HHS approach to Medicare payments for hospitals serving low-income patients backed by Supreme Court

The legal challenge was directed at HHS’s interpretation of the formula used to calculate disproportionate Medicare hospital adjustments, known as DSH payments.

The high court said the agency did not misinterpret the law with a policy it rolled out in the mid-2000s that dictated the payments hospitals received for treating a disproportionate share of low-income patients.

“Today, we approve of HHS’s understanding of the Medicare faction,” Judge Elena Kagan wrote for the 5-4 majority, adding that “HHS rules correctly interpret the statutory language at issue.”

The case has been closely watched for the potential that the conservative wing would use the case to curb the power of the executive agency, and it is notable that the court declined to do so.

The majority was made up of an eclectic coalition of justices, with Justices Clarence Thomas, Stephen Breyer, Sonia Sotomayor and Amy Coney Barrett agreeing with Kagan’s opinion. Judge Brett Kavanaugh wrote a dissent joined by the other members of the court.

“HHS’s misreading of the law has significant real-world effects: It financially harms hospitals that serve low-income patients, thereby hampering those hospitals’ ability to provide needed care to low-income communities.” , wrote Kavanaugh.

“In my opinion, HHS’s 2004 interpretation is not the best reading of this statutory reimbursement provision,” he added in a brief 4-page dissent.

The Empire Health Foundation challenged HHS’s interpretation of the Medicare Act that includes a formula used to calculate payments, arguing that the methodology results in lower payments than hospitals should receive. Billions of dollars are at stake.

The “disproportionate hospital adjustments,” known as DSH payments, are intended to offset hospitals’ uncompensated costs for treating Medicaid and uninsured patients and improve their access to medical care. The payments are also used to help the financial stability of safety net hospitals that primarily treat low-income Americans.

HHS has changed its interpretation of the DSH Payments Statue several times. The issue in the Empire Health Foundation case is whether HHS’s 2004 interpretation of the rule conforms to the statutory formula – or, if the law is unclear, whether the court should defer to the agency, according to the O’Neill Institute for National and Global Health Law at Georgetown University.

At issue in the case was whether the days patients spend in the hospital after their Medicare Part A benefits expire count toward the hospital’s DSH payment.

The Supreme Court also ruled last week that HHS failed to follow proper procedures in varying reimbursement rates for Medicare’s 340B drug program.

This story has been updated with additional reports.

CNN’s Chandelis Duster contributed to this report.