Supreme Court sides with government on payments to safety net hospitals

In a narrow ruling, the court upheld the policy of the Department of Health and Human Services. The case involves billions of dollars in Medicare payments.

The Supreme Court sided with the federal government in a case involving billions of dollars in Medicare payments to safety net hospitals.

In a 5-4 ruling in Becerra v. Empire Health Foundation released Friday, the court found the U.S. Department of Health and Human Services had the authority to revise Medicare payments to hospitals that serve an above-average portion of patients with lower incomes.

Hospitals with a high concentration of patients with lower incomes, often called “disproportionate share hospitals,” get bigger payments from Medicare. The government pays billions to these "DSH" hospitals.

Medicare utilizes a very complex formula in determining how it pays those safety net hospitals, and that policy has been revised over the years. It has also been routinely challenged by hospitals in the past.

In 2004, the Centers for Medicare and Medicaid Services revised the formula for payments to those hospitals. Under the revised policy, CMS began counting the days a patient stays in the hospital after using up all of their Medicare benefits in its payment calculations.

Empire Health Foundation challenged the policy, arguing that the revised Medicare reimbursement short-changes safety net hospitals. Empire also argued that CMS didn’t give hospitals and health systems sufficient time to comment on the change in policy.

In a November analysis of the complex case for the Commonwealth Fund, Allison K. Hoffman, a professor of law at the University of Pennsylvania, offered this projection on what would happen if the court sided with HHS, as it did.

“If HHS prevails, some hospitals will continue to receive lower DSH payments than they would have under the pre-2004 rule,” Hoffman wrote.  “Safety-net hospitals, which serve the most low-income Medicare beneficiaries who are entitled to SSI and have the fewest financial resources, may feel less impact.”

The ruling marked an unusual mix of the court’s more liberal and conservative judges. Justice Elena Kagan wrote the ruling, backed by Justices Sonia Sotomayor and Stephen Breyer, Clarence Thomas and Amy Coney Barrett. Justice Brett Kavanaugh authored the dissenting opinion. Chief Justice John Roberts, Samuel Alito and Neil Gorsuch.

In the majority opinion, Kagan wrote, “The point of the DSH provisions is not to pay hospitals the most money possible; it is instead to compensate hospitals for serving a disproportionate share of low-income patients.”

The court issued the ruling just before releasing its decision overturning Roe v. Wade, ending the constitutional right for abortion for Americans after nearly 50 years. Healthcare groups said they were deeply concerned about government interference in physician-patient relationships after a draft opinion was leaked last month.

This marks the second Supreme Court ruling affecting hospitals in a little over a week.

The court ruled in favor of hospitals in a highly-watched case last week. The justices unanimously struck down Medicare cuts to hospitals participating in the 340B drug pricing program, which offers discounts on some drugs to hospitals with a high percentage of low-income and disadvantaged patients.

Related content: Hospitals say losses are mounting as drug companies curb 340B discounts