There’s a new lawsuit added to the growing list of legal challenges hospitals have brought against the way CMS calculates payments to facilities that treat a large share of Medicare patients.
This week, 131 hospitals sued HHS Secretary Robert F. Kennedy Jr., arguing that CMS is wrongfully reducing billions in payments for hospitals serving vulnerable patient populations. The complaint, filed on Monday in the U.S. District Court for the District of Columbia, claims the agency’s methodology violates federal law and unfairly hurts hospitals that care for large numbers of low-income patients.
Medicare disproportionate share hospital (DSH) payments are intended to support hospitals that serve a high number of uninsured and low-income patients. These payments are meant to counterbalance safety net hospitals’ uncompensated care costs so that they can be more financially stable, as well as protect people’s access to care.
The complaint focuses on a CMS policy finalized in 2024 that treats patients covered by Medicare Advantage differently depending on which part of the DSH formula is being calculated. Under the rule, these patients are counted when calculating the Medicare portion of a hospital’s DSH payments but ignored when calculating the Medicaid portion, which makes hospitals look like they serve fewer low-income patients than they actually do.
Hospitals are saying this artificially lowers their total DSH payments, which in turn decreases the funding meant to offset the costs of caring for vulnerable Americans.
Overall, they contend that the rule creates a mismatch between the fractions — as well as unfairly penalizes hospitals that serve a disproportionate share of low-income and uninsured patients. The plaintiffs are seeking to recover the DSH payments they say were inappropriately withheld and to have CMS revise its policy to accurately reflect the patients hospitals serve.
HHS did not respond to MedCity News’ request for comment.
This lawsuit is just the latest chapter in a long-running legal conflict over CMS’ calculation of DSH payments. For the past decade, hospitals have repeatedly challenged the agency’s methodology, typically arguing that changes to how patient days are counted unfairly reduce payments for safety net providers.
For example, in 2024, a smaller group of hospitals sued over retroactive adjustments to DSH payments for prior years, claiming CMS undercounted Medicare Advantage days. And last year, more than 200 hospitals were involved in a case that reached the U.S. Supreme Court, which ultimately sided with HHS on the agency’s interpretation of the DSH formula.
This latest lawsuit signals that there’s still ongoing tension between hospitals and CMS over how DSH payments are calculated — and the dispute shows no signs of ending as safety net providers continue to push back against rules they say undercut crucial funding.
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