Health Law Daily Wrap Up, DISPROPORTIONATE SHARE HOSPITALS—D.D.C.: Disproportionate share hospitals’ challenge to 2023 final rule was premature, untimely, and moot, (Oct 21, 2026)

By Justin Marcus Smith, J.D.

A recent D.C. Circuit opinion made clear that not every Medicare payment rule is a final Medicare payment determination, and the hospitals in this matter failed to challenge a Notice of Program Reimbursement final payment determination.

Disproportionate share hospitals that challenged the calculation of their Medicare reimbursements under a 2023 HHS final rule filed premature administrative appeals with the HHS Provider Reimbursement Review Board (PRRB), held the federal district court in Washington, D.C., affirming the PRRB dismissals of their claims. The U.S. Court of Appeals for the D.C. Circuit had recently ruled, in a different matter, that the 2023 final rule itself was not an appealable final payment determination. The hospitals could only appeal a final payment determination as communicated through a Notice of Program Reimbursement (NPR), and their appeal was premature in the sense that they did not wait for an NPR. Even if the hospitals had been correct that they could appeal the final rule itself, such appeal would have been untimely because they initiated appeal more than 180 days after HHS published the final rule in the Federal Register. Last, even if the instant court had jurisdiction to hear a challenge to the rule itself, it would have been moot because a different court in the district had already vacated the final rule on different grounds (San Gabriel Valley Medical Center v. Kennedy, No. 1:24-cv-00800-CRC (D.D.C. Oct. 15, 2026)); Lake Charles Memorial Hospital v. Kennedy, No. 1:24-cv-00972-CRC (D.D.C. Oct. 15, 2026)).

Background. Scores of hospitals across the country appealed a 2023 final rule that clarified how HHS calculates Medicare reimbursements for hospitals that serve disproportionate numbers of low-income patients (disproportionate share hospitals or DSHs).

Whether a hospital qualifies for the DSH adjustment depends on the hospital’s “disproportionate patient percentage,” statutorily defined as the sum of two fractions, the Medicare fraction and the Medicaid fraction. CMS calculates the Medicare fraction annually. Medicare Administrative Contractors (MACs) then compute the Medicaid fraction based on hospitals’ year-end cost reports, add the fractions, determine each hospital’s DSH adjustment for the relevant year, and then inform each hospital about their computation through a notice of program reimbursement (NPR). The underlying friction here was that the final rule provided that, for pre-2014 DSH adjustments, Medicare Part C beneficiaries were to be treated as entitled to Part A benefits and therefore must be included in the Medicare fraction.

Hospitals dissatisfied with their reimbursements may appeal to the Provider Reimbursement Review Board (PRRB). The PRRB has jurisdiction to review Medicare payment final determinations, like the notice of program reimbursement (NPR). In general, hospitals must appeal to the PRRB within 180 days of the NPR. They may then appeal the PRRB decision by resorting to a judicial complaint.

The hospitals appealed the final rule, but the PRRB dismissed the hospitals’ appeal because it found the 2023 final rule was not a final payment determination. The PRRB also found the appeal was untimely. The hospitals then filed two actions, later consolidated, that asked the court to reverse the PRRB dismissals and vacate the rule. The operative complaints advanced identical claims challenging the PRRB dismissal orders and the 2023 final rule itself as arbitrary, capricious, and contrary to law.

The court stayed the consolidated cases pending the D.C. Circuit’s decision in Battle Creek Health Sys. v. Kennedy, 151 F.4th 464, 467 (D.C. Cir. 2025). In Battle Creek, a group of hospitals appealed the 2007 CMS published Medicare fractions. The PRRB had dismissed the appeal because the hospitals did not challenge a final payment determination. In other words, they could only challenge an NPR. The D.C. Circuit affirmed the dismissals (see Publication of Medicare fractions on CMS website not a final determination allowing hospitals to appeal to the PRRB (Aug. 28, 2025)).

After Battle Creek, HHS moved to dismiss the instant consolidated complaints under Fed. R. Civ. P. 12(b)(1) and 12(b)(6). However, after briefing ended in the instant matter, another court in the district vacated the 2023 final rule as impermissibly retroactive and procedurally invalid under the Medicare Statute, such that it violated the Administrative Procedure Act, and remanded to HHS (see District Court vacates HHS’s 2023 DSH adjustment rule after determining it to be an unlawful agency action (Sept. 1, 2026)).

