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FavorableRulingsContinueinOngoingDSHLitigation January31,2018

Courts in vairous jurisdictions have issued favorable rulings in litigation challenging the Centers for Medicare & Medicaid Services’ (CMS’) policy requiring the inclusion of Medicare and commercial payments in the calculation of the Medicaid disproportionate share hospital (DSH) limit. In total, five courts have now sided with hospitals, permanently preventing CMS from applying its policy in Minnesota, New Hampshire, Virginia and Tennessee, and temporarily preventing CMS from applying its policy in Texas, and Washington as those cases proceed to a full trial. Similar cases are pending in Missouri and the D.C. Circuit.

To date, the focus of the courts’ attention has been CMS’ policy as issued in 2010 through a set of Frequently Asked Questions (FAQs), applicable to DSH payment years dating back to 2011. Hospitals have argued that one or both of FAQs 33 (commercial) and 34 (Medicare) are unlawful because they were not issued through notice and comment rulemaking (a procedural argument), and because they conflict with the Medicaid DSH statute (a substantive argument). CMS more recently adopted the same policies in a Final Rule issued in April 2017, which will begin to impact DSH payments for 2017 and beyond unless successfully challenged. While hospitals in several pending cases are seeking to overturn the Final Rule, the Final Rule will receive greater deference from courts as it is subject only to a substantive challenge.

Details of the cases vary and are summarized in the graphic that follows, which will be updated as new decisions are issued.

If you have questions regarding the ongoing DSH litigation, or Medicaid DSH more generally, contact Eyman Associates attorneys.

BarbaraEymanbeyman@eymanlaw.com202-567-6203

“[T]he Court finds that Defendants’ policies set forth in the responses to FAQs 33 and 34 violate the [Administrative Procedures Act] because they conflict with the unambiguous language of the Medicaid Act . . . . In addition, the FAQ policies represent agency action that is arbitrary, capricious, an abuse of discretion, otherwise not in accordance with law, and without observance of procedure required by law because they were not promulgated pursuant to the required notice-and-comment rule-making procedures.”

-United States District Court, Middle District of Tennessee

SarahMutinskysmutinsky@eymanlaw.com202-567-6202

EvaJohnsonejohnson@eymanlaw.com202-567-6205

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Eyman Associates Summary of Rulings in Ongoing Medicaid DSH Litigation (updated January 31, 2018)

State DateofDecision

PolicyChallenged

StatusofRelief

Rationale

MN June26,2017 FAQ33(commercial)

Permanent,butCMShasappealedto8thCircuit

CourtconcludedthatFAQ33wasprocedurallydefectiveanddeclinedtoruleonthehospitals’substantiveargument

TN June21,2017 FAQs33and34(commercialandMedicare)andProposedRule(FinalRulehadnotyetbeenissuedwhenTNhospitalsfiledsuit)

PermanentwithrespecttoFAQs;reliefrelatedtoProposedRuledenied;THAhasappealedto6thCircuit

CourtconcludedthatFAQs33and34wereprocedurallydefectivebecausetheywerenotissuedthroughnoticeandcommentrulemaking,andsubstantivelydefectivebecausetheyconflictwiththeMedicaidDSHstatuteCourtdeclinedreliefrelatedtoProposedRulebecauseproposedrulesarenotsubjecttojudicialreview;didnotconsiderFinalRulebecauseitwasnotincludedinhospitals’complaint

NH Mar.2,2017 FAQs33and34(commercialandMedicare)

Permanent,butCMShasappealedtoFirstCircuit

CourtconcludedthatFAQs33and34werebothprocedurallyandsubstantivelydefectivebecausetheywerenotissuedthroughnoticeandcommentrulemaking

VA June20,2017 FAQ33(commercial)

Permanent,butCMShasappealedto4thCircuit

CourtconcludedFAQ33likelyunlawfulbecauseitwasnotissuedthroughnoticeandcommentrulemaking(procedurallydefective),andbecauseitconflictswiththeMedicaidDSHstatute(substantivelydefective)

D.C.Cir.(TX/WA)

Dec.29,2014 FAQ33(commercial)

Preliminary;finaldecisionstillpending

CourtconcludedFAQ33likelytoviolatelawbecausenotissuedthroughnoticeandcommentrulemaking;didnotruleonsubstantiveargument

DCCir.(MN,TX,VA,WA)

FiledMay8,2017

FinalRule Decisionpending HospitalsarearguingthattheFinalRuleisunlawfulbecauseitconflictswiththeMedicaidDSHStatute,andbecauseCMS’justificationsfortheruleareinadequate

MO FiledMar.22,2017

FAQs33and34(commercialandMedicare)andFinalRule

Decisionpending MissouriHospitalAssociationisarguingthatFAQs33and34areunlawfulbecausetheyfailedtogothroughrequirednoticeandcommentrulemaking,andthattheFAQsandtheFinalRuleareunlawfulbecausetheyconflictwiththeMedicaidDSHStatute

DCCir.(MO)

FiledAugust17,2015

FAQ33(commercial)

Decisionpending StateofMissouriisarguingthatthepreliminaryinjunctionfromTX/WAcaseshouldbeappliedinMOtopreventCMSfromenforcingFAQ33

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