The NCSL Blog


By Lisa Soronen

The issue in Becerra v. Empire Health Foundation is whether the U.S. Department of Health and Human Services (HHS) can, for calculating the disproportionate share of hospital payment, include in the Medicare fraction all of a hospital’s patient days of individuals who qualify for Medicare Part A benefits, regardless of whether Medicare actually paid the hospital for those particular days.

Supreme CourtAs part of Medicare, hospitals that “serve[s] a significantly disproportionate number of low-income patients,” receive a disproportionate share of hospital adjustment (DSH), which approximately reimburses them for the higher costs of providing care.

The Medicare statute contains two fractions intended to capture a hospital’s number of patient days attributable to two different groups of low-income patients—the Medicare fraction and the Medicaid fraction.

The Medicare fraction looks at what proportion of the hospital’s “patients who (for such days) were entitled to benefits under [Medicare] Part A” were also “entitled” to Supplemental Security income.

In 2005 the HHS secretary removed the word “covered” from the rule interpreting “entitled to [Medicare]” in the Medicare fraction. The practical effect was instead of counting only the hospital stay days actually paid for by Medicare Part A all days Medicare theoretically could have paid are included.

Someone who qualifies for and receives Medicare but whose hospital stay exceeds the 90 days allowed by Medicare theoretically could have their entire hospital stay covered by Medicare but in fact won’t past 90 days. 

According to Empire Health Foundation, the effect of this rule is to “significantly decrease the number of hospitals receiving DSH payments and the amount of those payments by undercounting the indigent patients those hospitals serve.”

The HHS argues that this rule is procedurally and substantively valid pursuant to the Administrative Procedure Act. The 9th Circuit disagreed.

The Medicaid fraction looks at what proportion of a hospital’s non-Medicare patients, i.e., patients who are not “entitled to benefits under [Medicare] part A,” were “eligible for [Medicaid].”

Before the HHS issued the rule at issue in this case, it contended that only patients who actually had their hospital stay paid for by Medicare or Medicaid would be considered “entitled to [Medicare]” or “eligible for [Medicaid].”

According to the Empire Health Foundation, “[t]his reduced the number of patients who would be considered ‘eligible for [Medicaid]’ and, as a result, reduced the DSH reimbursement to which hospitals were entitled.” 

In Legacy Emanuel Hospital Health Center v. Shalala (1996), the 9th Circuit rejected the HHS’s interpretation of the word “eligible”: “We interpreted the word ‘entitled’ to mean that a patient has an ‘absolute right . . . to payment.’ In contrast, we interpreted the word ‘eligible’ to mean that a patient simply meets the Medicaid statutory criteria.”

Perhaps unsurprisingly, in this case the 9th Circuit rejected the HHS’s interpretation of “entitled” as simply meeting the Medicare criteria, relying on Legacy Emanuel.

According to the 9th Circuit: “The 2005 Rule’s interpretation of ‘entitled’. . . resembles our understanding of the term ‘eligible’ in Legacy Emanuel by embracing even those patient days for which Medicare coverage is exhausted (i.e., for which there is no absolute right to payment). Thus, the 2005 Rule mistakenly treats as ambiguous statutory language that we deemed clear, and rewrites that language in contravention of our interpretation.”

Billions of dollars are at stake in this case.

Lisa Soronen is executive director of the State and Local Legal Center and is a regular contributor to the NCSL Blog on judicial issues.

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This blog offers updates on the National Conference of State Legislatures' research and training, the latest on federalism and the state legislative institution, and posts about state legislators and legislative staff. The blog is edited by NCSL staff and written primarily by NCSL's experts on public policy and the state legislative institution.