Health Law Daily Wrap Up, ADMINISTRATION OF MEDICARE/MEDICAID PROGRAMS—HHS Appeals Board upholds $21.6M Medicaid disallowance against Connecticut over untimely DSH claims, (Jul 22, 2026)

By Wendy Biddle, J.D.

The DAB rejected Connecticut's bid to recover federal funds for hospital cost adjustments filed years after the two-year filing deadline, finding no state plan authorization for an interim rate methodology.

The HHS Departmental Appeals Board (Board) affirmed a $21,627,547 disallowance of federal financial participation sought by the Connecticut Department of Social Services (Connecticut DSS) for disproportionate share hospital (DSH) expenditures spanning federal fiscal years 2008 through 2012. The Board concluded that Connecticut DSS's 2016 supplemental claim for additional DSH payments to John Dempsey Hospital was both untimely under the two-year filing limit of Section 1132(a) of the Social Security Act and inconsistent with the state's approved Medicaid state plan (Connecticut Department of Social Services, DAB No. 3234, Doc. No. A-19-60 (May 28, 2026)).

The dispute traced back to two state plan amendments, SPA 03-009 and SPA 11-012, which governed DSH payments to John Dempsey Hospital, Connecticut's only publicly operated acute care hospital. Both amendments specified that Connecticut DSS would calculate payments using data supplied by the state's Office of Health Care Access (OHCA). Between 2009 and 2013, the University of Connecticut Health Center certified the hospital's uncompensated costs for each fiscal year based on OHCA data, and Connecticut DSS claimed FFP accordingly.

Following federally mandated DSH audits conducted by an independent accounting firm, Connecticut DSS discovered that its earlier claims had understated the hospital's actual uncompensated costs by more than $49 million across the five fiscal years. After securing OHCA's endorsement, the state filed a supplemental claim for additional FFP on its quarterly expenditure report for the period ending March 31, 2016, later adjusting the amount downward. CMS deferred and then disallowed the claim, concluding it was filed beyond the two-year timely filing period and did not comport with the state plan's methodology. CMS reduced the disallowance from an initial $24,707,161 to $21,627,547 on reconsideration but otherwise denied Connecticut DSS's request.

On appeal, the Board first addressed whether CMS had adequately articulated the basis for its disallowance, finding that both the original notice and the reconsidered determination satisfied the content requirements of 42 C.F.R. § 430.42(a). The Board also held that CMS permissibly expanded its rationale on appeal to include noncompliance with the state plan methodology, since Connecticut DSS had notice of that issue from the deferral stage and had a full opportunity to respond.

Turning to timeliness, the Board rejected Connecticut DSS's argument that its claim fell within the "adjustment to prior year costs" exception under 45 C.F.R. § 95.19(a), which applies only where a cost item was previously claimed under an "interim rate concept" defined in an approved state plan. The Board found that SPA 03-009 and SPA 11-012 contained no interim rate or reconciliation process, contrasting them with a later amendment, SPA 18-0018-A, effective February 2018, which expressly established a three-step process of initial claims, recalculation, and final settlement. The Board declined to read an implicit interim rate concept into the earlier SPAs, noting that Connecticut DSS's own certifications described the claimed amounts as "actual uncompensated costs" rather than estimates.

The Board also rejected Connecticut DSS's reliance on the State Medicaid Manual's rule that expenditures for public providers are made when "paid or recorded, whichever is earlier." Distinguishing this case from prior precedent involving Virginia's DSH program, the Board found that Connecticut DSS had not shown actual payments to John Dempsey Hospital and that the relevant expenditures were, at the latest, "recorded" when the state accepted the hospital's certified cost figures between 2009 and 2013, more than two years before the 2016 claim.

Finally, the Board found that the supplemental claim independently violated the state plan because it relied on the auditors' definition of uncompensated care and their underlying data, rather than the definition and OHCA-sourced data specified in the approved SPAs. The Board emphasized that states must adhere to the methodology set forth in their approved plans and may not implement ad hoc changes, even where audit results reveal that actual costs exceeded prior estimates.

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