Recent decisions impacting the Medicare DSH Calculation

The Decision in the “Allina” case (Medicare Part C Days Issue)

The Allina case challenged the validity of the Secretary’s 2004 final rule in which it was stated Part C days should be included in the Medicare fraction.  The validity of that rule was challenged because the Secretary did not follow proper protocol.  In 2012, the United States District Court for the District of Columbia ruled in favor of a group of hospitals.  That court vacated the 2004 final rule and also ordered those days be included in the Medicaid proxy of the Medicare calculation.  On April 1, 2014, the Court of Appeals for the District of Columbia Circuit affirmed the 2012 decision that vacated the 2004 final rule but reversed the most favorable part of the 2012 decision that called for those days to be included in the Medicaid fraction.  This is a partial victory for hospitals but next steps will depend on how CMS decides to proceed.   The issue can continue to be litigated as CMS could appeal to the Supreme Court, but alternative measures may be taken.  Until more is known about CMS’s intentions, providers should continue to preserve the issue on their cost report as well as appeal the issue timely.

The Decision in the “Nazareth” case (General Assistance Days Issue)

On April 2, 2014, the 3rd Circuit Court of Appeals reversed the district court’s prior decision that had gone favorably for the hospitals.  The conclusion of the court was that “the Secretary had set forth multiple rational bases justifying her inclusion of 1115 waiver days in Medicare DSH calculations, but excluding days covered under Pennsylvania’s GA days”.  The decision goes on to state that “a court is not to substitute its judgment for that of the agency,” and should “uphold a decision…if the agency’s path may reasonably be discerned…” It continued to say, “Accordingly, the challenged regulations must stand”.