospitals that treat a "disproportionate share of low-income patients." Although the broad parameters of this DSH formula are codified in statute, given the complex statutory text and volume of dollars at stake, the precise details of what is...