Supreme Court Sides with Hospitals on Change in Medicare DSH Payments

In a 7-1 decision, the U.S. Supreme Court ruled on June 3 that the Department of Health and Human Services (HHS) may not adjust the rates it pays hospitals for serving low-income patients without first giving them an opportunity to comment on the changes. The Medicare Act requires public notice and a 60-day comment period for any rule or requirement that establishes or changes a substantive legal standard governing the payment for services.

The case of Azar v. Allina Health Services et al. stemmed from a policy change that adjusted the way the Centers for Medicare & Medicaid Services (CMS) calculates so-called disproportionate share hospital payments (DSH). Despite its statutory obligation to follow the notice-and-comment process, CMS announced on its website a policy change that would retroactively and greatly reduce Medicare payments to hospitals serving low-income patients. In his majority opinion, Justice Neil Gorsuch rejected HHS’s argument that seeking public comment and feedback before changing reimbursement rates was overly burdensome.

The Court emphasized that “as Medicare has grown, so has Congress’s interest in ensuring that the public has a chance to be heard before changes are made to its administration.”  Currently, Medicare spends approximately $700 billion annually in providing health insurance to 60 million Americans; therefore, even seemingly minor changes to payment calculations can potentially affect millions of lives and lead to financial implications in the billions of dollars.

In addition to its immediate impact on DSH rates, the decision may restrict HHS’s and CMS’s ability to make future administrative changes to the Medicare program without going through the notice-and-comment process.