This Report summarizes opinions issued on June 23 and 24, 2022 (Part I).

Opinion: Becerra v. Empire Health Foundation, 20-1312

Becerra v. Empire Health Foundation, 20-1312. In a 5-4 decision, the Court held that when calculating the “Medicare fraction” used to determine reimbursement rates to hospitals that serve disproportionately high numbers of low-income patients, a person is “entitled to” benefits under 42 U.S.C. §1395 if he qualifies for the Medicare program, even if Medicare does not pay for his hospital stay. When a person turns 65 or has received federal disability benefits for 24 months, he qualifies for benefits under Medicare Part A, which covers inpatient hospital treatment and other services. Medicare reimburses hospitals at higher rates when those hospitals serve higher percentages of low-income patients. Two fractions determine how large an adjustment the hospital will receive. The “Medicare fraction” is the proportion of a hospital’s patients who are eligible for Medicare and have low incomes: the number of patient days attributable to low-income Medicare patients divided by the number of patient days attributable to all patients “entitled to” Medicare benefits “(for such days).” The “Medicaid fraction” is the proportion of patients who have low incomes and are not entitled to Medicare: the number of patient days attributable to low-income non-Medicare patients divided by the total number of patient days. Since 2004, the Department of Health and Human Services (HHS) has calculated the Medicare fraction by counting all persons who qualify for Medicare even if Medicare did not pay for the patient’s hospital treatment (for example, because treatment was paid for by private insurance). This method effectively reduces many hospitals’ reimbursement by increasing the denominator and reducing the proportion of Medicare patients who are low-income. Empire Health Foundation sued, and the Ninth Circuit found HHS’s method improper. Because the statute distinguishes between “entitlement to” Medicare benefits and “eligibility for” Medicaid assistance, the court held that a person is “entitled to” Medicare benefits only if he has an “absolute right” to payment from Medicare. The court reasoned that a patient has no right to payment from Medicare―and should not be included in the Medicare fraction―if the hospital is paid from another source. In an opinion by Justice Kagan, the Court reversed.

The Court stated that the ordinary meaning of the statutory fraction descriptions “does not exactly leap off the page,” but upon examination they become “surprisingly clear.” The distinction between eligibility and entitlement might be “plausible in the abstract,” but does not work given the text, context, and structure of the Medicare statute. The Court found that the phrase “entitled to benefits” is a term of art used throughout the statute to mean qualifying for benefits, i.e., being over 65 or disabled. The entitlement to benefits is the entitlement to have Medicare pay if “specified conditions” are met even if Medicare is not paying for some or all of the hospital stay. If the contrary reading were true, then a patient who was not “entitled to” Medicare Part A, even though qualifying for benefits, could be ineligible for different benefits under Parts B through D. That reading, found the Court, would also render other statutory provisions “unworkable or unthinkable” and reduce protections for beneficiaries. And excluding a patient from the Medicare fraction because of who paid for a day of care does not promote the goal of accounting for the entire low-income population.

The Court rejected Empire’s argument that the statute’s parenthetical phrase “(for such days)” limits entitlement to benefits for hospital days paid for by Medicare. The Court found that this “slight phrase” is insufficient to change the otherwise-consistent meaning of “entitled to benefits,” and Congress generally does not alter the fundamentals of a statutory scheme in parentheticals. Those words simply tell the Medicare program to ask about a patient on a given day and exclude hospital days before a patient qualifies for Medicare (for example, because a patient turns 65 or qualifies as disabled halfway through a hospital stay). Finally, the Court rejected Empire’s argument that its interpretation generally leads to higher payments to hospitals. (A greater proportion of low-income patients results in higher reimbursement for hospitals, so it pays to keep the denominator―the number of patients entitled to Medicare regardless of financial status―as low as possible.) The point of the reimbursement provision is not to pay hospitals as much money as possible, but to compensate hospitals for treating a disproportionate share of low-income patients.

Justice Kavanaugh dissented, joined by Chief Justice Roberts and Justices Alito and Gorsuch. They agreed with the majority that the statutory formula at issue is “mind-numbingly complex” and some of the subsidiary calculations are “relatively straightforward,” but they disagreed on the outcome. Common sense, they said, shows that a patient is not “entitled to” have payment made by Medicare on hospital days when the statute precludes payment by Medicare. From 1986 until 2003, HHS interpreted the statute in this manner and it did not prove “unworkable”; indeed, it appeared to the dissent that HHS changed its interpretation for financial reasons. In any event, the statute declares that the “benefits provided” under Medicare Part A consist of the patient’s “entitlement to have payment made on his behalf.” Thus, a patient is “entitled to” Medicare benefits “for such days” only if Medicare was obligated to pay for the patient’s care on a particular day. Although the statute generally uses “entitled” to refer to those who meet Medicare’s basic criteria (age or disability), the reimbursement provision at issue­―with its reference to “for such days”― “focuses laser-like on whether the patient was actually entitled to have payment made by Medicare for particular days in the hospital.” Justice Kavanaugh disagreed with the Court’s suggestion that a statutory phrase is unimportant simply because it appears in parentheses, noting that the Constitution itself includes parentheticals.