Rural hospitals are likely to be hurt by limit on payments to those with large shares of Medicaid and uninsured patients

Many if not most rural hospitals are likely to take a hit from an Aug. 13 decision of the U.S. Court of Appeals for the District of Columbia Circuit.

"Hospitals that care for a large share of Medicaid, low-income and uninsured patients stand to receive less funding from the federal government after the D.C. Circuit reconsidered how Medicaid disproportionate-share hospital reimbursement is calculated," Alex Kacik reports for Modern Healthcare. "A three-judge panel . . . reversed a lower court and reinstated a 2017 rule establishing that payments by Medicare and private insurers are to be included in calculating a hospital's DSH limit, ultimately lowering its maximum reimbursement."

Hospitals qualify for disproportionate-share payments if they get a significant portion of their revenue from Medicaid, which usually doesn't cover the cost of care. And rural hospitals are more likely than others to fall into that category.

The Centers for Medicare and Medicaid Services issued a rule in 2017 saying Medicare and private-insurance payments must be included when calculating the maximum disproportionate-share payment, partly "to prevent hospitals from double-dipping by collecting DSH payments to cover costs that had already been reimbursed," Kacik reports. "Previous cases also revealed that some states have made DSH payments to state psychiatric or university hospitals that exceed the net costs, or even total costs, of operating the facilities."

Four children's hospitals in Minnesota, Virginia and Washington, along with eight children's hospitals in Texas, filed suit to challenge the rule, saying CMS had overstepped its authority. The next step in the case could be an appeal to the Supreme Court or a hearing by all the judges on the appeals court, either of which could be denied without further hearings.