Court Vacates CMS's 2023 Medicare Part C Rule

On August 28, 2026, the U.S. District Court for the District of Columbia vacated CMS’s 2023 Rule governing the treatment of Part C days for cost-reporting periods beginning before FY 2014 and remanded the matter to HHS. Montefiore Medical Center v. Kennedy, No. 1:24-cv-01810-LLA (D.D.C. Aug. 28, 2026).

From 2025 Win to Vacatur:
The court ruled for Montefiore in September 2025, finding the 2023 Rule impermissibly retroactive as well as arbitrary and capricious. The remaining question was remedy.

The court has now rejected HHS’s request for relief limited to Montefiore and vacated the 2023 Rule.

Montefiore also asked the court to direct HHS to recalculate its FY 2006 DSH payment using the pre-2004 policy and pay applicable interest. The court declined, leaving HHS room on remand to pursue other potentially lawful means of implementing its Part C interpretation, provided any new agency action complies with the Medicare statute's restrictions on retroactivity and the APA. Importantly, the court had previously concluded that HHS's underlying statutory interpretation of the Part C issue was correct; the defects were in the retroactive implementation of that policy through the 2023 Rule.

Another Chapter in the Allina History:
CMS’s efforts to implement its Part C policy have now included the 2004 Rule vacated in Allina I, the Medicare fractions rejected in Allina II, and the now-vacated 2023 Rule.

For hospitals with affected historical Medicare DSH years, this is another important development in a dispute spanning more than two decades.

The 2023 Rule is vacated. What HHS does next is the next development to watch.