Becerra v. Empire Health Foundation, 597 U.S. __, No. 20–1312, 2022 WL 2276810 (June 24, 2022)

Medicare’s low-income patient hospital reimbursement adjustment is based on individuals “entitled” to Part A benefits, even if Medicare doesn’t pay for their treatment.

Medicare pays hospitals a fixed rate for treating each Medicare patient, regardless of actual costs, subject to hospital-specific rate adjustments. Hospitals that serve an unusually high percentage of low-income patients receive increased Medicare payments via a “disproportionate share hospital” (DSH) adjustment. To calculate entitlement to, and the amount of, a DSH adjustment, the Department of Health and Human Services (HHS) uses a “mind-numbingly complex” formula that adds two statutorily described fractions: the Medicare and Medicaid fractions. The former roughly measures the hospital’s low-income senior-citizen population. The latter roughly measures the hospital’s low-income non-senior population. The Medicare fraction is the number of patient days attributable to patients “entitled to benefits under part A of Medicare,” plus supplementary security income benefits (SSI), divided by the number of days attributable to all Medicare patients. 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I). The Medicaid fraction is the number of patient days attributable to patients “eligible for Medicaid,” but not entitled to benefits under Part A, divided by the total number of patient days. Id. § 1395ww(d)(5)(F)(vi)(II).

When a person turns 65, or has received federal disability benefits for 24 months, he automatically becomes “entitled” to benefits under Medicare Part A, which includes coverage for in-patient hospital treatment. However, there are instances where Part A will not cover qualifying patients’ treatment, for example, because they have private health insurance that must be exhausted first. The issue presented here is whether the numerator of the Medicare fraction includes patients “entitled” to Medicare benefits by virtue of their age or disability, even if Medicare did not actually pay for hospitalization expenses because, for example, those expenses were paid by private health insurance.

For seven years after it was enacted, HHS construed the statute as excluding from the Medicare fraction Medicare patients whose treatment was not paid by Medicare.  Then, in 2004, HHS adopted a regulation requiring the Medicare fraction to include all patients who meet the criteria for Medicare Part A coverage regardless whether Medicare paid for their treatment. Empire Health Foundation challenged the regulation as inconsistent with the statute. The Ninth Circuit agreed with Empire Health, holding that “entitled” to Part A benefits “meets the Medicaid statutory criteria” but “eligible” for Medicare assistance means an absolute right to have Medicare pay for treatment. The Supreme Court granted certiorari on the issue of whether a patient who qualifies for Medicare Part A, but who does not pay for treatment under the plan, is “entitled to [Medicare Part A] benefits” for the purpose of computing a hospital’s DSH percentage?

The Supreme Court reversed, holding that, in calculating the Medicare faction, patients “entitled” to Medicare Part A benefits are those who qualify for the program, regardless whether Medicare pays for their hospital expenses. The Court held that “entitled” to benefits is a term of art that means qualifying for benefits. A limitation on payments due to a condition, such as exceeding the 90-day hospital stay cap, does not terminate a patient’s entitlement to coverage for other medical treatment. Moreover, because other Medicare beneficiary rights are conditioned on entitlement to benefits, Empire’s definition would fluctuate constantly depending on whether Medicare paid for patients’ hospital care each day. The Court also rejected Empire’s argument that the uses of “(for such days)” in the statue gives “entitled” a meaning different from the rest of the Medicare statute, concluding that it only requires the HHS to exclude days before the beneficiary became eligible for Part A benefits. Finally, under the HHS definition, all low-income people fit neatly into either the Medicare or the Medicaid fraction, with the “sum of the two leaving no one out.”

Justice Kavanaugh dissented, joined by Chief Justice Roberts and Justices Alito and Gorsuch. The dissent zeroed in on the statutory phrases “entitlement to have payment made” and “for such days” as requiring the Medicare fraction to include only patients whose treatment was paid by Medicare. They explained that a patient was not entitled to have payment made by Medicare for days spent in the hospital if the patient could not (and did not) have payment made by Medicare for those days. The dissent reasoned that “the retrospective reimbursement provision at issue focuses laser-like on whether the patient was actually entitled to have payment made by Medicare for particular days in the hospital. A patient cannot be simultaneously entitled and disentitled to have payment made by Medicare for a particular day in the hospital.” Finally, the dissent faulted the HHS for changing its position over time to reduce its reimbursement requirement to hospitals serving low-income patients.

.The bulletin describing this appellate decision was originally prepared for the California Society for Healthcare Attorneys (CSHA) by H. Thomas Watson and Peder K. Batalden, who are partners at the appellate firm Horvitz & Levy LLP, and is republished with permission.

For more information regarding this bulletin, please contact H. Thomas Watson, Horvitz & Levy LLP, at 818-995-0800 or htwatson@horvitzlevy.com.