131 Hospitals Sue HHS over DSH Cuts: 5 Notes

Why It Matters

The lawsuit could restore critical federal funding to hospitals serving low‑income patients, preserving access to care for vulnerable populations and stabilizing safety‑net hospital finances.

Key Takeaways

• Over 130 hospitals sue HHS over DSH calculation changes
• CMS rule adds Medicare Advantage days to Medicare fraction
• Rule retroactively applied, allegedly exceeding statutory authority
• Hospitals seek vacating rule and reimbursement with interest
• Supreme Court decision could affect $1 billion annual DSH payments

Pulse Analysis

The dispute centers on the CMS 2023 final rule that reshapes the formula for disproportionate share hospital (DSH) payments, a key revenue stream for facilities that treat a high volume of low‑income patients. By inserting Medicare Advantage Part C days into the Medicare fraction while omitting them from the Medicaid fraction, the rule effectively lowers the "disproportionate patient percentage" used to allocate funds. Hospitals argue this methodology undercounts eligible patient days, cutting payments that many safety‑net institutions rely on to cover uncompensated care and operational costs.

Legal precedent adds complexity to the case. A 2025 Supreme Court decision upheld HHS’s authority in a related DSH formula dispute, a ruling that hospital groups claim could affect up to $1 billion in yearly reimbursements. Yet the current lawsuit alleges that the 2023 rule retroactively applies the policy to prior cost reporting periods, a move the plaintiffs say exceeds statutory limits. If the court sides with the hospitals, it could force a recalculation of DSH payments using the pre‑2004 methodology, potentially restoring billions in federal aid to safety‑net hospitals.

Beyond the immediate financial stakes, the outcome will signal how aggressively federal regulators can reshape payment models that underpin the U.S. healthcare safety net. A reversal could prompt Congress to intervene, tightening oversight of CMS rulemaking and safeguarding DSH funding. Conversely, upholding the rule may accelerate broader cost‑containment strategies, prompting hospitals to seek alternative revenue sources or restructure services for low‑income patients. Stakeholders—from hospital CEOs to policy makers—should monitor the litigation closely, as its resolution will influence the fiscal health of the nation’s most vulnerable care providers.