On Feb. 9, a federal court in Missouri ruled as unenforceable a federal final rule that requires the inclusion of Medicare and commercial payments in the calculation of hospitals’ Medicaid disproportionate share hospital (DSH) limits.

The Centers for Medicare & Medicaid Services (CMS) had first attempted to implement this policy through a set of Frequently Asked Questions (FAQs) on its website. Application of the FAQs led several states to identify DSH overpayments in past years. Hospitals, seeking to avoid DSH recoupments, received a series of favorable court decisions in several states prohibiting CMS from implementing the FAQs.

The Missouri decision (Missouri Hospital Association v. Hargan) is the first to invalidate the final rule. This ruling is significant, as the final rule received greater deference than the informal FAQs. In addition, the Missouri court found CMS’ third-party payer policy conflicts with the federal DSH statute. The ruling is also significant because it struck down CMS’ only remaining administrative avenue for implementing the policy going forward. Similar cases challenging the final rule are pending in the District of Columbia Circuit and several other jurisdictions.

Contact Director of Policy Erin O’Malley at eomalley@essentialhospitals.org or 202.585.0127 with questions.

Prepared for America’s Essential Hospitals by Eyman Associates and does not constitute legal advice.