On June 24, 2022, in Becerra v. Empire Health Foundation, the Supreme Court upheld the Department of Health and Human Services’ interpretation of the Medicare statute governing how disproportionate share adjustments are calculated for hospitals serving low-income patients. The interpretation upheld by the Court generally reduces the payments available to these hospitals.

The case involved dense language in the Medicare statute governing payments to Disproportionate Share Hospitals (“DSH”). Medicare generally pays hospitals a flat rate for inpatient hospital services based on the patient’s Diagnostic Related Group (“DRG”), subject to certain adjustments.  One such adjustment is for disproportionate share payments to hospitals serving low-income patients.  Whether a hospital is entitled to DSH payments and the amount of such payments is statutorily calculated based on two fractions, the Medicare fraction and the Medicaid fraction.  As stated in the opinion, “roughly speaking, the former measures the hospital’s low-income senior citizen population, and the latter the hospital’s low-income non-senior population.” The two fractions are added to together and expressed as a percentage to determine if a hospital is entitled to DSH payments and the amount of such payments.

The issue in the case centered on the statutory language governing calculation of the Medicare fraction, which is made up of “the number of [a] hospital’s patient days” attributable to low-income patients “who (for such days) were entitled to benefits under part A.”  As the opinion stated:  “That is a mouthful.” The specific question posed by the case was whether days for patients who were insured by Medicare, but for whom Medicare did not pay for their inpatient stays should be included as patients “entitled to [Medicare] benefits” in the fraction. The opinion gave some examples of where that could occur, such as patients who were insured by Medicare, but who had exhausted their 90-day limit on inpatient days, or who had other insurance, and, therefore, for whom Medicare did not pay for their treatment.

HHS’s rules include all patients who are eligible for Medicare, regardless of whether Medicare paid for their treatment, in the fraction. Empire Health Foundation challenged the rules, focusing on the statutory language “for such days” to argue that only patients whose treatment was paid for by Medicare should be included.  The Court examined both the language and the structure of the Medicare statute to rule for HHS that individuals “entitled to benefits” means anyone “qualifying for benefits,” either because they were over 65 or disabled.

HHS’s regulation correctly construes the statutory language at issue.  The ordinary meaning of the fraction descriptions, as is obvious to any ordinary reader, does not exactly leap off the page…The provisions are technical:  They call to mind Justice Frankfurter’s injunction that when a statute is ‘addressed to specialists, [it] must be read by judges with the minds of specialists.’  But when read in that suitable way, the fraction descriptions disclose a surprisingly clear meaning – the one chosen by HHS.   The text and context support the agency’s reading:  HHS has interpreted the words  in these provisions to mean just what they mean throughout the Medicare statute. And so too the structure of the DSH provisions supports HHS:  Counting everyone who qualified for Medicare benefits in the Medicare fraction – and no one who qualifies for those benefits in the Medicaid fraction – accords with the statute’s attempt to capture, through two separate measurements, two different segments of a hospital’s low-income population. (internal citations omitted)

The Court rejected Empire’s interpretation, finding that it would require reading the language “entitled to benefits” differently in different provisions in the Medicare statute.  In addition, it would cause Medicare beneficiaries to lose important rights, including the right of a very sick patient who had exhausted the 90-limit on inpatient stays to enroll in Medicare Part D covering prescription drugs.

The 5-4 opinion was written by Justice Kagan, who was joined by Justices Thomas, Breyer, Sotomayor, and Barrett.  Justice Kavanaugh filed a dissenting opinion, which was joined by Justices Roberts, Alito and Gorsuch.

The opinion is attached here.


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