UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
MONTEFIORE MEDICAL CENTER,
Plaintiff,
v. Civil Action No. 24 - 1810 (LLA)
ROBERT F. KENNEDY, JR.,
Defendant.
MEMORANDUM OPINION
Plaintiff Montefiore Medical Center brings this action against Robert F. Kennedy, Jr., in
his official capacity as Secretary of Health and Human Services, alleging that in 2023, the
Department of Health and Human Services (“HHS”) promulgated an impermissibly retroactive
and procedurally invalid rule under the Medicare statute, 42 U.S.C. § 1395 et seq., in violation of
the Administrative Procedure Act (“APA”), 5 U.S.C. § 551 et seq. ECF No. 1. In the 2023 Rule,
HHS interpreted a provision in the Medicare statute about how the agency calculates
reimbursements owed to hospitals that serve disproportionately more low-income patients. In
September 2025, the court held that the 2023 Rule is contrary to law and arbitrary and capricious.
ECF No. 31. Accordingly, it granted Montefiore’s motion for summary judgment and denied the
Secretary’s cross-motion for summary judgment. ECF Nos. 31, 32. The court then directed the
parties to file supplemental briefing addressing whether vacatur of the 2023 Rule or a remand to
the Secretary without vacatur is the appropriate remedy. ECF Nos. 32, 33; Dec. 3, 2025 Minute
Order. The parties have briefed their positions on remedies. ECF Nos. 34, 36-37. For the reasons
explained below, the court vacates the 2023 Rule and remands the matter to the Secretary.
I. BACKGROUND
The court assumes the parties’ familiarity with the statutory scheme governing Medicare
and the various challenges to the payment scheme at issue here. See ECF No. 31, at 2-11. The
court therefore recounts only the portions of the statutory and regulatory background and litigation
history that are necessary to determine the appropriate remedy.
A. Medicare’s Disproportionate Share Hospital Adjustment
Two parts of the Medicare program are relevant here. Under Part A, HHS pays hospitals
directly for services they provide to qualifying beneficiaries. 42 U.S.C. §§ 1395c to 1395i-6.
Under Part C, an individual who is entitled to benefits under Part A may enroll in a privately
administered Medicare Advantage program in lieu of using Part A benefits. Becerra v. Empire
Health Found., for Valley Hosp. Med. Ctr., 597 U.S. 424, 429 (2022); Ne. Hosp. Corp. v. Sebelius,
657 F.3d 1, 2 (D.C. Cir. 2011); see 42 U.S.C. § 1395w-21(a)(1). One part of the payment structure
for hospitals rendering services to Part A beneficiaries is the “disproportionate share hospital”
(“DSH”) adjustment, which provides “enhanced Medicare payments” to “hospitals serving an
‘unusually high percentage of low-income patients.’” Empire Health, 597 U.S. at 429 (quoting
Sebelius v. Auburn Reg’l Med. Ctr., 568 U.S. 145, 150 (2013)).
To calculate an adjustment based on the low-income patients a hospital has served, HHS
adds two fractions together: the Medicare fraction, which captures the “proportion of a hospital’s
Medicare patients who have low incomes,” and the Medicaid fraction, which captures the
“proportion of a hospital’s patients who are not entitled to Medicare and have low incomes.” Id.
at 429-30. As a proxy for “low income” in the Medicare fraction, the statute uses entitlement to
“supplemental security income” (“SSI”) benefits. Id.; see 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I).
SSI benefits are available to low-income individuals “who are aged, blind, or disabled regardless
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of their insured status.” Smith v. Berryhill, 587 U.S. 471, 475 (2019) (quoting Bowen v. Galbreath,
485 U.S. 74, 75 (1988)). As a proxy for “low income” in the Medicaid fraction, the statute uses
entitlement to the Medicaid program, which “provides health insurance to all low-income
individuals, regardless of age or disability.” Empire Health, 597 U.S. at 430; see 42 U.S.C.
§ 1395ww(d)(5)(F)(vi)(II).
The numerator in the Medicare fraction “is the number of [a] hospital’s patient days for [a
fiscal year] which were made up of patients who (for such days) were entitled to benefits under
[P]art A of [Medicare] and were entitled to [SSI] benefits.” 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I)
(emphasis added). The “denominator . . . is the number of such hospital’s patient days for such
fiscal year which were made up of patients who (for such days) were entitled to benefits under
[Medicare] [P]art A.” Id. (emphasis added). Rather than calculate the patient days attributable to
all Medicaid patients, the Medicaid fraction strips out those associated with “dually eligible”
patients. Medicare Program; Treatment of Medicare Part C Days in the Calculation of a Hospital’s
Medicare Disproportionate Patient Percentage, 88 Fed. Reg. 37772, 37774 (June 9, 2023) (codified
at 42 C.F.R. pt. 412) (“2023 Rule”). The numerator in the Medicaid fraction thus includes “the
number of the hospital’s patient days for [a fiscal year] which consist of patients who (for such
days) were eligible for medical assistance under [Medicaid], but who were not entitled to benefits
under [P]art A of [Medicare].” 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II) (emphasis added). And the
denominator is “the total number of the hospital’s patient days for such [fiscal year].” Id.
The Centers for Medicare and Medicaid Services (“CMS”) is the HHS component
responsible for administering the Medicare program. Id. § 1395kk; Saint Francis Med. Ctr. v.
Azar, 894 F.3d 290, 291-92 (D.C. Cir. 2018). CMS contracts with a “fiscal intermediary”—known
as a Medical Administrative Contractor (“MAC”)—that initially calculates the sum of the two
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fractions. 42 C.F.R. §§ 412.106(b)(4), 421.400 (2024). That sum—the “disproportionate patient
percentage,” 42 U.S.C. § 1395ww(d)(5)(F)(v)-(vi)—determines whether a hospital receives a
DSH adjustment.
