A federal appellate court issued an Aug. 13 decision on the treatment of third-party payments in the Medicaid disproportionate share hospital (DSH) shortfall definition. The federal appellate court overturned the district court’s decision and reinstates the Centers for Medicare and Medicaid Services’ (CMS’s) 2017 final regulation, which counts all third-party payments and costs in the definition of Medicaid shortfall.
In 2017, CMS finalized a regulation that defined Medicaid shortfall to include all third-party payments and costs in the Medicaid shortfall definition. In 2018, the Children’s Hospital Association of Texas challenged the 2017 regulation in federal district court, arguing that CMS’s regulation inappropriately altered the DSH formula.
The court ruled that third-party payer costs could still be counted, but payments from third-party payers could no longer be included as part of the definition of Medicaid shortfall. As a result, third-party payments would not have been counted toward the Medicaid shortfall calculation while costs were, which were expected to double Medicaid shortfall in the national aggregate.
The Medicaid and CHIP Access and Payment Commission discussed this topic previously [see Washington Highlights, April 12] and commissioners voted unanimously to recommend to exclude both third-party costsand payments in the Medicaid shortfall definition.