A new lawsuit brought by 131 hospitals against the Department of Health and Human Services is the latest in a string of legal spats over how the government calculates payments to hospitals treating a large proportion of Medicare patients.
The complaint, filed Monday in the District of Columbia’s federal court, takes aim at a portion of a rule (PDF) proposed in 2023 and finalized the following year.
The rule, broadly speaking, retroactively adjusted how Medicare Advantage patients treated by hospitals are counted by the Centers for Medicare & Medicaid Services when determining the Medicaid fraction and the SSI fraction. The two percentages are combined to calculate a hospital’s disproportionate patient percentage, which determines whether the hospital qualifies for a Disproportionate Share Hospital (DSH) payment and the amount it would receive.
The adjustment, hospitals wrote in their complaint, reduces each fraction and thereby “results in thousands of safety-net hospitals losing billions of dollars in funding that has been illegally withheld for years.”
The calculation change isn’t new, and has previously fallen to court scrutiny. The plaintiff hospitals’ complaint highlights CMS’ decision to finalize the same approach in 2004 and how it was later vacated following legal challenges. A similar rule was again floated in 2013.
Attempting to reinstate the calculation change “misconstrues the legal effect of the vacatur of the 2004 rule” and disregards decisions in subsequent lawsuits, they wrote.
CMS said when promulgating the rule that it was intended as a methodology clarification, and would not bring new changes to hospitals’ Medicare DSH payments “because those payments were made under the policy reflected in” the 2004 rule, which was later vacated.
The plaintiff hospitals noted that HHS previously told the Supreme Court as well as the D.C. federal court, in another ongoing case regarding Medicare DSH calculations, that the change to the SSI fraction alone cost hospitals a collective $3 billion to $4 billion between FY2005 and FY2013. The latter court ruled largely in favor of that case’s hospital plaintiff, Montefiore Medical Center, last September—a decision the 131 hospital plaintiffs counted as a point in their argument’s favor.
The hospitals asked the court to vacate the 2023 rule, declare invalid historical final payment determinations and require the department to recalculate Medicare DSH payments under the pre-2004 policy.
There has been no shortage of hospital lawsuits challenging the department’s approaches to calculating DSH payments, and multiple such cases have reached the nation’s Supreme Court. In 2019, the top justices pushed back on the government’s 2014 application of the 2004 policy change at issue in this week’s filing. SCOTUS ruled in favor of HHS in a 2022 decision concerning a different portion of the DSH calculation, and again during 2025 in regard to which patients may be counted toward the SSI fraction’s calculation.