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Federal court vacates 2004 Medicare DSH policy change

November 21, 2012

The U.S. District Court for the District of Columbia last week held that a 2004 Department of Health and Human Services rule changing Medicare's formula for calculating disproportionate share hospital payments for hospitals that treat Medicare Advantage patients was procedurally flawed and must be vacated. "The Court concludes that the Secretary's interpretation of the fractions in the DSH calculation, announced in 2004 and not added to the Code of Federal Regulations until the summer of 2007, was not a 'logical outgrowth' of the 2003 [notice of proposed rulemaking]," the opinion by U.S. District Judge Rosemary Collyer states. Finding that the reasoning for the change was "brief and unconvincing," the court also held that the rulemaking was arbitrary and capricious. The case (Allina v. Sebelius) was remanded to the HHS secretary "for further action consistent with this opinion."