United States: CMS Digging In On Medicaid DSH Payments

During the summer months, several developments have occurred concerning the Medicaid Disproportionate Share Hospital (DSH) policy that the Centers for Medicare & Medicaid Services (CMS) has implemented, to the detriment of a number of hospitals. These hospitals and state hospitals associations have challenged CMS in district courts all over the country and several courts ruled over the summer months, issuing decisions that enjoined the application of the Medicaid DSH policy.

The Offending Policy

The Medicaid Act provides for a supplemental payment to qualifying hospitals that provide care to a disproportionate share of Medicaid program and uninsured patients. Once qualified, the formula determines the hospital-specific limit (HSL) for each hospital, which determines the maximum DSH supplemental payment. The formula, defined in 42 USC § 1396r-4(g)(1)(A), specifically defines the HSL as the "costs incurred during the year of furnishing hospital services (as determined by the Secretary and net of payments under this subchapter, other than under this section, and by the uninsured patients) by the hospital to individuals who are eligible for medical assistance under the State plan or have no health insurance (or other source of third party coverage) for services provided during the year."

CMS posted questions and answers (commonly referred to as "FAQs") on its website in January, 2010. Two FAQs (#33 and #34) require that DSH auditors subtract third party commercial payments made on behalf of Medicaid eligible individuals (FAQ 33) and Medicare program payments made for dual eligible individuals (FAQ 34). The result significantly reduces or eliminates Medicaid DSH payments associated with individuals who qualify for Medicaid due to their illness, but for whom Medicaid is not the primary payor, and for individuals who are dual eligible, as defined by the Medicare program. In essence, CMS redefines the term "dual eligible" to add in private commercial payments in their new policy. CMS argues that the term "costs incurred" means hospital inpatient and outpatient costs minus payments made from commercial third party payors and the Medicare program, all calculated before the subtraction of Medicaid payments on the payment side of the formula.

Hospitals and hospital associations have challenged the application of the policies contained in the FAQs as a new and completely changed methodology, one which was implemented without notice and comment required under the Administrative Procedures Act, as well as a violation of the clear statutory language itself. The first case, Texas Children's Hospital v. Burwell (D.D.C.), in 2014, resulted in a preliminary injunction entered in favor of Texas Children's Hospital and Seattle Children's Hospital that applied to Texas and Washington states, enjoining CMS from enforcing FAQ 33. Summary judgment motions remain pending in that case. However, since 2014, a number of other hospitals in jurisdictions around the U.S. have brought similar lawsuits challenging the FAQs.

Summer Court Action

In June, three additional decisions were issued. The first, issued June 20, 2017, held in favor of Children's Hospital of the King's Daughters, Inc. v. Price (No. 17-cv-139; 2017 WL 2936801) (E.D. Va. June 20, 2017), preliminarily enjoining CMS from enforcing FAQ 33 in Virginia. The court ruled that the Medicaid Act does not authorize CMS to include third-party commercial payments in the HSL. The court's decision was converted to a final judgment in favor of the hospital, issued August 24, 2017. A final judgment was entered June 21, 2017 in the Tennessee Hosp. Ass'n v. Price case, No. 16-cv-3263; 2017 WL 2703540 (M.D. Tenn. June 21, 2017) which challenged both FAQs. The court granted summary judgment in favor of plaintiffs on their APA claim, holding that the policy violated the APA by conflicting with the Medicaid Act and the 2008 rule. Finally, on June 26, 2017, the Minnesota district court permanently enjoined CMS from enforcing FAQ 33 and vacated FAQ 33 as procedurally invalid in the Children's Health Care v. Price case, No. 16-cv-4064 (D. Minn. June 26, 2017).

The 2017 Final Rule

CMS has not been deterred. Rather, CMS is signaling its intention to move forward with appeals of the adverse FAQ decisions and by pursuing its policy through issuance of a final rule formalizing the embattled FAQ policies. The final rule specifies as "clarifying' in nature the application of commercial third party payments for Medicaid-eligible patients, and Medicare payments for dual eligibles in the HSL formula. The final rule, promulgated at 42 C.F.R. § 447.299, went into effect on June 2, 2017, but several cases have been filed challenging the promulgation of the final rule, in addition to the FAQs. Legally, a clarifying rule would have retroactive effect, meaning that the final rule would apply to all of the years that would be under audit prior to the "effective date", but CMS has argued in court that the final rule only applies to services provided subsequently to the effective date. CMS's assertions are inconsistent and not legally valid, given the specific language used within the final rule itself. The rule has been challenged in the District of Columbia District Court, filed by twelve hospitals, comprised of many of the same hospitals in the Texas, Washington, Minnesota and Virginia FAQ cases. A hearing was held in early August. Additionally, rule challenge cases have been filed by hospitals in Missouri, Pennsylvania, and Kentucky, Mississippi and New Hampshire.

Currently, CMS's power to enforce DSH audit recoupments has been somewhat checked, but such enforcement is limited only to those states in which the application of the policy has been specifically challenged. If the rule itself is eventually vacated, the application of the DSH formula would be rendered impotent, but conceptually would not apply to the underlying FAQ challenges. The rule challenge court decision could be the next important step in obtaining much- needed financial relief for those hospitals who have not received DSH program year payments or who have been holding reserves for pending recoupments, while sending a message to CMS relating to the ultimate positioning of their legal posture.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.