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Cases & Deals

May 5, 2020

Empire Health Foundation Wins Ninth Circuit Vacatur of Medicare Rule That Reduced Payments to Hospitals that Treat a Disproportionate Share of Low-Income Patients


The Ninth Circuit ruled on May 5 in favor of King & Spalding client Empire Health Foundation in an opinion with wide-ranging implications for hospitals nationwide. Empire Health Foundation had challenged a 2005 Medicare regulation that required treating days for which Medicare Part A made no payment, such as exhausted benefit days, as nonetheless being “days entitled to benefits under Part A” for purposes of the Medicare disproportionate share hospital (DSH) payment calculation.

In a departure from the reasoning of two other circuit courts that had previously considered the question, the Ninth Circuit agreed with Empire that the agency’s policy violated the plain meaning of the DSH statute. Empire Health Found. for Valley Hosp. Med. Ctr. v. Azar, No. 18-35845, 958 F.3d 873, 886 (9th Cir. May 5, 2020). The court, therefore, upheld the District Court’s vacatur of CMS’s 2005 regulation and policy.

In issuing its decision, the Ninth Circuit recognized the broad scope of vacatur explaining that “when a reviewing court determines that agency regulations are unlawful, the ordinary result is that the rules are vacated—not that their application to the individual petitioners is proscribed.” In addition, by holding that CMS’s policy violates the plain meaning of the statute, the Empire decision effectively prohibits the agency from ever applying that interpretation in the future. The decision, therefore, is a welcome development for hospitals nationwide that treat a disproportionate share of indigent patients since CMS’s now-invalidated policy decreased those hospitals’ DSH reimbursement in the vast majority of cases.