SCOTUS rules Medicare dispute in favor of HHS

Associate Justice Elena Kagan

Despite the rather frosty reception, judges gave the Biden administration’s Department of Health and Human Services (HHS) SCOTUS at hearings one-sided 5-4 with the federal agency on Friday. The Supreme Court ruling means HHS can continue to use its preferred method of calculating payments for hospitals that admit a disproportionate number of low-income patients.

Becerra v Empire Health Foundationbrought before the Supreme Court by the U.S. Court of Appeals for the Ninth Circuit is a case about what formula HHS should use to calculate federal Medicare payments to certain hospitals, known as “DSH hospitals.” DSH—or “disproportionate hospitals”—are those that serve a high percentage of low-income patients. These facilities receive additional Medicare funding to account for the increased costs associated with low-income patients.

However, it is questionable how much additional funding the DSH hospitals are entitled to. The amount is calculated based on a complex formula set out in the Medicare statute. There is significant disagreement over how to perform the calculation using this formula, not only between hospitals and the federal government, but also among members of the Supreme Court.

The Empire Health Foundation sued, arguing that HHS’ calculations intentionally deprived DSH hospitals of over $600 million, thereby circumventing Congress’ legislative intent. In a narrow judgment, the Supreme Court opposed Empire, finding that HHS’s calculations had been correct all along.

justice Elena Kagan wrote the majority decision for SCOTUS. In it, Kagan went to great lengths to explain the DSH formula to the readers. After detailing the DSH “surcharge” using both the “Medicare portion” and the “Medicaid portion,” Kagan told readers, “With that, you may be ready to absorb the relevant legal language (but don’t). You can bet on that).” Throughout the statement, Kagan frequently referred to the complexity of the formula, echoing Justice Clarence Thomas’ Statements during oral hearings that described the law as “indecipherable.”

Always the professor, Kagan walked readers through the HHS interpretation of these fractions before summarizing:

So again, in general terms, the numerator is the number of patient days attributable to poor non-Medicare patients. The denominator is the total number of patient days. Divide the former by the latter to get the second percentage needed for the DSH calculation.

Next, Kagan explained the real-world application of these calculations. Some patients are excluded from part of the applicable formula because they are justified for Medicare coverage (even if Medicare is not actually pay for their treatment). In most cases, the exclusion of these patients from the formula results in a reduction in DSH payments.

The Supreme Court ruled that HHS is doing the calculations correctly, no matter how confusing the process might be.

“The text and context support the agency’s reading,” Kagan said, noting that HHS’s interpretation of this calculation is consistent with definitions “throughout the Medicare statute.”

In contrast, Kagan said, Empire’s proposed formula just doesn’t make sense. Empire’s interpretation of the Statute would mean that the terms “eligible” and “eligible” are equivalent. The Supreme Court was not convinced, and Kagan wrote, “But that reading, while abstractly plausible, does not work in the Medicare statute.”

Kagan also addressed the practical implications of siding with the Empire:

Consider what that might mean in the real world: A Medicare patient who was hospitalized for more than 90 days—a very sick person by definition—couldn’t enroll in Part D prescription drug coverage. Congress could not have wanted – and in fact could not have envisaged – this outcome.

The majority found Empire Health’s interpretation problematic on several counts, arguing that Empire’s interpretation of the Act would render other provisions of the Health Act “impervious or unthinkable or both.”

While the majority of their decision was largely limited to the principles of interpreting the law, the impact on the DSH hospitals did not go unnoticed by the court. “The Empire’s only answer [to the many arguments in HHS’s favor] is to insist that his interpretation must be correct, as this usually (but not always) leads to higher DSH payments for hospitals.” This line of thinking is wrong, said the majority.

Kagan elaborated and wrote that “the purpose of the DSH regulations is not to pay the hospitals as much money as possible; Instead, hospitals should be compensated for caring for a disproportionate proportion of low-income patients.”

“And Empire’s reading excels only in the former, not the latter,” she added.

justice Brett Kavanaugh drafted a dissent which was endorsed by the Chief Justice John Robertsas well as judges Samuel Alito and Neil Gorsuch. Kavanaugh refused to agree with the majority’s repeated assessment that the disputed legal formula was highly complex. Rather, he called the formula “relatively straightforward” and said Empire Health’s position was backed by “traditional insurance and benefits coordination principles.”

Kavanaugh noted that HHS has used different interpretations over the years.

“Importantly, from the enactment of the law in 1986 through 2003, HHS interpreted this statute exactly as I did,” the judge wrote.

He continued, pointing his finger directly at HHS for manipulating the numbers to save money:

Then, in 2004, HHS abruptly changed course. Why? Probably to save money. HHS has been struggling to find ways to contain Medicare costs in the face of rising Medicare spending and the country’s budgetary situation. To that end, HHS’s new interpretation of this statute in 2004 had the downstream effect of significantly reducing reimbursements from HHS to hospitals serving low-income patients.

The correct interpretation of the statute, Kavanaugh said, is not to side with any of the “dog breakfasts of arguments about broad legal purposes” offered by the parties. Rather, he wrote, “This case is resolved by the most fundamental principle of interpreting the law: read the law.”

On Kavanaugh’s reading, none “pay attention” to the majority conclusion:

In summary: A patient was not entitled to payment from Medicare “for such days” in the hospital if the patient could not (and therefore did not have) receive payment from Medicare for those days – for example because privately. the patient’s health insurance already covered the patient’s care, or the patient had exhausted their Medicare benefits. Both the legal text and common sense point to this conclusion. HHS’s interpretation to the contrary amounts to asserting that a patient may be both eligible and expendable to be paid by Medicare for a particular day of hospitalization. This interpretation doesn’t work. And HHS’ misinterpretation of the law has significant real-world implications: It financially hurts hospitals that serve low-income patients, thereby hampering those hospitals’ ability to provide needed care to low-income communities.

Although Gorsuch echoed Kavanaugh’s dissent, he was noticeably silent on the case. Gorsuch has long been a critic of “chevron deference,” the principle of submitting to an administrative authority’s interpretation of complex industry-specific legislation. Kavanaugh confined his disagreement to the correct interpretation of the statute applicable to DSH hospitals and did not comment generally on Chevron’s deference.

During the hearing, Gorsuch noted that courts tend to consider the interests of the parties in contract disputes and questioned whether it would be fair to rely on HHS’s own interpretation if it had a financial interest in the outcome of the litigation. Interestingly, neither Gorsuch nor his comrades-in-arms took up this argument in the four-way dissent.

[Photo by Erin Schaff-Pool/Getty Images]

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