A group of hospitals has filed a lawsuit against the U.S. Department of Health and Human Services (HHS), accusing it of underpaying hospitals that provide care to a large proportion of low-income patients.
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This lawsuit, filed by 10 hospitals in federal court in Washington, D.C., on Friday, claims hospitals will lose billions in reimbursements due to a rule that was enacted last year and applies retroactively to the years 2004 to 2013. (The lawsuit does not address a 2014 rule that modified the policy going forward.)
The rule in question involves annual payments made by Medicare to hospitals serving low-income patients, known as disproportionate share hospital payments. All plaintiff hospitals had appealed these payments during the 2004-2013 period.
HHS initially attempted to alter how these payments were calculated in a 2004 rule, which led to legal challenges from hospitals. This culminated in a 2019 U.S. Supreme Court ruling that the 2004 rule change was invalid because it did not follow the required rulemaking process, including a public notice and comment period. In response, HHS enacted the retroactive rule.
In the latest lawsuit, hospitals—among them Scripps Mercy Hospital in San Diego, California, University of Texas-affiliated hospitals in Tyler and Athens, Texas, and Richmond University Medical Center in Staten Island, New York—argue that the 2023 rule improperly retroactively changes how payments are calculated.
They claim that under the 2023 rule, HHS now counts days that patients covered by privately administered, Medicare-funded health plans (Medicare Advantage or Medicare Part C) spend in the hospital in the same way as it counts days for patients covered by traditional Medicare.
According to the hospitals, this results in lower reimbursements under HHS’s complex formula for calculating payments to disproportionate share hospitals. They assert that the rule is arbitrary, capricious, and violates both federal Medicare law and the Administrative Procedure Act governing federal rulemaking.
HHS has not yet responded to a request for comment.
This lawsuit follows a similar case filed in the same court by approximately 80 hospitals in September. Meanwhile, the U.S. Supreme Court in June agreed to hear a separate challenge from around 200 disproportionate share hospitals claiming HHS is underpaying them.
That case also focuses on the formula used to calculate reimbursements for disproportionate share hospitals but deals with a different aspect, specifically the proportion of patients eligible for government benefits.
The case is Scripps Mercy Hospital San Diego et al v. Becerra, U.S. District Court for the District of Columbia, No. 1:24-cv-03052.
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