Hospitals that serve a high number of indigent patients are faced with a dilemma: they must provide high-quality care but fixed Medicare reimbursement rates often do not take into account the higher operating costs that they incur when treating certain low-income patients.
That problem was made more difficult when the Supreme Court ruled 7-2 in favor of the Secretary of HHS in an appeal brought by over 200 hospitals that depend on disproportionate share hospital (“DSH”) payments. Advocate Christ Medical Center v. Kennedy, No. 23-715 (Apr. 29, 2025).
Congress recognized that hospitals that serve a high number of low-income or indigent patients may incur additional costs that are not captured in the regular Medicare inpatient prospective payments. Congress provided a remedy for these hospitals in the form of a complex formula that sums two fractions. The first fraction, known as the Medicare fraction, is the total of all of the hospital’s inpatient days attributable to “patients who (for such days) were entitled to benefits under part A of [Medicare] and were entitled to supplementary security income [SSI] benefits[under Title XVI of the Social Security Act]” and the denominator is the number of all inpatient days attributable to all Medicare beneficiaries. The DSH payment is made as a supplement to the Medicare DRG bundled payment for each discharge. The larger the numerator of the fraction, the larger the DSH payment.
These two elements use similar language, but what it means to be entitled to Medicare Part A or SSI for purposes of the DSH statute has generated considerable litigation. In Becerra v. Empire Health Foundation, 597 U.S. 424 (2022), the Supreme Court ruled that the phrase “entitled to [Medicare Part A] benefits” meant all Medicare Part A beneficiaries who were inpatients at a hospital, whether or not the Medicare program paid the hospital for that inpatient discharge. The Court did not address the second element in the numerator at that time.
The second element of the numerator did reach the Supreme Court in Advocate Christ. The Court found that the entitlement language did not have a single meaning; it agreed with the Secretary of HHS and lower courts that the Medicare Part A and SSI programs were distinct. Although Medicare Part A is an insurance program where eligibility is continuous once an individual is over age 65, blind, or disabled, SSI is a supplemental income program where an individual is eligible for a cash payment only during those months when their income and resources fall below a threshold. As a result, the Court ruled that SSI days that can be included in the numerator of the Medicare fraction are limited to those days during a month in which an individual received a SSI payment. The Court rejected the hospitals’ arguments that all inpatient days attributable to individuals entitled to SSI benefits should be counted, just like all of the Medicare Part A beneficiary days.
The Advocate Christ decision does not come as welcome news to hospitals that depend on DSH funds to close the gap between the cost of caring for patients without regard to their resources and the revenue that they receive from third parties. In many cases, it will result in a smaller numerator in the Medicare fraction and therefore smaller DSH payments. For some hospitals, the DSH payments are needed to avoid a negative operating margin based on the mix of payors.
The Court’s decision was rooted in a close textual reading of the DSH statute. Nevertheless, the decision highlights a tension between the text as interpreted by the Court and Congress’s intent to compensate hospitals that serve a high number of low-income patients. This was noted by the majority, but they concluded that they do not have the authority to amend the DSH statute. The remedy will lie with Congress.
If you have questions, please contact the author of this post or your regular EBG attorney(s). We are monitoring reactions to the Court’s decision as well as follow-up efforts from the Medicare program. We will keep you updated on the latest developments.
Blog Editors
Authors
Member of the Firm