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Puerto Rico hospitals lose appeal over underpaying by federal government

“While we recognize an apparent (and perhaps unintended) unfairness in this situation, we... conclude that the Secretary did not err in implementing the statute," the appeals court said.
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The Capitol building on August 1, 2019 in Old San Juan, Puerto Rico.Joe Raedle / Getty Images file

A federal appeals court has rejected a claim by a group of Puerto Rican hospitals that the federal government systematically underpays them under a program meant to help hospitals that treat a disproportionate share of low-income patients.

A unanimous 1st U.S. Circuit Court of Appeals panel ruled Wednesday that the U.S. Department of Health and Human Services was right to calculate aid using a formula based on share of a hospital’s patients eligible for Medicare and Supplemental Security Income — even though residents of Puerto Rico are not eligible for the latter.

“While we recognize an apparent (and perhaps unintended) unfairness in this situation, we, like the district court, necessarily conclude that the Secretary did not err in implementing the statute,” wrote U.S. District Judge Steven McAuliffe of New Hampshire, sitting on the 1st Circuit panel by designation.

Robert Roth of Hooper Lundy & Bookman, a lawyer for the hospitals, and HHS could not be reached immediately for comment.

Medicare provides for additional funding for so-called disproportionate share hospitals (DSH) that serve low-income populations, since those patients are less able to pay for services. Under the Medicare statute, DSH payments are calculated based on a formula using the number of patients eligible for both Medicare and SSI.

When it was first enacted, the DSH program only applied to hospitals in the 50 states, but Congress in 1986 extended it to the territory of Puerto Rico, requiring that aid to hospitals there be given “in the same manner and to the extent” as in the states.

In their 2017 lawsuit in Puerto Rico district court, about 25 hospitals alleged that, by applying the same formula, HHS shortchanged Puerto Rican hospitals, since the territory’s residents are not eligible for SSI. That meant that the formula did not reflect the true income of the patients, they said.

The hospitals argued that to comply with the statute’s requirement that Puerto Rico be treated the same as states, HHS was obligated to use a different proxy for income than SSI, which would be accurate for Puerto Rico.

They also alleged that HHS’s approach was racially discriminatory, since a majority of their patients were of Hispanic descent.

U.S. District Judge Aida Delgado-Colon ruled in favor of HHS. On appeal, McAuliffe agreed that the statute was “neither ambiguous nor open to plausible differing interpretations.”

“Critically, Congress did not vest the Secretary with authority to employ other, likely more accurate or equitable, proxies when calculating DSH payments to Puerto Rico hospitals,” he wrote.

The court also rejected the hospitals’ racial discrimination argument. McAuliffe wrote that the plaintiffs’ real objection was not to HHS’s implementation of the statute, but to the statute itself, which they had not challenged.

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