Medicare DSH: US District Court in TX Vacates 1115 Waiver "Exclusion Rule"

Baylor All Saints Medical Center, ET AL. v. Xavier Becerra (“CASE”) was released August 15, 2024 in the United States District Court For the Northern District Of Texas Fort Worth Division. The ruling vacates Code of Federal Register 412.106(b)(4)(iii) known as the “Exclusion Rule” based on the section being unlawful. This vacatur impacts the potential validity of including, protesting, or appealing 1115 wavier days for Medicare DSH reimbursement.

This CASE cites Congressional expansion of the Medicaid fraction in the 2005 Deficit Reduction Act to include patients “..who are regarded as such because they receive benefits under a demonstration project approved under title XI” with further emphasis added by citing the 2019 5th Circuit decision in Forrest Gen. Hosp. v. Azar which notes “the Medicaid fraction’s numerator includes…..days a hospital treated patients who are regarded as Medicaid-eligible because they received demonstration project benefits.”

The CASE was brought after implementation of the “Exclusion Rule,” which was an attempt by HHS to overcome the right gained by hospitals to claim 1115 based Medicaid days in the Medicare DSH calculation as a result of the aforementioned Forrest Gen. Hosp. v. Azar ruling. That same right was confirmed in the United States Court of Appeals for the District of Columbia Circuit in Bethesda Health, Inc. v. Azar, 389 F.Supp.3d 32, 43-44 (D.C. 2019), aff'd, 980 F.3d 121 (D.C. Cir. 2020). Rather than petition the Supreme Court to hear the case, HHS promulgated the "Exclusion Rule."

While the defense argued that the secretary has discretion on whether to include the days, the judge in this CASE chose not to resurrect 5th Circuit decisions that “[t]he Secretary may exercise discretion, and the Secretary did exercise discretion when he authorized the [state plan].” and states himself that “Thus, the Secretary exercised his discretion when he approved Texas’s plan.”

At the very least hospitals should protest for 1115 waiver-based Medicaid days that are derived from 1115 waiver programs approved by the Secretary. Some hospitals may choose more aggressive strategies including claiming the days based on this CASE. Providers should carefully explore how to preserve their rights.

If you have questions regarding Medicare DSH, please contact Adam Blackwell at adamblackwell@govdataservices.com

The CASE can be found here.