On August 28, 2026, the U.S. District Court for the District of Columbia vacated CMS’s 2023 rule addressing the treatment of Medicare Advantage (Part C) inpatient days in the Medicare DSH calculation during the 2005-2013 fiscal years. Click here to read the court’s recent decision.
Issue at Hand
CMS’s 2023 rule required including Part C days in the Medicare fraction and excluding them from the numerator of the Medicaid fraction during the 2005-2013 period. The placement of these days can affect a hospital’s DSH percentage.
What the Court Decided
In a September 2025 decision, the court held that the 2023 rule was unlawful, saying it constituted as retroactive rulemaking under 42 U.S.C. § 1395hh(e)(1)(A). The court held that the rule was arbitrary and capricious because CMS did not adequately address commenters’ concerns about the financial impact of applying the policy retroactively.
In its August 28, 2026 remedy decision, the court vacated the 2023 rule and remanded the matter to the Secretary of Health and Human Services (HHS) for further proceedings.
The court rejected HHS’s position that relief should be limited to Montefiore. The court concluded that vacatur sets aside the rule itself, rather than providing relief only to the named plaintiff. This allows the possibility for a remedy for additional DSH hospitals.
The court did not order CMS to recalculate Montefiore’s DSH payment using any particular methodology. The court explained that directing a specific payment calculation would be an extraordinary remedy. They left the Secretary room to consider a lawful path forward on remand.
Next Steps
- HHS will likely appeal the decision to the U.S. Court of Appeals.
- CMS could issue instructions to MACs concerning the affected cost reporting periods, although the court did not require a particular calculation or payment approach.
- PRRB and court proceedings involving related Part C/DSH claims may remain stayed or otherwise be affected while the appellate and remand processes proceed.
Please reach out to one of our Medicare DSH experts listed below if you have any questions or concerns.
Nick Ficklin, CPA, FHFMA, Director
Shawn Barney, CPA, CHFP, Manager
