Disproportionate Share Hospital (DSH) payments are critical lifelines for many hospitals, especially those serving high numbers of low-income patients. However, a recent Supreme Court ruling has cast new light on how these payments are calculated, raising significant concerns for hospital administrators nationwide.
Background of the Case
The case, Advocate Christ Medical Center v. HHS, traces back to 2017 when over 200 hospitals challenged the Department of Health and Human Services (HHS) over its formula for calculating DSH payments. At the heart of the debate was the inclusion criteria for the Supplemental Security Income (SSI) fraction used in determining these payments.
Hospitals argued that all patients enrolled in SSI at the time of hospitalization should be counted—even those not eligible for SSI cash benefits during their hospital stay. However, HHS interpreted the law differently, stating that only those eligible for cash SSI payments in the hospitalization month should be included.
Hospitals claimed this interpretation led to significant underpayments from 2006 to 2009, prompting lawsuits. After rulings in favor of HHS by lower courts, the case reached the Supreme Court in February 2024, following a request by six national hospital groups pointing to billions of dollars in potential consequences.
The Supreme Court Ruling
On April 29, the Supreme Court delivered a 7-2 decision in favor of HHS, solidifying its interpretation of how the Medicare SSI fraction is calculated for DSH adjustments.
Key Points of the Ruling
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Majority Opinion
Justice Amy Coney Barrett, writing for the majority, upheld HHS' methodology, emphasizing that SSI cash payments are central to eligibility. Barrett wrote, “It makes little sense to say that individuals are entitled to the benefit in months when they are not eligible for SSI payments.”
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Dissenting Opinion
Justice Ketanji Brown Jackson, joined by Justice Sonia Sotomayor, dissented, arguing that the ruling undermines hospitals serving low-income patients. Jackson stated, “The decision deprives hospitals of critical federal funds that Congress plainly intended to provide.”
RELATED: Medicare DSH Payments 101
The ruling limits the scope of who qualifies under the Medicare SSI fraction, reinforcing HHS' narrower interpretation. This decision has significant implications for DSH payment calculations moving forward.
Financial Impact on Hospitals and Industry Reactions
The Supreme Court's ruling has clear financial ramifications for hospitals, particularly those serving underserved communities.
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Reduced Funding: Hospitals relying on DSH payments to offset the cost of low-income care may face shortfalls in their budgets due to narrower reimbursement calculations. Advocacy groups estimate this could lead to hospitals collectively losing $1 billion annually in federal funding.
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Operational Strain: Essential hospitals may struggle to maintain quality care without adjustments to cover gaps in funding, potentially leading to cuts in staffing, services or facility upgrades.
Leaders in the healthcare space have voiced strong reactions to the ruling.
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America’s Essential Hospitals: Beth Feldpush, SVP of Policy, expressed disappointment, stating, “DSH payments are key to the financial stability of essential hospitals and help to ensure access and high-quality care for all. We will continue to advocate for adequate funding.”
- American Hospital Association (AHA): While the AHA declined to comment on the ruling, they have previously emphasized the importance of revisiting payment frameworks to accommodate hospitals working on thin margins.
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What This Ruling Means for the Future of DSH Payments
This ruling represents a broader shift in how federal healthcare payments are likely to evolve, with stricter interpretations of eligibility requirements. As Medicaid and Medicare regulations become more complex, hospitals will need to adapt strategically to protect their financial stability while continuing to serve vulnerable populations.
Hospitals that wish to stabilize or potentially optimize their funding despite the ruling can take meaningful actions.
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Conduct Audits: Routine audits can uncover Medicaid-eligible inpatient days that may have been overlooked.
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Leverage Technology: Automate data collection and reconcile information across regions to avoid preventable underpayments through 3rd-party tools.
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Engage Experts: Hospitals can benefit from engaging consultants or firms with expertise in Medicare DSH complexities.
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Advocate Proactively: Join advocacy groups to push for policy changes that restore fairness in how DSH funds are allocated.
"As Washington faces growing uncertainties, the urgency of securing DSH payments cannot be overstated. Maximizing these critical funds requires expert insight and strategic action. The stakes are simply too high to leave this to chance,” said Jonathan Wiik, VP of Health Insights at FinThrive.
The Supreme Court's decision marks a pivotal moment not only for DSH payments but also for the broader questions of healthcare funding and equity. Hospitals must build resilience by focusing on operational efficiencies, leveraging advanced technologies and collaborating with policymakers to ensure their voices are heard.
By responsibly managing resources and preparing for regulatory adjustments, hospital administrators can maintain financial health while continuing to deliver on their mission of quality care for all.
Are you ready to take your DSH reimbursement strategy to the next level? Explore how advanced tools like FinThrive can empower your hospital to achieve greater financial stability.
