December 19, 2012—A recent ruling in a prolonged legal battle over how to count Medicare Part C managed care patient days toward safety-net hospitals’ disproportionate share (DSH) percentages could affect some hospitals’ participation in the 340B drug discount program.
In its Nov. 15 decision in Allina Health Services v. Sebelius, the U.S. District Court for the District of Columbia held that the Centers for Medicare and Medicaid Services (CMS) did not follow proper administrative procedures when it issued and then implemented a 2004 rule requiring Medicare Part C days to be included in the Supplemental Security Income (SSI)/Medicare fraction of a hospital’s DSH percentage.[ms-protect-content id=”2799″] The court vacated the rule and directed CMS to take follow-up steps consistent with the decision. Medicare Part C (also known as Medicare+Choice or Medicare Advantage) gives beneficiaries the option of receiving their benefits through private health insurance plans.
The Department of Health and Human Services (HHS) recently asked the court to clarify that the decision applied only to the 27 hospitals that files suit and the fiscal years cited in the lawsuit, which the court confirmed in Dec. 18 order. HHS appears to be taking the stance that it can include Medicare Part C days in the SSI/Medicare fraction for other hospitals.
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.
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.
Adding Medicare Part C days to the SSI/Medicare fraction usually lowers a hospital’s DSH percentage, although it has the opposite effect for a small percentage of hospitals.
In a September 2011 decision in a related case, Northeast Hospital Corp. v. Sebelius, the U.S. Couth of Appeals for the District of Columbia Circuit ruled that CMS could not include Medicare Part C days in the DSH formula’s SSI/Medicare fraction for periods before 2004 but did not rule on whether it could include Part C days in the SSI/Medicare fraction from 2004 forward.
Last March, CMS posted final SSI percentages for 2006 through 2009 that included Part C days. In October, it published final SSI percentages for 2010 that also included Part C days. For 340B eligibility purposes, the Office of Pharmacy Affairs (OPA) uses the most recent SSI percentages. Hospitals adversely affected by the inclusion of Medicare Part C days in SSI/Medicare fraction can appeal the issue.[/ms-protect-content]