More than 130 hospitals have filed a lawsuit against the U.S. Department of Health and Human Services (HHS), challenging how the agency calculates disproportionate share hospital (DSH) payments and alleging the methodology unlawfully reduces reimbursement for hospitals serving low-income patients.
The complaint, filed March 30 in the U.S. District Court for the District of Columbia, names HHS Secretary Robert F. Kennedy Jr. and focuses on how the agency treats Medicare Advantage (Part C) patient days in DSH payment calculations.
Here are five key points:
1. Hospitals challenge CMS’ 2023 final rule
The hospitals argue that a 2023 final rule issued by the Centres for Medicare & Medicaid Services improperly reduces DSH payments. The rule retroactively applies a policy that includes certain Medicare Advantage days in the Medicare fraction while excluding them from the Medicaid fraction a move hospitals say skews the formula.
2. What DSH payments are designed to do
DSH payments are intended to financially support hospitals that treat a high proportion of low-income patients. Payment amounts are calculated using a “disproportionate patient percentage,” which combines:
- A Medicaid fraction
- A Medicare Supplemental Security Income (SSI) fraction
Hospitals argue that changes to how these fractions are calculated directly impact reimbursement levels.
3. Allegations of improper methodology and retroactivity
The complaint claims CMS’ methodology:
- Revives a policy first introduced in 2004 that courts have previously rejected or narrowed.
- Applies the revised calculation retroactively to earlier cost-reporting periods, which hospitals contend exceeds HHS’ statutory authority.
- Undercounts low income patient days, thereby reducing DSH payments owed to safety-net hospitals.
4. What the hospitals are seeking
The plaintiffs are asking the court to:
- Vacate the 2023 rule
- Require HHS to recalculate DSH payments using the pre-2004 methodology
- Award additional reimbursement and applicable interest
5. Ongoing legal battles over DSH funding
The lawsuit adds to years of litigation over DSH payment formulas. In April 2025, the Supreme Court of the United States ruled in favour of HHS in a separate dispute regarding how SSI-related patient days are counted, a decision hospital groups estimated could impact at least $1 billion annually.
Hospitals have also opposed broader CMS policies projected to reduce billions in DSH payments to safety-net providers nationwide.
HHS has not yet publicly responded to the latest complaint.
Source: Becker’s Hospital Review Alan Condon, 131 hospitals sue HHS over DSH cuts: 5 notes (March 2026).
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