Upon calculating the combined fraction, the MAC issues a “notice of program
reimbursement” (“NPR”) that contains a “[p]rospective payment” detailing the “total amount of
the payments due the hospital . . . for the cost reporting period covered by the notice.” 42 C.F.R.
§ 405.1803. Providers seeking to contest their NPR must first do so before HHS’s Provider
Reimbursement Review Board (“PRRB”), which may affirm, modify, or reverse the MAC’s cost
report. 42 U.S.C. § 1395oo(d). The Secretary may, “on his own motion,” alter the PRRB’s
decision. Id. § 1395oo(f)(1). A hospital can seek judicial review within sixty days of the PRRB’s
“final decision,” although the statute also permits review if the PRRB determines that it lacks
authority to resolve a “question of law or regulations relevant to the matters in controversy.” Id.
B. The Medicare Statute’s Limitations on Retroactive Rulemaking
Generally, the Secretary is required to “prescribe such regulations as may be necessary to
carry out the administration of the [Medicare] program[].” Id. § 1395hh(a)(1). But Congress has
circumscribed that authority in several ways. First, the Secretary may “establish[] or change[] a
substantive legal standard governing,” among other things, “the payment for services,” only by
promulgating a regulation to that effect. Id. § 1395hh(a)(2). If any regulation “includes a
provision that is not a logical outgrowth of a previously published notice of proposed rulemaking
or interim final rule, such provision shall be treated as a proposed regulation and shall not take
effect until there is the further opportunity for public comment and a publication of the provision
again as a final regulation.” Id. § 1395hh(a)(4).
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Next, the Medicare statute expressly addresses retroactivity. Any “substantive change in
regulations, manual instructions, interpretative rules, statements of policy, or guidelines of general
applicability . . . shall not be applied (by extrapolation or otherwise) retroactively to items and
services furnished before the effective date of the change,” id. § 1395hh(e)(1)(A), unless the
Secretary makes one of two determinations: that “such retroactive application is necessary to
comply with statutory requirements,” id. § 1395hh(e)(1)(A)(i); or that “failure to apply the change
retroactively would be contrary to the public interest,” id. § 1395hh(e)(1)(A)(ii).
Finally, the Medicare statute prohibits any “action . . . taken against a provider of services
or supplier with respect to noncompliance with such a substantive change for items and services
furnished before the effective date of such a change.” Id. § 1395hh(e)(1)(C).
C. Rulemaking Concerning, and Litigation Over, the DSH Adjustment
“Before 2004, HHS had not treated Part C enrollees as ‘entitled to benefits under Part A.’”
Allina Health Servs. v. Price, 863 F.3d 937, 939 (D.C. Cir. 2017) (quoting Ne. Hosp. Corp., 657
F.3d at 15), aff’d sub nom., Azar v. Allina Health Servs., 587 U.S. 566 (2019) (“Allina II”). While
HHS’s regulation addressing DSH adjustments “did not specify where [Medicare Advantage]
enrollees should be counted,” the Secretary had a “practice” of “excluding [Part C] days from the
Medicare fraction.” Ne. Hosp. Corp., 657 F.3d at 14, 16-17.
“In 2003, the agency proposed codifying that practice in a formal rule.” Allina Health Sys.
v. Becerra, No. 23-CV-2144, 2024 WL 4332061, at *3 (D.D.C. Sep. 27, 2024) (“Allina IV”); see
Medicare Program; Proposed Changes to the Hospital Inpatient Prospective Payment Systems and
Fiscal Year 2004 Rates, 68 Fed. Reg. 27208 (May 19, 2003). “After the notice-and-comment
period, HHS reversed course and issued a final rule . . . announcing that it would treat Part C
enrollees as ‘entitled to benefits under Part A.’” Allina IV, 2024 WL 4332061, at *3 (quoting
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Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal
Year 2005 Rates, 69 Fed. Reg. 48916, 49099 (Aug. 11, 2004) (“2004 Rule”)). The 2004 Rule was
intended to become effective on October 1, 2004. 2004 Rule, 69 Fed. Reg. at 49099.
1. Northeast Hospital Corp. v. Sebelius: Challenge to Retroactive Application of the
2004 Rule
In Northeast Hospital Corp., the D.C. Circuit reviewed the Secretary’s 2004 interpretation
of the DSH provision under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467
U.S. 837 (1984), overruled by Loper Bright Enters. v. Raimondo, 603 U.S. 369 (2024), and the
Secretary’s application of the 2004 Rule to a hospital’s reimbursements for Fiscal Years 1999
through 2002. 657 F.3d at 2, 4-17. At Chevron step one, the Circuit held that the Medicare statute
did not “unambiguously foreclose[] the Secretary’s interpretation,” id. at 5; instead, Congress had
“left a statutory gap” for the Secretary to fill, id. at 13. The Circuit then sidestepped Chevron step
two. Rather than decide whether the Secretary’s interpretation was “reasonable,” the Circuit
concluded that the Secretary could not apply it retroactively because doing so would “contradict[]
her former practice.” Id. at 13, 16-17. In so holding, the Circuit curiously did not consider whether
the Secretary’s retroactive application was consistent with the Medicare statute’s provision
allowing for retroactive substantive changes to “regulations, manual instructions, interpretative
rules, statements of policy, or guidelines of general applicability” in certain circumstances.
42 U.S.C. § 1395hh(e)(1)(A); see Ne. Hosp. Corp., 657 F.3d at 17 (“We are aware of no statute
that authorizes the Secretary to promulgate retroactive rules for DSH calculations.”).
2. Allina I: Challenge to Prospective Application of the 2004 Rule
In 2010, various hospitals challenged the validity of the 2004 Rule and claimed that it had
resulted in improperly low DSH adjustments for Fiscal Year 2007. Allina Health Servs. v.
