At issue is the CMS rulemaking process and whether the agency must use notice and comment rather than issue its own interpretations of federal law.
The U.S. Supreme Court agreed to review a 2017 court ruling by Federal Appellate Judge Brett Kavanaugh after he ruled that when CMS changed its Medicare payment formula for disproportionate share hospitals in FY 2012, it did so improperly.
Kavanaugh overturned a lower court ruling that sided with CMS.
When CMS announced its 2012 changes to its payment formula to DSH hospitals serving large low income patient populations, it modified its payment calculation to include MA members with Part A enrollees. The move allegedly reduced payments because it undercounted the number of Medicare beneficiaries in its DSH calculations. CMS made the payment change without notice and comment.
In his ruling against Health & Human Services, Kavanaugh wrote,
That difference in interpretation makes a huge difference in the real world. Part C enrollees tend to be wealthier than Part A enrollees. Including Part C days in Medicare fractions therefore tends to lead to lower reimbursement rates. Ultimately, millions of dollars are at stake for the Government and the hospitals.
According to Inside Health Policy, Kavanaugh’s opinion created a split with several other federal appellate courts that had ruled that CMS has the authority under the Medicare Act to issue certain interpretations of federal law without formal rulemaking.
In 2014, payment changes to DSH hospitals was made through formal rulemaking process with notice and comment, but that decision is also undergoing a challenge in a different case.
According to FierceHealthcare the case could impact as much as $4 billion in hospital payments for uncompensated care and that the implications for the ruling are significant, as interpretive rules are commonly used by CMS.
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