CHA News

Court Finds in Favor of California Hospitals on Area Wage Index Legal Challenge

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On Dec. 22, the U.S. District Court for the Central District of California ruled that the secretary of Health and Human Services (HHS) committed “serious error” and exceeded his authority under the Medicare Act — a legal win for the CHA-sponsored challenge on the issue of the area wage index. 

The ruling found that the secretary improperly adopted policies that reduced hospital payments to all inpatient prospective payment system (IPPS) hospitals in order to fund increased payments to hospitals in areas with low wages.  

This ruling was made in a lawsuit brought by numerous California hospitals as part of a CHA-sponsored legal challenge to the secretary’s action.   

Specifically, in Kaweah Delta Health Care District, et al. v. Becerra, the court found that the Centers for Medicare & Medicaid Services’ (CMS) reduction to the IPPS standardized amount violates the Medicare Act and thus the federal Administrative Procedures Act. Beginning with federal fiscal year 2020, CMS increased the Medicare wage index values for hospitals in areas with wages in the lowest quartile and paid for the resulting payment increases by reducing Medicare payments for all hospitals under the IPPS by 0.2%. This payment reduction costs California hospitals over $20 million annually.  

The decision is consistent with a ruling on a separate case — Bridgeport Hospital, et al. v. Becerra — in the U.S. District Court for the District of Columbia. As in Bridgeport, the court has remanded the case to HHS to determine an appropriate remedy. The government has appealed the decision on Bridgeport, and it is anticipated that it will appeal the ruling in Kaweah Delta as well.  

CHA will continue to update members on legal developments. Additional information on CHA’s sponsored litigation can be found on CHA’s website.