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Sebelius, 746 F.3d 1102, 1105, 1107 (D.C. Cir. 2014) (“Allina I”). The district court vacated the
rule, and the D.C. Circuit affirmed, concluding that the 2004 Rule was not a “logical outgrowth”
of the proposed rule—which had contemplated excluding patient days associated with Part C
beneficiaries from the Medicare fraction and including them in the numerator of the Medicaid
fraction—and thus violated the Medicare statute’s notice-and-comment requirements. Id.
at 1109-10.
3. Allina II: Challenge to FY 2012 Medicare Fraction
In 2013, in response to Allina I, HHS issued a new rule prospectively adopting the policy
of treating Part C enrollees as “entitled to benefits under Part A.” See Medicare Program; Hospital
Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care
Hospital Payment System and Fiscal Year 2014 Rates, 78 Fed. Reg. 50496, 50614 (Aug. 19, 2013)
(“2013 Rule”).1 In 2014, CMS posted the Medicare fractions for Fiscal Year 2012 on its website
and noted that the calculations included Part C patients. Allina II, 587 U.S. at 571. Some of the
Allina I plaintiffs challenged the practice because the 2004 Rule had been vacated and the
2013 Rule was intended to only be prospective. See id. at 571-72. Ultimately, the Supreme Court
1
In 2021, a court in this district upheld the 2013 Rule under the APA. Fla. Health Scis. Ctr., Inc. v. Becerra, No. 19-CV-3487, 2021 WL 2823104 (D.D.C. July 7, 2021), appeal filed, No. 21-5192 (D.C. Cir. Sep. 9, 2021); Am. Compl., Fla. Health Scis. Ctr., Inc., No. 19-CV-3487 (D.D.C. Dec. 7, 2020), ECF No. 52 (Plaintiffs’ amended complaint removing Florida Health Sciences Center as a plaintiff, leaving Allina Health System as the named plaintiff). From December 2021 through June 2025, the appeal was held in abeyance, first pending the Supreme Court’s decision in Empire Health, 597 U.S. 424, see Order, Allina Health Sys. v. Becerra, No. 21-5192 (D.C. Cir. Dec. 8, 2021), and then pending the Supreme Court’s decision in Advocate Christ Medical Center v. Kennedy, 605 U.S. 1 (2025), see Order, Allina, No. 21-5192 (D.C. Cir. Jan. 6, 2023); Order, Allina, No. 21-5192 (D.C. Cir. Aug. 2, 2024). In July 2025, the D.C. Circuit issued an order continuing to hold the appeal in abeyance pending this court’s disposition of the cross-motions for summary judgment here. Order, Allina Health Sys. v. Kennedy, No. 21-5192 (D.C. Cir. July 28, 2025).
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held that the published fractions amounted to a “statement of policy” that was subject to the
Medicare statute’s notice-and-comment requirements and that HHS had not identified a lawful
excuse for neglecting its notice-and-comment obligations. Id. at 572-73, 583-84. Consequently,
HHS could not rely on the published fractions.
4. Allina III: Challenge to 2015 Agency Adjudication
In late 2014, while Allina II was pending, HHS notified hospitals that the CMS
Administrator would issue an interpretation of the statutory phrase “entitled to benefits under
Part A” as it related to the DSH adjustment used to calculate payments for Fiscal Year 2007. See
Pls.’ Opp’n to Def.’s Mot. to Dismiss, Ex. B, Allina Health Sys. v. Burwell, No. 16-CV-150
(D.D.C. May 4, 2016) (“Allina III”), ECF No. 12-2. After receiving comments, HHS issued a final
administrative decision concluding that Part C enrollees must be included in the Medicare fraction.
Allina Health Servs. v. Burwell, No. 2010-D38-R, at 24-45 (Ctrs. for Medicare & Medicaid Servs.
Dec. 1, 2015).2 The Allina I plaintiffs then filed Allina III to challenge HHS’s decision to adopt
this interpretation through agency adjudication rather than rulemaking. Compl. ¶¶ 1, 38, Allina III,
No. 16-CV-150 (D.D.C. Jan. 29, 2016), ECF No. 1. After the district court denied HHS’s motion
to dismiss, the parties agreed to stay the case until Allina II was resolved. Mem. Op., Allina III,
No. 16-CV-150 (D.D.C. Aug. 4, 2017), ECF No. 16; Aug. 17, 2017 Minute Order, Allina III,
No. 16-CV-150. Following the Supreme Court’s decision in Allina II, the district court remanded
Allina III to HHS. Order, Allina III, No. 16-CV-150 (D.D.C. Oct. 25, 2019), ECF No. 34.
2
Available at https://perma.cc/F7NL-JNDV.
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5. Allina IV: Premature Challenge to the 2023 Rule
After the remand in Allina III, HHS issued a notice of proposed rulemaking that would
treat Part C enrollees as “entitled to benefits under [P]art A” in the Medicare fraction for the years
before Fiscal Year 2014. See Medicare Program; Treatment of Medicare Part C Days in the
Calculation of a Hospital’s Medicare Disproportionate Patient Percentage, 85 Fed. Reg. 47723,
47725 (Aug. 6, 2020) (to be codified at 42 C.F.R. pt. 412) (“2023 Proposed Rule”). After the
notice-and-comment period, HHS published the final rule in June 2023, with an effective date of
August 8, 2023, adopting the proposed rule’s interpretation that Part C beneficiaries are “entitled
to benefits under Part A” for pre-2014 DSH adjustments. 2023 Rule, 88 Fed. Reg. at 37772-73.
In July 2023—the month before the 2023 Rule went into effect—a group of hospitals,
including Montefiore, challenged the validity of the 2023 Rule. Compl. ¶¶ 9, 63, 67-96, Allina IV,
No. 23-CV-2144 (D.D.C. July 24, 2023), ECF No. 1. This court dismissed the complaint for lack
of subject-matter jurisdiction because the plaintiffs had not exhausted their administrative
remedies. Allina IV, 2024 WL 4332061, at *5-8. In the court’s view, the hospitals needed to
receive revised NPRs calculated in accordance with the 2023 Rule and challenge them through the
PRRB before bringing suit. Id. at *6-8.
