Legal
Texas District Court Vacates CMS Rule Excluding 1115 Waiver Days from DSH Calculations
On July 27, 2026, the U.S. District Court for the Northern District of Texas vacated a 2023 CMS regulation that excluded inpatient days covered by Section 1115 waiver uncompensated care funding pools from Medicaid disproportionate share hospital (DSH) day counts. This is the second time the court has struck down this rule in Covenant Medical Center v. Kennedy. The ruling affects how hospitals calculate their Medicaid patient volume for DSH payment eligibility. The decision takes effect immediately, allowing hospitals to include these waiver days in their DSH calculations until CMS takes further action.
Why it mattersThis ruling expands DSH eligibility for hospitals in states with Section 1115 uncompensated care pools by allowing inclusion of waiver-funded days in Medicaid patient counts, potentially increasing federal DSH payments.
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