Dozens of safety net hospitals recently sued the Department of Health and Human Services, alleging that Medicare has “unlawfully withheld and unreasonably denied” disproportionate share hospital (DSH) payments for decades.

Medicare DSH payments are intended to support hospitals that serve a high number of uninsured and low-income patients. The payments are meant to counterbalance safety net hospitals’ uncompensated care costs so that they can be more financially stable, as well as protect access to care for low-income and uninsured patients.

The lawsuit was filed last week in the U.S. District Court for the District of Columbia by 42 hospitals, 26 of which are operated by Dignity Health, which is owned by CommonSpirit Health. The hospitals are located in Arizona, California, Hawaii, Minnesota and Nevada.

The complaint focuses on a 2008 federal court decision and 2010 binding acquiescence ruling. 

In 2008, a federal court ruled that the Centers for Medicare and Medicaid Services was calculating DSH payments incorrectly. The decision ordered HHS to send payments to contractors to figure out how much money was still owed to hospitals.

HHS agreed to recalculate the DSH payments it made to hospitals during fiscal year 2005 and earlier. In 2010, the department restructured the process it used to calculate DSH payments and vowed to repay safety net hospitals. But the hospitals suing HHS allege the department’s contractors have not revised the payment determinations required under the new rulings.

“The agency’s unreasonable delay has cost the plaintiff hospitals tens of millions of dollars in funds that should have been paid to them many years ago for the higher costs that they incurred to treat low-income patients more than a decade ago. The plaintiff hospitals have no other avenue of relief available to cause the agency to perform its obligations with respect to the remands under the ruling in a reasonable time period other than to file this complaint,” the hospitals wrote in their lawsuit.

For some of the hospitals, their requested repayments go as far back as fiscal year 1988, according to the complaint.

The plaintiff hospitals alleged that HHS has been using a 2020 halt on DSH payment redeterminations to justify its failure to repay safety net hospitals. 

In 2020, CMS ordered HHS’ Medicare contractors to pause their efforts to settle cost reports because the agency had “not yet completed the process of notice-and-comment rulemaking to establish a policy.” Medicare contractors were instructed not to take further action until they were “expressly instructed by CMS,” according to the lawsuit.

The hospitals also said that they requested assistance from HHS’ Office of General Counsel in February so that they could get repaid without having to file a lawsuit. The office responded by saying that HHS’ contractors were instructed not to issue the revised payment determinations that had been requested.

The revised determinations in question include additional DSH payments as a result of recalculated Supplemental Security Income (SSI) fractions addressed in the 2008 and 2010 rulings.

The plaintiff hospitals are seeking swift reimbursement from HHS in the form of revised payment determinations with these SSI fractions, as well as payments for interest and legal costs. 

A CMS spokesperson told MedCity News that the agency “does not comment on matters subject to pending litigation.”

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