131 hospitals sue HHS over DSH cuts

 More than 130 hospitals have filed a lawsuit against HHS challenging how the agency calculates disproportionate share hospital payments, arguing the policy unlawfully reduces reimbursement for facilities serving low-income patients.

The complaint, filed March 30 in the U.S. District Court for the District of Columbia, names HHS Secretary Robert F. Kennedy Jr. and centers on the agency’s treatment of Medicare Advantage Part C patient days in DSH payment calculations. 

Five things to know: 

1. The hospitals argue CMS’ 2023 final rule — which retroactively applies a policy including certain Medicare Advantage days in the Medicare fraction while excluding them from the Medicaid fraction — improperly reduces DSH payments.

2. DSH payments aim to support hospitals that care for a disproportionate share of low-income patients. They are calculated using a “disproportionate patient percentage,” which includes both a Medicaid fraction and a Medicare Supplemental Security Income fraction.

3. Hospitals allege that CMS’ methodology skews both fractions in ways that reduce reimbursement. The complaint alleges that:

• HHS is attempting to reimplement a policy change first introduced in 2004 that courts have repeatedly rejected or limited.
• The agency’s 2023 rule applies the policy retroactively to earlier cost reporting periods, which the hospitals argue exceeds HHS’ statutory authority.
• The policy results in undercounting low-income patient days, thereby reducing DSH payments owed to hospitals.

4. The plaintiffs are seeking to have the rule vacated and to require HHS to recalculate DSH payments using the pre-2004 methodology, along with payment of additional reimbursement and interest.

5. The lawsuit follows years of legal disputes over DSH payment formulas. In April 2025, the Supreme Court ruled in favor of HHS in a separate case concerning how SSI-related patient days are counted, a decision hospital groups said could affect at least $1 billion a year. Meanwhile, hospitals have pushed back on broader reductions to DSH funding, including CMS policies projected to cut billions in payments to safety-net hospitals. 

Becker’s has reached out to HHS for comment and will update this story if more information becomes available. 

https://www.beckershospitalreview.com/legal-regulatory-issues/131-hospitals-sue-hhs-over-dsh-cuts-5-notes/