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Court Rules CMS Cannot Change DSH Eligibility via FAQs

The United States District Court for the District of Columbia has granted a preliminary injunction restricting the U.S. Department of Health and Human Services (HHS) and the Centers for Medicare & Medicaid Services (CMS) from altering the hospital-specific limit for the calculation of Medicaid disproportionate share hospital (DSH) payments without following notice-and-comment procedures. The injunction applies to two DSH hospitals – Texas Children’s Hospital in Houston and Seattle Children’s Hospital – which brought the suit against HHS and CMS in response to a Jan. 10, 2010, frequently asked question (FAQ) posted by CMS. In the FAQ, CMS noted that patients who are eligible for Medicaid and private health insurance should be included in the calculation of the hospital-specific DSH limit. This change to how DSH payments are calculated resulted in a negative hospital-specific limit for the two hospitals, making them ineligible for DSH payments.

The court issued this injunction because the hospitals are likely to show at trial that the change to the DSH calculation method is not only a violation of the Administrative Procedures Act (APA), but would cause the hospitals irreparable harm. The APA governs how federal agencies can propose and establish regulations. The court rejected HHS and CMS’ arguments that the FAQ in question had no legal effect and, therefore, did not violate the APA.

For questions, please contact Xiaoyi Huang, director of policy, at xhuang@essentialhospitals.org or 202.585.0127.

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About the Author

Gontscharow is a senior policy analyst for America's Essential Hospitals.

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