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SCOTUS Decision in Azar v. Allina Health Services, 587 U.S. ____ (2019) a Big Win For DSH Providers


On Monday, June 3, 2019, the Supreme Court issued its eagerly awaited decision in Azar v. Allina Health Services. Writing for the Court in a 7-1 opinion, Justice Gorsuch wrote that when the government wants to change a "substantive legal standard" that affects Medicare benefits, pursuant to 42 U.S.C. 1395hh(a)(2), it must "first afford the public notice and a chance to comment" with the comment period encompassing the Medicare statute's 60 day notice and comment period, rather than the 30 day period under the federal Administrative Procedure Act.

In so doing, the Court upheld the decision of the D.C. Circuit Court of Appeals that invalidated a 2014 policy the Department of Health and Human Services ("HHS") published on its website that materially changed the calculation of disproportionate share hospital ("DSH") payments. The policy that HHS sought to adopt included Medicare Part C patients in the Medicare fraction that HHS uses to calculate DSH payments. HHS calculates the Medicare fraction by including in the numerator the time a hospital spends caring for patients who receive part A Medicare payments for hospital services AND who are entitled to income support payments under the Social Security Act, and the denominator is the time a hospital spends providing services to Medicare Part A eligible patients. The 2014 policy change included Medicare Advantage, or Part C, patients in the calculation of the denominator, driving the Medicare Fraction down in general, because Medicare Advantage patients are less likely to be eligible to receive income support payments. The net effect of this change was to reduce DSH payments to eligible hospitals by hundreds of millions of dollars for the period in question, according to an amicus brief of the American Hospital Association.

The impact of Allina Health is twofold. First, it provides much needed additional DSH funding to DSH providers, which on the whole tend to be the most financially fragile safety net providers. Second, it will require HHS to undergo rule making when it attempts to make a substantive change to calculation of Medicare payment amounts under the guise of policy making or interpretation. The larger impact of this latter point is uncertain, however, as the opinion seems clear that changes to the Provider Manual will not typically fall within the "substantive legal standard" definition for which formal rule making and comment is required.