Allina wins Supreme Court ruling on federal hospital payments

Minneapolis-based Allina Health prevailed in a U.S. Supreme Court decision that reverses a move by federal Medicare authorities to cut billions of dollars in payments supporting hospital care for low-income patients.

Three Allina hospitals were among a group of nine that challenged the change, which decreased their federal payments by about $49 million a year. But the ruling, issued Monday, affects all U.S. hospitals that serve high numbers of low-income patients.

In a 7-1 decision, the Supreme Court said the U.S. Department of Health and Human Services (HHS), which runs the Medicare insurance program for those age 65 and older, failed to follow proper procedures when it changed the payment formula for the program, known as disproportionate-share hospital payments.

Rules and regulations are the bread and butter of federal agencies, but when changing them, agencies are sometimes required to seek comment from the public and take it into consideration.

The decision reaffirms an Appeals Court ruling from 2017 that overruled HHS for failing to get public comment.

"In 2014, the government revealed a new policy on its website that dramatically — and retroactively — reduced payments to hospitals serving low-income patients," Justice Neil Gorsuch wrote for the majority. "Because affected members of the public received no advance warning and no chance to comment first … we agree with the court of appeals that the new policy cannot stand."

Justice Brett Kavanaugh, who authored the Appeals Court opinion before he was elevated to the high court, recused himself from the case.

HHS did not respond to a request for comment on Monday. In its petition to the court, it said the lawsuit "threatens to undermine HHS's ability to administer the Medicare program in a workable manner."

Allina officials declined to comment, and it was not clear from the ruling how much money would be restored to Allina specifically.

The American Hospital Association said it "applauded" Monday's decision.

"By evading the notice-and-comment process, HHS failed to consider the real-world impact of its changes, leading to policies that may adversely affect patients as well as providers," said Melinda Hatton, the association's general counsel.

The program is designed to compensate hospitals for the higher costs of treating low-income patients, but it focuses on hospitals that take the hardest hit, which are typically safety-net hospitals in urban areas.

Altogether, the HHS rule change cut the hospitals' payments by $3 billion to $4 billion from 2005 through 2013. In 2010 alone, total payments were $10.8 billion.

Medicaid, the insurance program for low-income people, has a similar disproportionate-share hospital payment program. It allocated $84 million to Minnesota hospitals in 2018. But Medicaid is also shrinking its program with $4 billion in cuts slated to begin this October.

That reduction was triggered by the Affordable Care Act of 2010, which reasoned that a broad Medicaid expansion authorized by the law would eliminate the need for financial assistance to the hospitals. Congress had delayed implementation of the cuts. A federal advisory committee has recommended that the cuts be phased in more gradually.

Joining Allina in the Medicare lawsuit were four hospitals in New York City, including Montefiore Medical Center and three branches of New York-Presbyterian. Tampa General Hospital and Mount Sinai Medical Center in Miami also were parties to the lawsuit.

Many other hospitals filed briefs supporting the legal challenge.

Glenn Howatt • 612-673-7192