II. PROCEDURAL HISTORY
In April 2024, a MAC issued Montefiore a revised NPR for Fiscal Year 2006 in which it
applied the 2023 Rule to include those receiving Part C benefits in the Medicare fraction and
exclude them from the numerator of the Medicaid fraction. ECF No. 1 ¶ 66-67. Montefiore
appealed the revised NPR to the PRRB, id. ¶ 67, and then filed suit in June 2024, see id.
Montefiore claimed that application of the 2023 Rule reduced the payment it was entitled
to receive for Fiscal Year 2006 by nearly $11 million. Id. ¶ 66. The hospital asked the court to
9
declare the 2023 Rule invalid and set the rule aside. Id. ¶ 101. It also asked the court to direct the
Secretary to recalculate its payment for Fiscal Year 2006 based on the pre-2004 policy of excluding
Part C days from the Medicare fraction and to pay interest on the additional reimbursement. Id.
The parties filed and briefed cross-motions for summary judgment, ECF Nos. 19, 21, 22, 24, 25,
28. Montefiore and other hospitals also have filed related actions challenging the 2023 Rule as
applied to other revised NPRs, and the court has stayed each case pending disposition of
Montefiore’s first-filed challenge here. See ECF No. 31, at 11-12.
In September 2025, the court granted Montefiore’s motion for summary judgment and
denied the Secretary’s cross-motion for summary judgment. ECF Nos. 31, 32. It first agreed with
the Secretary that the phrase “entitled to [Part A] benefits” in 42 U.S.C. § 1395ww(d)(5)(F)(vi) is
best read to cover individuals who are eligible for Part A benefits but opt to receive Part C benefits
instead. ECF No. 31, at 13-25. The court also understood the Secretary’s interpretation to
“follow[] from the Supreme Court’s interpretation of the Medicare statute” in Empire Health
“regardless of whether Empire Health is mandatory or persuasive authority.” Id. at 17.
Notwithstanding the court’s conclusion that the Secretary had correctly interpreted the DSH
provisions, the court held that the 2023 Rule violated the APA because it was an unlawful
retroactive application of a substantive change in HHS’s regulations. Id. at 26-40. The court
further determined that the 2023 Rule was arbitrary and capricious because the Secretary had failed
to adequately consider commenters’ arguments about the financial impact of the retroactive policy.
Id. at 41-49. As for any remedy, the court observed that the parties had not briefed whether
vacatur—which the D.C. Circuit has said is the ordinary remedy for agency action that violates
Section 706(2)(A)—or remand without vacatur was warranted. Id. at 50. The court thus directed
the parties to file supplemental briefing addressing the appropriate remedy. Id. at 51; ECF No. 32.
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The parties have filed supplemental briefs, ECF Nos. 34, 36, 37, and the remedial issue is ripe for
review.
III. LEGAL STANDARD
Ordinarily, “‘unsupported agency action . . . warrants vacatur, [but a] court is not without
discretion’ to leave agency action in place while the decision is remanded for further explanation.”
Standing Rock Sioux Tribe v. U.S. Army Corps of Eng’rs, 985 F.3d 1032, 1051 (D.C. Cir. 2021)
(second alteration in original) (quoting Advocs. for Highway & Auto Safety v. Fed. Motor Carrier
Safety Admin., 429 F.3d 1136, 1151 (D.C. Cir. 2005)). The D.C. Circuit follows a two-prong test
“governing that exercise of discretion: ‘The decision whether to vacate depends on the seriousness
of the order’s deficiencies (and thus the extent of doubt whether the agency chose correctly) and
the disruptive consequences of an interim change that may itself be changed.’” Id. (quoting
Allied-Signal, Inc. v. U.S. Nuclear Regul. Comm’n, 988 F.2d 146, 150-51 (D.C. Cir. 1993)).
IV. DISCUSSION
When the court called for supplemental briefing on the appropriate remedy, it anticipated
that the parties would dispute whether remand with or without vacatur is appropriate under the two
Allied-Signal factors. ECF No. 31, at 51. Montefiore largely did as the court expected, arguing
that vacatur was warranted because of “fundamental flaws” in the rule, ECF No. 34, at 1; see id.
at 2-6, and because vacatur would not cause “disruptive consequences,” id. at 6 (quoting
Allied-Signal, 988 F.2d at 150); see id. at 6-7. But the hospital went a step further, arguing that
the court should also remand with specific instructions to “direct recalculation of [its] DSH
payment, with interest, using the pre-2004 policy” of excluding Medicare Part C days in the
Medicare fraction. ECF No. 34, at 1; see ECF No. 1 ¶ 101 (Montefiore’s complaint seeking the
11
same relief); ECF No. 36, at 3 (the Secretary’s acknowledgement that, before 2004, HHS’s
“practice . . . was to exclude Part C days from . . . the Medicare fraction when calculating the DSH
adjustment” (alterations in original) (quoting 2023 Rule, 88 Fed. Reg. at 37783)). For his part, the
Secretary ignores the Allied-Signal inquiry altogether. See generally ECF No. 36. He instead
argues that vacatur is an unlawful remedy under the APA and asks the court to remand the matter
to HHS with only a “party-specific declaration that the challenged rule is unlawful.” Id. at 11.
The Secretary also opposes Montefiore’s request for a remedial order directing HHS to recalculate
the hospital’s DSH payment for Fiscal Year 2006 in accordance with the pre-2004 policy. Id.
at 2-8.
The court concludes that binding precedent forecloses the Secretary’s frontline position on
the permissibility of vacating agency action under the APA and, without any argument from the
Secretary about the Allied-Signal factors, it concludes vacatur of the 2023 Rule is warranted.
However, the court agrees with the Secretary that the remand order should not direct HHS to make
any specific payment to Montefiore for Fiscal Year 2006.
