Hospitals on losing end of Medicare DSH dispute, Supreme Court rules

As the hospital industry eyes continued cuts to Medicare and Medicaid reimbursement, the US Supreme Court, this week, dealt another blow in its ruling in Advocate Christ Medical Center et al. v. Kennedy, Secretary of Health and Human Services, April 29, 2025.

In a majority opinion by Justice Amy Coney Barrett, the court affirmed the secretary’s interpretation of a term used in the formula for determining Medicare Disproportionate Share (DSH) payments. This interpretation significantly reduces funds that help support the treatment of low-income individuals.

Common among justices charged with interpreting the Medicare and Medicaid statutes, Justice Barrett acknowledged the complexity of Medicare law, finding:

“The Medicare program, which provides health insurance to elderly or disabled Americans, is governed by a notoriously complex statute. Unsurprisingly, then, the provision at issue in this case is highly technical.”

The case, which was originally filed by more than 200 hospitals, faced setbacks at every turn leading up to their appeal before the Supreme Court. The source of the disagreement centers on the interpretation of the statutory text that establishes a key fraction used to determine Medicare DSH payment. Specifically, what it means to be “entitled to receive Supplementary Security Income (SSI) benefits during the month” in which a patient was hospitalized.

The Medicare DSH calculation is comprised of a Medicare fraction and a Medicaid fraction. The Medicare fraction is expressed as a percentage. The numerator is the number of patient days in a period made up of patients who (for those days) were entitled to benefits under Part A “of this subchapter” (Medicare) plus patients who were entitled to SSI benefits, divided by the total number of the hospital’s Medicare patient days. The Medicaid fraction is meant to calculate the proportion of the hospital’s Medicaid patients who are otherwise not entitled to Medicare and have low incomes (referred to as the Medicaid fraction). The issue in the Advocate case involves the numerator in the Medicare fraction.

The US Department of Health and Human Services interprets “entitled to receive SSI benefits” to mean patients entitled to receive SSI benefits during the month they were hospitalized. The hospitals argue that “entitled to receive SSI” includes months in which the patient may not have received actual cash payments during hospitalization, but also when such patient was enrolled in SSI and qualified regardless of whether case payments were received during the actual month of hospitalization. 

The majority opinion holds that “a person is entitled to such benefits [meaning SSI benefits] when she is eligible to receive a cash payment during the month of her hospitalization.”  Accordingly, SSI benefits are cash benefits as supported by specific provisions within the SSI statute including specific calculations for cash payments, cash advances and reference to Subchapter XVI’s (SSI statute) codified statement of purpose, which is to establish a nationwide program providing supplemental security income (emphasizing the word income) for individuals who are 65 years or older, or who are blind or disabled. Moreover, the majority determined that SSI cash benefits are calculated monthly and are thus, meant to be evaluated on a month to month basis.

As a result, the majority concludes that an individual is considered “entitled” to SSI benefits when they are eligible to receive a monthly cash payment. Therefore, for purposes of calculating the Medicare fraction, patient days may only be counted if the patient is entitled to a cash payment at the time of their hospitalization and throughout the month. This significantly reduces the amount of funding included in the numerator of the applicable DSH formula.

Justices Ketanji Jackson and Sonya Sotomayor, dissenting, argue that the decision disregards the purpose and context of the statute, endorsing an interpretation that undercounts a hospital’s low-income patients. The key difference in opinion surrounds the term “entitled to be enrolled,” as opposed to the right to receive payment. Consequently, they argue that being entitled to receive SSI most logically implies that the patient qualifies to be enrolled in SSI and does not link specifically to whether the patient would actually be receiving a cash payment from the SSI program on a monthly basis.

Ultimately, the interpretation by the majority involves a highly technical and narrow reading of the meaning of the statute, resulting in the loss of vital funding intended to compensate hospitals that serve low-income patients, for whom they are not fully reimbursed.

The Advocate decision seems a bellwether of additional interpretations that will not favor a more expansive reading of statutory interpretation. The hospital industry should take note and beware.