Over 130 hospitals sue HHS over changes to the DSH payment calculation that could cost facilities billions
The U.S. Department of Health and Human Services (HHS) is being sued by a coalition of 131 hospitals that claim the agency overstepped its authority when in 2023 it lowered payments to hospitals that treat a high number of Medicare patients.
In a lawsuit filed on Monday, the plaintiffs argue that the methodology HHS uses to calculate these risk payments, designed to offset the high cost of caring for vulnerable patient populations, do not match reality.
The issue dates back to 2004, when HHS began changing the way it factors those on Medicare Advantage plans—also called Medicare Part C, the privatized form of the program—into payouts.
The simple summary of the methodology is this: The Centers for Medicare & Medicaid Services (CMS) uses two measures—the Medicaid fraction and the SSI fraction (based on patients receiving Supplemental Security Income)—to estimate how many low-income patients a hospital serves. These two numbers are combined into a disproportionate patient percentage, which is used to determine the risk a hospital takes on in supporting low-income Medicare populations.
A rule change about counting Medicare Advantage patients affects that percentage, which in turn determines whether the hospital gets Disproportionate Share Hospital (DSH) payments and how much money they ultimately get.
Over the years, there have been dozens of lawsuits related to DSH payments. This latest one focuses on changes that went into effect in 2024. This latest change, which places less emphasis on Medicare Advantage, would result in “thousands of safety-net hospitals losing billions of dollars in funding that has been illegally withheld for years,” the hospital plaintiffs argue.
Billions in lost revenue
As the hospitals note, courts have previously thrown out changes to DSH payments, including 2004 changes that the lawsuit argues are similar to those made in 2023. It cites statements the HHS made in court that confirmed that calculation changes in 2004 caused hospitals to lose $3 billion.
When the calculation was shifted again to change how SSI was measured, hospitals lost $4 billion—that happened in 2013, when HHS and CMS once again fiddled with DSH payment calculations.
The 131 hospitals that signed onto this lawsuit, which includes those owned by HCA Healthcare, are asking a court to once again vacate the changes, this time by overturning the 2023 rule.
They’re asking the court to restore the DSH calculation policy as it existed before 2004, when the tinkering began.
HHS has yet to respond to the complaint.
Chad is an award-winning writer and editor with over 15 years of experience working in media. He has a decade-long professional background in healthcare, working as a writer and in public relations.