April 2, 2013—A recent ruling in the ongoing legal battle over how to calculate safety-net hospitals’ disproportionate share (DSH) percentages could affect some hospitals’ participation in the 340B drug discount program.
In its March 27 decision in Metropolitan Hospital v. U.S. Department of Health and Human Services, the U.S. Court of Appeals for the Sixth Circuit upheld a 2004 Centers for Medicare and Medicaid Services (CMS) regulation that includes days for dual-eligible patients who have exhausted their Medicare Part A benefits in the Supplemental Security Income (SSI)/Medicare fraction of a hospital’s DSH percentage.[ms-protect-content id=”2799″] The 2-1 appellate court ruling reversed a district court decision that had invalidated the regulation and held that such days should be included in the DSH percentage’s Medicaid fraction.
To participate in 340B, public, private-nonprofit, children’s, and free-standing cancer hospitals must have a DSH percentage greater than 11.75 percent. For rural referral centers and sole community hospitals, the threshold is 8 percent. There is no DSH requirement for critical access hospitals since they do not receive DSH funding.
The DSH percentage is the sum of two calculations: a hospital’s SSI/Medicare fraction and its Medicaid fraction. The SSI/Medicare fraction is a proxy for low-income Medicare patients and the Medicaid fraction is a proxy for low-income non-Medicare patients. In general, including dual-eligible exhausted-benefit days in the Medicaid fraction, rather than the SSI/Medicare fraction, raises a hospital’s DSH percentage.
The Sixth Circuit’s decision is likely not the last word on this issue, which could potentially end up in the U.S. Supreme Court. Last year, the U.S. District Court for the District of Columbia held that CMS’s 2004 decision to include dual-eligible exhausted-benefit days in the SSI/Medicare fraction was a policy change that could not be applied retroactively. The court, however, did not address whether CMS could apply the policy prospectively. That case, Catholic Health Initiatives v. Sebelius, is pending before the U.S. Court of Appeals for the D.C. Circuit.
A similar issue is pending in another case before the D.C. Circuit Court of Appeals. In Allina Health Services v. Sebelius, the D.C. district court invalidated a provision in the 2004 regulation that required Medicare Part C days to be included in the SSI/Medicare fraction of a hospital’s DSH percentage. The government has appealed that ruling. In a September 2011 decision in a related case, Northeast Hospital Corp. v. Sebelius, the D.C. Circuit ruled that CMS could not include Medicare Part C days in the DSH formula’s SSI/Medicare fraction for pre-2004 cost reporting periods, but did not rule on whether it could include Part C days in the SSI/Medicare fraction from 2004 forward.
In March 2012, CMS posted final SSI percentages for 2006 through 2009 that included dual-eligible exhausted-benefit days. In October, it published final SSI percentages for 2010 that also included exhausted-benefit days. For 340B eligibility purposes, the Office of Pharmacy Affairs (OPA) uses the most recent SSI percentages.[/ms-protect-content]