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Five things to know: Why Missouri is suing the feds over hospital overpayments

Adrian Clark | Flickr

The state of Missouri is on the line to repay about $100 million in to the federal government, unless the state’s Department of Social Services wins a lawsuit that’s brewing in district court.

The details are a bit wonky, so here are a few items to help outline the basics.

How did this happen?  

Every year, states are given federal funding to allocate to what is called Disproportionate Share Hospitals (DSH—pronounced “dish”). In general, this funding cares for large percentages of patients who are uninsured or covered by Medicaid. Because the hospitals aren’t being reimbursed as well as they would if those patients had private insurance, the government reimburses them for some of the costs for the uncompensated care they provide.

Year to year, DSH payments involve a lot of calculations based on how many people a hospital expects to care for during the year, and how many of them will have insurance. Those figures get corrected later after an auditing process, and Missouri is then expected to reimburse the federal government for any overpayments that were issued.

But in December of 2014, independent auditors found that Missouri allocated more than they should have in fiscal year 2011. Using federal funds, Missouri sent out about $162 million in overpayments and $55 million in underpayments to the state’s safety net hospitals. For scale, Missouri’s total allotment for fiscal year 2014 was about $505 million.  

Part of the issue is a strategy the state uses to maximize the DSH money they get from the feds every year, called the “provider tax.” More on that later.

Who’s on the hook to pay for it?

No one’s quite sure. The Centers for Medicare and Medicaid Services (CMS) is asking for Missouri to recoup those overpayments. In August, the state filed a federal lawsuit in the District of Columbia asking for an injunction and relief from that debt, citing a recent case called Texas Children’s Hospital v. Burwell.

If Missouri wins the case, they can probably avoid the payments, or at least some of them. If they don’t, the state of Missouri and those overpaid safety net hospitals could be on the hook for that $162 million.

“It’s a matter of, really, is the state responsible, are the hospitals responsible, and where does the money come from? Because hospitals work on a very tight margin,” said Dave Dillon, spokesperson for the Missouri Hospital Association.

What is Missouri arguing?

In their plea that the federal government forgives the overpayments this time, the state is citing an earlier case called Texas Children’s Hospital v. Burwell. In that case, two hospitals in Texas and Seattle argue that the federal agency that administers Medicaid and Medicare — CMS — changed the rules for how states calculate DSH payments without full notice-and-comment procedures in 2008.

Because it takes so long to implement federal law, the first audits of state DSH payments where the new limits could be enforced were FY 2011. Like many hospitals identified in Missouri’s audit, Texas Children’s and Seattle Children’s Hospital were overpaid. Four years later, they decided they didn't want to cough those funds back up. 

A decision has not been reached in the Texas case, but a judge granted a preliminary injunction in December of 2014.

In the meantime, Missouri has asked its auditor, Myers and Stauffer LLC, to redo the initial audit.

Is my hospital going to be affected?

You can take a look at the 2014 audit here, which includes how much each hospital in the state was overpaid or underpaid. Keep in mind, those figures are by no means final, and whether they’ll have to be resolved is still unclear.

According to the audit, the highest overpayment, worth $27 million, went to Truman Medical Center-Hospital Hill, in Kansas City. The highest underpayment went to Fulton State Hospital, at about $7.7 million.

What’s more likely is that Missouri’s hospitals are going to have to take a look at how DSH payments are calculated and requested. Like other states, Missouri has found a way to increase the federal funds they receive through DSH by using a “provider tax.” The “tax” is actually a payment each hospital sends in to the state, which Missouri can then use to pad their baseline when they ask the federal government for matching DSH funds.

This strategy, though not illegal and widely practiced, was the target of a March review by the Government Accountability Office, after concerns that it inflates Medicaid costs for the federal government.

Still have a question? Think we missed something? Find Durrie on Twitter: @durrieB