On August 15, 2024, the United States District Court for the Northern District of Texas vacated a Medicare regulation excluding from the Medicare DSH payment days attributable to inpatients covered by a section 1115 waiver uncompensated care pool. The decision in Baylor All Saints Medical Center, et al. v. Becerra sets aside CMS’s regulation as contrary to the Medicare statute. King & Spalding represented the plaintiff hospitals.

The Issue in Baylor All Saints v. Becerra

In Baylor All Saints, more than a dozen Texas hospitals sued HHS seeking to include inpatient days attributable to uninsured patients receiving benefits through an uncompensated care pool established under Section 1115 waiver programs. Specifically, the hospitals argued that patients receiving care under these waiver programs should count as Medicaid eligible because they receive medical assistance under an approved section 1115 waiver.

Section 1115 of the Social Security Act allows the Secretary of HHS to authorize “‘demonstration projects’—pilot programs that ‘assist in promoting the objectives of [Medicaid].’” 42 U.S.C. § 1315(a). Despite patients in these programs receiving coverage for their inpatient services under experimental Medicaid programs, HHS promulgated what the court termed an “Exclusion Rule” to prevent these patients from being included in the DSH calculation.

The District Court’s Decision

The District Court sided with the hospitals, holding that the “case is simple on the merits” and that whatever discretion HHS has to determine which patients count as Medicaid eligible, that discretion is exercised at the time HHS approves a Section 1115 waiver program and not after the fact in calculating a hospital’s Medicare DSH payment. The District Court’s opinion relied heavily on preexisting Fifth Circuit precedent in Forrest General Hospital v. Becerra, which held that the number of inpatient days associated with patients “eligible for medical assistance under a state plan approved under Medicaid” includes both “(1) days a hospital treated patients who were Medicaid-eligible and (2) days a hospital treated patients who are regarded as Medicaid-eligible because they received demonstration project benefits.’”

The District Court determined that once the Secretary approves a Section 1115 waiver program, that is the end of the Secretary’s discretion, and those days must be included in the Medicaid fraction under both a plain reading of the Medicare statute and the Fifth Circuit’s precedent.

Upon determining that the “Exclusion Rule” was an “unlawful agency action,” the District Court ordered that the rule should be vacated. HHS has 60 days to seek an appeal to the Fifth Circuit. King & Spalding also represents more than 200 other hospitals in affected states such as Florida and Tennessee in companion litigation on this issue.

The District Court’s full decision can be found here.