U.S. Hospitals are One Step Closer to a DSH Windfall.

On January 10, 2021 CMS filed its opposition to a motion that would enforce the 9th Circuit’s decision in Empire v. Azar. At issue is whether Empire’s vacatur of the 2005 Final Rule, applies only to hospitals in the jurisdiction of the 9th Circuit, or to all US hospitals. In CMS’s motion, the Secretary explicitly acknowledges that Empire’s vacatur is binding within the 9th Circuit. This admission appears to open the door for immediate resolution of the exhausted day cases pending in district courts subject to the 9th Circuit.


In the FFY 2005 Final Rule, CMS directed that exhausted days and other non-covered days be included in the Medicare Fraction of DSH calculations. This has had the effect of diluting the Medicare Fraction and thus diminishing DSH payments for most hospitals. Empire challenged this rule on procedural and substantive grounds. In May of 2020, a three-judge panel of the 9th Circuit Court of Appeals found that the 2005 rule was procedurally valid but substantively invalid.

On July 14, 2020 the government asked for a rehearing before the entire 9th Circuit. But in October, the 9th Circuit denied the government’s petition for rehearing. This leaves the government with only one remaining course of action: a writ of certiorari, appealing the case to the Supreme Court. [The writ must be filed by March 19, 2021.] Subsequently, the government has requested a stay of the District Court’s decision pending a (possible) hearing by the Supreme Court.


CMS’s January 2021 motion acknowledges that the Empire vacatur is binding within the 9th Circuit jurisdiction. This includes courts (and hospitals) in Alaska, Washington, Oregon, California, Idaho, Nevada, Arizona and Montana. But the stay will probably be in effect until the Supreme Court weighs in. And because there is a split in circuit decisions on this issue, it is quite likely the Supreme Court will grant the government’s petition. If the Supreme Court decides in favor of providers, MACs will probably be ordered to recalculate hospital DSH payments for all hospitals from 2005 on. Also, this would significantly impact hospitals that take advantage of the 2020 rule allowing providers to realign/rebase their SSI percentage (going back to at least 2005). And further, there is the possibility that this decision could provide valuable precedent for “Part C” cases currently before the courts (e.g., Allina v. Azar).

2021 promises to be a very interesting year. Stay tuned.