A. Universal Vacatur Under the APA
The Secretary maintains that the APA “does not authorize vacatur or a departure from
traditional principles of equity, which limit courts to party-specific relief tailored to the legal
violation.” Id. at 8. He “acknowledge[s]” that the D.C. Circuit has rejected his position, but
“respectfully note[s] that that holding is mistaken.” Id. Montefiore correctly asserts that this court
must follow the law of the D.C. Circuit, which unequivocally provides that vacatur is the standard
remedy when a court sets aside an agency rule unless the Allied-Signal inquiry counsels otherwise.
ECF No. 37, at 1-2. Because the Secretary does not argue that remand without vacatur is warranted
12
under Allied-Signal, ECF No. 36, at 11, the court vacates the 2023 Rule and remands this case to
HHS for further proceedings consistent with the summary-judgment opinion.
The APA directs a reviewing court to “hold unlawful and set aside agency action . . . found
to be” “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”
5 U.S.C. § 706(2)(A). In the D.C. Circuit’s view, to “‘set aside’ a rule is to vacate it.” Bridgeport
Hosp. v. Becerra, 108 F.4th 882, 890 (D.C. Cir. 2024) (quoting Corner Post, Inc. v. Bd. of
Governors of Fed. Rsrv. Sys., 603 U.S. 799, 830 (2024) (Kavanaugh, J., concurring)).
Accordingly, for more than fifty years, the D.C. Circuit has vacated agency actions, or affirmed
the vacatur of agency actions, that fail to comply with Section 706(2)(A)’s demand for reasoned
and lawful decisionmaking. See, e.g., Nat’l Tire Dealers & Retreaders Ass’n, Inc. v. Brinegar,
491 F.2d 31, 37, 41 (D.C. Cir. 1974); Tabor v. Joint Bd. for Enrollment of Actuaries, 566 F.2d
705, 709-12 (D.C. Cir. 1977); Indep. U.S. Tanker Owners Comm. v. Dole, 809 F.2d 847, 854-55
(D.C. Cir. 1987); Advocs. for Highway & Auto Safety v. Fed. Highway Admin., 28 F.3d 1288, 1294
(D.C. Cir. 1994); Comcast Corp. v. Fed. Commc’ns Comm’n, 579 F.3d 1, 8-10 (D.C. Cir. 2009);
Ctr. for Biological Diversity v. Env’t Prot. Agency, 722 F.3d 401, 408-12 (D.C. Cir. 2013); Cboe
Futures Exch., LLC v. Sec. & Exch. Comm’n, 77 F.4th 971, 981-82 (D.C. Cir. 2023).
The Supreme Court has similarly held that an unlawful agency action must be vacated.
Dep’t of Homeland Sec. v. Regents of the Univ. of Cal., 591 U.S. 1, 9 (2020) (“[W]e conclude that
the Acting Secretary did violate the APA, and that the [policy] must be vacated.”). If binding
D.C. Circuit precedent and the Supreme Court’s vacatur of agency action were not enough, the
court further observes that a majority of the current Justices appear to have endorsed the
D.C. Circuit’s view. See Corner Post, 603 U.S. at 829-43 (Kavanaugh, J., concurring) (explaining
why the APA’s directive that courts “set aside” unlawful agency action authorizes vacatur); Nat’l
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Insts. of Health v. Am. Pub. Health Ass’n, 145 S. Ct. 2658, 2662-63 (2025) (Roberts, C.J.,
concurring in part and dissenting in part) (joined by Sotomayor, Kagan, and Jackson, JJ., and
explaining that “the District Court’s vacatur of the challenged directives” under Section 706(2)(A)
“falls well within the scope of the District Court’s jurisdiction under the [APA]”). But see United
States v. Texas, 599 U.S. 670, 693-704 (2023) (Gorsuch, J., concurring) (joined by Thomas and
Barrett, JJ., and explaining why the APA does not allow a court to vacate an agency action).
Vacatur is not simply a permissible remedy, it is the “normal” one “[w]hen an agency’s
action is unlawful.” Ctr. for Biological Diversity v. Zeldin, 171 F.4th 356, 382 (D.C. Cir. 2026)
(quoting Allina I, 746 F.3d at 1110). A court may “remand without vacating the agency’s action”
only in the “limited” and “exceptional” circumstance when the Allied-Signal factors favor that
remedy—the very argument that the Secretary has affirmatively declined to advance here. Id.
(emphasis added) (quoting Am. Great Lakes Ports Ass’n v. Shultz, 962 F.3d 510, 518-19 (D.C. Cir.
2020)); see ECF No. 34, at 11. This court has no authority to depart from D.C. Circuit precedent
and hold that the APA prohibits vacatur. United States v. Torres, 115 F.3d 1033, 1036 (D.C. Cir.
1997) (“[D]istrict judges, like panels of [the D.C. Circuit], are obligated to follow controlling
circuit precedent until either [the Circuit], sitting en banc, or the Supreme Court, overrule[s] it.”);
see Slaughter v. Trump, 791 F. Supp. 3d 1, 14-17 (D.D.C. 2025) (explaining that “it would be an
act of judicial hubris” for this court to “prematurely” overrule binding precedent), rev’d, 146 S.
Ct. 2283 (2026).
The Secretary advances the related argument that “even if vacatur were a permissible
remedy under the APA,” “ordinary equitable principles” require the court to grant Montefiore
“party-specific” relief. ECF No. 36, at 10-11. Specifically, he maintains that “[r]emedies
‘ordinarily operate with respect to specific parties,’ rather than ‘on legal rules in the abstract.’” Id.
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at 10 (quoting California v. Texas, 593 U.S. 659, 672 (2021)). The Secretary also points to the
Supreme Court’s recent decision in Trump v. CASA, Inc., 606 U.S. 831 (2025), in which the Court
held that so-called “‘universal injunctions’”—when a “district court[] assert[s] the power to
prohibit enforcement of a law or policy against anyone”—“likely exceed the equitable authority
that Congress has granted to federal courts,” id. at 837; see ECF No. 36, at 10-11.
