Baptist-Memorial Hospital v. Azar, 956 F.3d 689 (5th Cir. Apr. 20, 2019) (Higginbotham, Dennis, Ho)

This case involves a challenge to HHS's Final Rule clarifying that for purposes of calculating hospitals' "disproportionate share hospital" (DSH) compensation, a hospital's "costs incurred" are net of payments to third parties like Medicare and private insurers. See Medicaid Program; Disproportionate Share Hospital Payments—Treatment of Third Party Payers in Calculating Uncompensated Care Costs, 82 Fed. Reg. 16,114 (2017). The Fifth Circuit joins three other circuits in holding that HHS's Final Rule is consistent with the Medicaid Act.

The parties disputed the proper method for calculating the hospital-specific limit for annual DSH payments. The Medicaid Act sets the hospital-specific limit at:

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 uninsured patients) by the hospital to individuals who either 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.

42 U.S.C. § 1396r-4(g)(1)(A). Under the Final Rule, “costs incurred” are also net of payments from third-party payers, such as Medicare and private insurers. The Secretary of HHS argued the Final Rule was a permissible construction of ambiguous statutory language and therefore deserving of Chevron deference. The eight Mississippi hospitals challenging the Final Rule disagreed. In their view, the Medicaid Act unambiguously specifies the method for calculating the hospital-specific limits, and that method doesn't account for payments from third parties.

The Fifth Circuit agreed with the Secretary. Accordingly, after rejecting the hospitals' plain-language arguments, the panel deferred to HHS's interpretation of the statute. The panel's analysis of the statutory-interpretation issues is certainly worth a read, especially if the Medicaid Act is your thing.

Baptist-Memorial Hospital v. Azar, 956 F.3d 689 (5th Cir. Apr. 20, 2019)
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