U.S. Supreme Court Denies DSH Hospitals’ Attempts to Seek Higher Medicare Payments

On April 29, 2025, the U.S. Supreme Court issued an opinion upholding the formula the U.S. Department of Health and Human Services (HHS) utilized to calculate Medicare hospitals’ disproportionate share hospital (DSH) payment adjustments, denying a challenge brought by hospitals seeking higher DSH reimbursement. In Advocate Christ Medical Center v. Kennedy, No. 23-715 (S. Ct. Apr. 29, 2025), the Court held, based on a highly technical analysis, that the DSH formula endorsed by HHS was consistent with congressional intent, and accordingly rejected an argument from the hospitals premised on how DSH adjustments are calculated arising from a hospital’s treatment of patients eligible for social security benefits.

Background on Disproportionate Share Hospital Rate Adjustments

Under Medicare, hospitals that treat a disproportionate share of low-income Medicare patients are entitled to a rate adjustment above the fixed Medicare amount for each Medicare patient treated, which is calculated by adding two fractions: the “Medicare fraction” plus the “Medicaid fraction.”

This dispute arose when over 200 hospitals claimed that HHS miscalculated the hospitals’ DSH adjustments from 2006 to 2009 due to the department’s misinterpretation of the “Medicare fraction” calculation. The numerator used to calculate the “Medicare fraction” is defined by statute as “the number of [a] hospital’s patient days’ attributable to patients ‘who (for such days) were entitled to benefits under [Medicare] Part A’ and ‘entitled to supplementary security income [SSI] benefits. . . under subchapter XVI.” HHS interpreted the phrase “entitled to [SSI] benefits” to mean patients who are entitled to receive an SSI payment during the month they were hospitalized.

Conversely, the hospitals argued that the phrase includes all patients enrolled in the SSI system at the time of their hospitalization, even if they were not entitled to an SSI payment during their month of hospitalization. The net result of the hospitals’ position would’ve been to expand the number of patients in that numerator, thus increasing the “Medicare fraction” and correspondingly increasing the DSH rate adjustment for such hospitals.

After the hospitals were repeatedly unsuccessful in administrative challenges and federal district court, the D.C. Circuit Court of Appeals held for HHS, stating that SSI benefits are “about cash payments for needy individuals” and that “it makes little sense to say that individuals are ‘entitled’ to the benefit in months when they are not even eligible for [a payment].”

To read the full post, click here.