D.C. Circuit precedent also forecloses the Secretary’s alternative position.3 In National
Mining Association v. U.S. Army Corps of Engineers, 145 F.3d 1399 (D.C. Cir. 1998), the Circuit
considered a challenge to an agency rule addressing permits for dredging on wetlands. The district
court had granted summary judgment to the plaintiffs, declared the rule invalid, and set it aside.
Am. Mining Cong. v. U.S. Army Corps of Eng’rs, 951 F. Supp. 267, 278 (D.D.C. 1997). On appeal,
the D.C. Circuit affirmed, holding that the rule exceeded the agency’s statutory mandate. Nat’l
Mining Ass’n, 145 F.3d at 1403-08. It also rejected the U.S. Army Corps of Engineers and
Environmental Protection Agency’s challenge that the “district court erred by granting nationwide
relief to plaintiffs and non-parties alike.” Id. at 1408. In doing so, the D.C. Circuit explained that
“[w]hen a reviewing court determines that agency regulations are unlawful, the ordinary result is
that the rules are vacated—not that their application to the individual petitioners is proscribed.”
Id. at 1409 (alteration in original) (quoting Harmon v. Thornburgh, 878 F.2d 484, 495 n.21
3
Although the Secretary asserts that party-specific relief is required “even if vacatur were a permissible remedy,” ECF No. 36, at 10, his understanding of what “party-specific” means is incompatible with the effect that setting aside an unlawful agency action has. “[T]he scope of relief under the APA is not party-restricted.” Cabrera v. U.S. Dep’t of Lab., 792 F. Supp. 3d 91, 105 (D.D.C. 2025), appeal dismissed per stipulation, No. 25-5340, 2025 WL 3635881 (D.C. Cir. Dec. 15, 2025). Section 706 specifies what the court is “authorized to do with respect to agency actions, not parties.” Id. at 106. In any event, the Secretary has “failed to identify any plausible manner in which the Court could set the [2023 Rule] aside as to [Montefiore], while leaving it in place as to all others.” Refugee & Immigrant Ctr. for Educ. & Legal Servs. v. Noem, 793 F. Supp. 3d 19, 105 (D.D.C. 2025), aff’d, 174 F.4th 81 (D.C. Cir. 2026).
15
(D.C. Cir. 1989)).4 Binding precedent therefore contemplates that vacating unlawful agency
action affects nonparties.
Nothing in the Supreme Court’s CASA decision casts doubt on the D.C. Circuit’s practice
of vacating an unlawful rule under the APA unless, under Allied-Signal, remand without vacatur
is appropriate. See Make the Road N.Y. v. Noem, No. 25-5320, 2025 WL 3563313 (D.C. Cir.
Nov. 22, 2025) (statement of Millet and Childs, JJ.) (explaining in a nonprecedential per curiam
order that the D.C. Circuit’s language in Harmon concerning the effect of vacatur on nonparties
remains “binding precedent” post-CASA).5 In CASA, the Court expressly noted that its holding
about universal injunctions did not “resolve[] the distinct question whether the [APA] authorizes
federal courts to vacate federal agency action.” 606 U.S. at 847. And, following CASA, the
4
As the D.C. Circuit recognized, its position on the effect that APA set-aside relief may have on nonparties was consistent with both the majority and dissenting views in Lujan v. National Wildlife Federation, 497 U.S. 871 (1990). There, the Supreme Court considered a challenge to the Bureau of Land Management’s “land withdrawal review program” and held that two individuals’ affidavits were insufficient to satisfy the requirement that an individual must be “adversely affected or aggrieved by agency action” to bring an APA claim. 497 U.S. at 882 (quoting 5 U.S.C. § 702). The Court further held that four additional affidavits from the plaintiff organization’s members would not enable the organization to “challenge the entirety of [the] so-called ‘land withdrawal review program.’” Id. at 890. That program was “not an identifiable ‘final agency action’ for purposes of the APA” because it referred to more than a thousand agency determinations of individual “withdrawal revocation applications.” Id. at 890 & n.2. But, as the majority conceded, any “specific order or regulation . . . [could] of course be challenged under the APA by a person adversely affected—and the entire ‘land withdrawal review program,’ insofar as the content of that particular action is concerned, would thereby be affected.” Id. at 890 n.2. The Court’s dissenting justices agreed with the majority on this point, explaining that “a single plaintiff, so long as he is injured by the rule, may obtain ‘programmatic’ relief [under the APA] that affects the rights of parties not before the court.” Id. at 913 (Blackmun, J., dissenting). 5
In Make the Road New York, the D.C. Circuit further noted that “[w]hen the government first previewed its theory of plaintiff-specific relief under the APA at oral argument in United States v. Texas, 599 U.S. 670 (2023), Chief Justice Roberts exclaimed ‘Wow’ before noting that the government’s position would undermine ‘what the D.C. Circuit and other courts of appeals have been doing all the time as a staple of their decision output[,]’ which decisions the Supreme Court has upheld ‘over and over and over again.’” 2025 WL 3563313, at *36 (quoting Tr. of Oral Arg. at 36, 38, Texas, 599 U.S. 670 (No. 22-58)).
16
D.C. Circuit subsequently affirmed an order vacating an agency’s guidance. Refugee & Immigrant
Ctr. for Educ. & Legal Servs. v. Noem, 174 F.4th 81, 117-20 (D.C. Cir. 2026).
The courts in this district that have considered the issue have also unanimously determined
that CASA “does not extend to APA relief aimed at agency action.” Coal. for Indep. Tech. Rsch.
v. Rubio, No. 26-CV-815, 2026 WL 2030770, at *25 (D.D.C. July 14, 2026); see Robert F.
