On October 28, 2020, after previously denying the Secretary of Health and Human Services’ (HHS) request for en banc review, the Ninth Circuit issued a mandate rendering effective its unanimous panel decision on behalf of Empire Health Foundation. In that decision, the Ninth Circuit vacated CMS’s 2005 amendment to its disproportionate share (DSH) regulation in which CMS sought to treat days for which Medicare Part A made no payment, such as exhausted benefit days, as nonetheless being “days entitled to benefits under Part A.” Because the Ninth Circuit vacated HHS’s 2005 amendment to the DSH regulation, and vacatur is not limited to a specific plaintiff or to a specific geography, this decision could directly benefit DSH hospitals throughout the country. Empire Health was represented by the author of this article, King & Spalding healthcare partner Dan Hettich.

CMS’s vacated policy of treating days for which Medicare Part A made no payment as nonetheless being “entitled to benefits under Part A” tended to systematically decrease payments to hospitals that treat a disproportionate share of indigent patients for several reasons. One primary reason is that many patients that have exhausted their Medicare benefits are eligible for Medicaid, but patients who are considered “entitled to benefits under Part A” are categorically excluded from the DSH Medicaid fraction. The Ninth Circuit, however, held that CMS’s policy violated the plain language of the DSH statute because the statute clearly defined “entitled” to mean the right to payment,and not merely potential eligibility for benefits, under Part A. Because the Ninth Circuit held that CMS’s DSH policy violated the plain language of the statute, the decision is not time-limited and CMS cannot attempt to “correct” the issue through further rulemaking, whether retroactive or otherwise.

In vacating the policy, the Ninth Circuit cited University of California v. DHS, 908 F.3d 476, 511 (9th Cir. 2018), in which the Ninth Circuit specifically upheld a district court’s nationwide injunction of the Department of Homeland Security’s rescission of the DACA Program based on an arbitrary-and-capricious finding under the APA.

Given the potential scope of the Ninth Circuit’s decision, all hospitals that receive DSH payments should carefully consider the potential implications of the decision on their specific circumstances and the concrete steps they need to take in order to take advantage of this favorable development.