Appeals premature. The court held the PRRB did not err in dismissing the hospitals’ instant appeals because hospitals cannot appeal every agency action that might someday affect DSH reimbursement. Battle Creek made it clear that the 2023 final rule was not a final determination subject to appeal. Only final determinations of the HHS Secretary about the amount of a hospital’s DSH payment, as delegated to the MACs, are appealable to the PRRB.

The instant hospitals challenged the 2023 final rule directly instead of waiting to receive their NPRs calculated under the rule. They made no serious attempt to distinguish Battle Creek, but the court noted that was not even possible because Battle Creek was “on all fours with the case.” Battle Creek involved the same Medicare DSH adjustment payment context; the same underlying dispute about inclusion of government-subsidized private insurance Medicare Part C days in the Medicare fraction; and the same statute governing PRRB review, 42 U.S.C. § 1395oo(a)(1)(A)(ii). In Battle Creek, the D.C. Circuit held the PRRB correctly dismissed the hospitals’ administrative appeals because the hospitals appealed from something other than NPRs.

The only difference between Battle Creek and the instant matter was the agency action appealed to the PRRB. Battle Creek involved CMS’s published, hospital-specific Medicare fractions for a past fiscal year, whereas the instant hospitals appealed a generally applicable rule governing how CMS would calculate Medicare fractions for certain past fiscal years. The instant court said that distinction made the instant case even easier case to decide because the challenged action sat even farther upstream from NPRs. Battle Creek required affirmation of the PRRB decisions dismissing the instant hospitals’ appeals.

The instant hospitals countered that the 2023 final rule was functionally a “final determination” about payment because hospitals could use it to estimate their pre-2014 DSH adjustments. The court disagreed because Battle Creek foreclosed this argument. Whether the final rule could allow the hospitals to make a close estimate of their DSH adjustment amount by doing the math on their own was irrelevant because 42 U.S.C. § 1395oo(a)(1)(A)(ii) gave the HHS Secretary, or the Secretary’s delegee, responsibility for making the final determination, as perfected for appeal on issuance of the NPR. The hospitals’ appeals to the PRRB were premature because they were not tied to NPRs.

Appeals untimely. The instant court continued that, even if the 2023 final rule was an appealable “final determination,” the PRRB correctly dismissed the administrative appeals as untimely. Pursuant to the PRRB’s rulemaking authority under § 1395oo(e), the appeal period began on the date of publication in the Federal Register, but the hospitals waited more than 180 days after publication to initiate appeal. The PRRB did not act arbitrarily or capriciously when it dismissed the hospitals’ appeals pursuant to the PRRB’s rules about appeal timeliness.

The hospitals contended the NPR notice should run from the effective date of the rule, not the date of publication, but the court said that was incorrect because Congress provided for legal notice of rules and regulations by publication in the Federal Register, regardless of their effective date. Because the 2023 final rule Federal Register publication date was June 9, 2023, the hospitals had until December 6, 2023, to appeal, and their early 2024 appeals to the PRRB were untimely.

Appeals moot. The court held it lacked jurisdiction to hear the hospitals’ challenge to the legality of the 2023 final rule. In general, the Medicare statute serves as the exclusive source of federal court jurisdiction over Medicare cases. In this instance, the Medicare statute limited judicial review to a final PRRB decision, but the PRRB never reached the merits, so the court could not consider them. The hospitals essentially conceded this by not responding to the government’s jurisdictional arguments. The court continued that the HHS had already vacated the 2023 final rule, which meant the hospitals’ challenge was moot.

The cases are Nos. 1:24-cv-00800-CRC; 1:24-cv-00972-CRC.

Judge: Cooper, C.

Attorneys: Alan Jay Sedley (Alan J. Sedley Law Corp.) for San Gabriel Valley Medical Center. M. Jared Littman, U.S. Department of Justice, for Robert F. Kennedy, Jr.

MainStory: TopStory CaseDecisions IPPSNews DSHNews GCNNews MedicaidNews MedicaidPaymentNews MedicareContractorNews PartANews ProgramIntegrityNews DistrictofColumbiaNews