Kennedy Ctr. for Just. & Hum. Rts. v. McMahon, No. 25-CV-3860, 2026 WL 1893511, at *9 &
n.4 (D.D.C. June 30, 2026) (rejecting the government’s argument that CASA limits APA relief and
vacating an agency’s rule); Am. Ass’n of Nurse Practitioners v. McMahon, No. 26-1780, 2026 WL
1826176, at *21-22 (D.D.C. June 24, 2026) (preliminarily setting aside an agency’s rule under
Section 705 after concluding that CASA did not affect the court’s remedial analysis);6 Or. Env’t
Council v. Internal Revenue Serv., No. 25-CV-4400, 2026 WL 1631612, at *26-28
(D.D.C. June 6, 2026) (vacating an agency notice under Section 706(2)(A) because “binding
precedent in this Circuit recognizes that universal vacatur of unlawful agency actions is an
available remedy under the APA”); Abramowitz v. Lake, 824 F. Supp. 3d 1, 26-37 (D.D.C. 2026)
(noting that CASA does not “affect the availability of vacatur” under the APA and vacating agency
action), appeal docketed, No. 26-5087 (D.C. Cir. Mar. 20, 2026); Albany Med Health Sys. v.
Health Res. & Servs. Admin., No. 23-CV-3252, 2026 WL 592593, at *10 (D.D.C. Mar. 3, 2026)
(vacating an agency notice because “Circuit precedent is clear that ‘vacatur is the normal remedy’
for an APA violation, and the Supreme Court’s recent decision in Trump v. CASA did nothing to
6
Section 705 permits a court to “issue all necessary and appropriate process to postpone the effective date of an agency action or to preserve status or rights pending conclusion of the review proceedings.” 5 U.S.C. § 705. To evaluate CASA’s effect on precedent concerning APA vacatur, the court has considered cases in which courts have “preliminarily ‘set aside’” or stayed a new agency action under Section 705, CASA, 606 U.S. at 869 (Kavanaugh J., concurring) (quoting 5 U.S.C. § 706(2)), or set aside such action when entering final judgment under Section 706.
17
disturb it” (quoting Allina I, 746 F.3d at 1110)), appeal docketed, No. 26-5147 (D.C. Cir. Apr. 30,
2026); Am. Ass’n of Physics Tchrs., Inc. v. Nat’l Sci. Found., 804 F. Supp. 3d 45, 69-70
(D.D.C. 2025) (concluding that, in the wake of CASA, the court still “has the authority” to set aside
agency action under the APA); Cabrera v. U.S. Dep’t of Lab., 792 F. Supp. 3d 91, 105-07
(D.D.C. 2025) (rejecting an agency’s remedial argument based on “traditional equitable
principles” and preliminarily staying the challenged action under Section 705); Drs. for Am. v. Off.
of Pers. Mgmt., 793 F. Supp. 3d 112, 148 n.17 (D.D.C. 2025) (explaining that because the case
“involv[ed] APA vacatur, not a universal or national injunction, the Supreme Court’s recent
decision in [CASA] d[id] not apply”); Refugee & Immigrant Ctr. for Educ. & Legal Servs. v. Noem,
793 F. Supp. 3d 19, 103 (D.D.C. 2025) (holding that D.C. Circuit precedent remained binding
following CASA), aff’d, 174 F.4th 81 (D.C. Cir. 2026).
In sum, this court cannot endorse the Secretary’s view and refuse to vacate the 2023 Rule
on the theory that the APA and equitable principles prohibit vacatur. Contrary to the Secretary’s
assertion, D.C. Circuit precedent and persuasive decisions from courts in this district have
“meaningfully grapple[d]” with the APA’s command that a reviewing court “‘hold unlawful and
set aside agency action.’” ECF No. 36, at 9 (quoting 5 U.S.C. § 706(2)(A)). Accordingly, the
court will vacate the 2023 Rule.
B. Instructions on Remand
The parties also disagree whether the court, in its remand order, should instruct the
Secretary to “recalculate [Montefiore’s] DSH payment by applying the pre-2004 policy” of
excluding Part C days in the DSH fractions and to “pay[] litigation interest” under 42 U.S.C.
§ 1395oo(f)(2). ECF No. 34, at 7. Montefiore asserts that detailed instructions are warranted for
two reasons: first, the Secretary has “no viable path” under the Medicare statute to include Part C
18
days in the Medicare fraction and exclude those days from the numerator of the Medicaid fraction
for Fiscal Year 2006, id. at 7-9; second, “vacatur alone” is insufficient because the Secretary has
repeatedly “refuse[d] to apply the reinstated pre-2004 policy despite . . . decades of losses” in
litigation over this issue, id. at 9-11. In response, the Secretary maintains that, after remand, he
may still adopt the statutory interpretation set forth in the 2023 Rule without violating the APA.
ECF No. 36, at 5-7. He also disputes Montefiore’s characterization of earlier HHS efforts to
change its Part C policy in response to litigation. Id. at 7-8. The court agrees with the Secretary
on both fronts. Specific directives would be inappropriate because the Secretary may consider
other ways to adopt an interpretation that requires MACs to include Part C days in the Medicare
fraction and exclude them from the numerator of the Medicaid fraction. And the Secretary’s
responses to DSH-related litigation over two decades do not evidence any “disregard” for “prior
judicial rulings.” ECF No. 37, at 5.
1. The Secretary’s available options
Montefiore contends that the 2023 Rule “was the last arrow left in the agency’s quiver,”
which warrants specific instructions on remand. ECF No. 34, at 9; see ECF No. 37, at 2-7. Central
to the parties’ dispute over the Secretary’s options on remand is a disagreement over the scope of
the court’s retroactivity holding in the summary-judgment opinion. The Secretary believes that he
can adopt the 2023 Rule’s interpretation in one of two ways: first, by avoiding rulemaking
altogether, because the court “did not address” whether “rulemaking is necessary” if the Secretary
thinks that his interpretation of the DSH provision is unambiguously correct and there is no
“Chevron-style” gap to fill, ECF No. 36, at 5-6; and second, by relying exclusively on Empire
Health, because the court “did not resolve” whether the Secretary can adopt the same interpretation
from the 2023 Rule solely on the theory that Empire Health is binding precedent, id. at 6.
