Federal court rules in favor of Texas Children’s in Disproportionate Share Hospital funding lawsuit

Following a recent federal court ruling, Texas Children’s Hospital expects to receive tens of millions of dollars in previously denied government reimbursements for care provided to poor and uninsured families.

In a major victory for pediatric hospitals in Texas and other states, U.S. District Judge Emmet Sullivan on Friday vacated a recent Centers for Medicare and Medicaid Services (CMS) rule that allowed the agency to include private insurance payments in the calculation that determines the amount hospitals are eligible to receive in supplemental Medicaid funding, even when Medicaid doesn’t pay for the patient’s care. Children’s hospitals experienced the biggest impact from the CMS rule because they have the highest percentage of patients who have private insurance and are also eligible for Medicaid.

Texas Children’s Hospital, the Children’s Hospital Association of Texas, and other children’s hospitals in Washington, Minnesota and Virginia filed the lawsuit in response to CMS’ enforcement of a Medicaid rule that resulted in certain children’s hospitals being denied Disproportionate Share Hospital (DSH) funding. DSH funding covers the gap between a hospital’s actual cost to care for Medicaid patients and the amount paid to the hospital under the Medicaid program.

“This is a huge victory for Texas Children’s, with a potential positive impact to our bottom line in 2018 of $40 million,” said Texas Children’s President and CEO Mark Wallace. Texas Children’s is estimated to have been denied about $15 million to $20 million annually in recent years.

Wallace added that hospital leaders will be discussing next steps this week, such as when we expect Judge Sullivan to issue his formal opinion, the impact of CMS’ likely appeal of the ruling, and our efforts to coordinate with the Texas Health and Human Services Commission to implement the judge’s ruling.

“Regardless of the next steps in court, this is a huge win for Texas Children’s Hospital and children’s hospitals as a whole,” said Texas Children’s Executive Vice President and Chief Financial Officer Weldon Gage.