19
Montefiore insists that both paths are foreclosed by this court’s retroactivity holding. As for
avoiding rulemaking, Montefiore asserts that “this very option ‘was before th[is] Court’” on
summary judgment and “the Court rejected it,” ECF No. 37, at 2 (alteration in original) (quoting
Allina I, 746 F.3d at 1111),7 by explaining that “even if notice and comment were not necessary,
the Medicare statute’s retroactivity provision would still apply,” id. at 3 (quoting ECF No. 31,
at 30). As for the Empire Health argument, Montefiore points to the court’s conclusion that the
Medicare statute’s retroactivity provision applies even when the Secretary is adopting an
interpretation that comports with the statute’s “single, best meaning.” Loper Bright, 603 U.S.
at 400; see ECF No. 37, at 3-5; see also ECF No. 31, at 29-31. Montefiore takes that conclusion
to mean that the Secretary is foreclosed from arguing on remand that retroactive application of the
Empire Health Court’s interpretation of the phase “entitled to [Medicare Part A] benefits,” 597
7
Montefiore misquotes Allina I. There, the D.C. Circuit explained that the district court erred by “order[ing] the Secretary to recalculate the hospitals’ reimbursements” using the pre-2004 policy because the “question whether the Secretary could reach the same result through adjudication was not before the district court.” Allina I, 746 F.3d at 1111 (emphasis added). Selectively omitting the “not” from Allina I implies that the Circuit reached the opposite conclusion than it did. The D.C. Circuit did not address whether changing HHS’s Part C policy through adjudication complied with the Section 1395hh(a)(2) notice-and-comment requirement until the Allina II litigation. There, the D.C. Circuit held that “HHS could not circumvent [notice and comment] by claiming that it was acting by way of adjudication rather than rulemaking.” Allina Health Servs., 863 F.3d at 945. The Secretary has not advanced the argument here, see generally ECF No. 36, but the Circuit neither addressed nor resolved whether adjudication would be permissible when the statute itself sets the relevant “substantive legal standard,” 42 U.S.C. § 1395hh(a)(2), which is a corollary of the question the Supreme Court reserved in Allina II—whether notice and comment is required when a statute contains no gaps for the Secretary to fill, 587 U.S. at 583-84 (leaving open the possibility that the government could argue that it had not established or changed a substantive legal standard under Section 1395hh(a)(2) “because the statute itself required it to count Part C patients in the Medicare fraction”). This court observes only that even if adjudication is permissible, the Medicare statute’s retroactivity provision has force whenever a “substantive change in regulations, manual instructions, interpretative rules, statements of policy, or guidelines of general applicability” is “applied.” 42 U.S.C. § 1395hh(e)(1)(A) (emphasis added).
20
U.S. at 432 (alteration in original) (quoting 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I)-(II)), is
“necessary to comply with the statutory requirements,” 42 U.S.C. § 1395hh(e)(1)(A).
The Secretary has the better arguments. To begin, Montefiore’s logic collapses an
important distinction in the court’s retroactivity analysis. In his summary-judgment briefing, the
Secretary argued that, in light of Allina II, notice-and-comment procedures are unnecessary when
he is not engaged in gap-filling, see ECF No. 31, at 29-31, and that Loper Bright made “‘such
questions’ about retroactivity ‘no longer particularly relevant,’” see id. at 27-29 (quoting ECF
No. 22, at 20). The bottom line of both arguments was that the 2023 Rule “cannot be retroactive
if the statute requires including Part C days in the Medicare fraction and excluding them in the
numerator of the Medicaid fraction.” Id. at 26 (emphasis added). Montefiore correctly notes that
the court considered and rejected both claims, ECF No. 37, at 2-5; see ECF No. 31, at 26-31, but
it overstates the import of the court’s conclusion. The court held only that neither Allina II nor
Loper Bright supplants the Medicare statute’s retroactivity provision; that is, even when the
Secretary settles on an interpretation without relying on his discretion to fill a statutory gap—and
a court subsequently agrees that his interpretation is the provision’s “single, best meaning,” Loper
Bright, 603 U.S. at 400—he still must satisfy Section 1395hh(e)(1)(A), see ECF No. 31, at 26-31.
That provision allows the Secretary to retroactively apply a substantive change in “regulations,
manual instructions, interpretative rules, statements of policy, or guidelines of general
applicability” if doing so is “necessary to comply with the statutory requirements” or if the failure
to do so is “contrary to the public interest.” 42 U.S.C. § 1395hh(e)(1)(A)(i), (ii). Once the court
held that the retroactivity provision was triggered, it considered whether the 2023 Rule could be
sustained under either subsection. ECF No. 31, at 31-40. In short, by focusing on the court’s
resolution of the threshold question (whether the 2023 Rule is retroactive), Montefiore misses the
21
second-order one (whether the 2023 Rule is impermissibly retroactive). Just because the court
concluded that the Medicare statute’s retroactivity provision applies when a statute requires a
change in the Secretary’s interpretation does not mean that “rulemaking and adjudication to apply
the new statutory interpretation retroactively are off the table.” ECF No. 37, at 9. Following
remand, the Secretary may consider any new action that complies with Section 1395hh(e)(1)(A).
The Secretary thus correctly understands the court’s retroactivity holding, meaning that the
two paths forward he has identified may be viable.8 This case presented two narrow retroactivity
questions on summary judgment: first, whether the “substantive change” in HHS’ “regulations”
set in motion by the 2023 Rule was retroactive at all, 42 U.S.C. § 1395hh(e)(1)(A); see ECF
No. 31, at 26-31; 88 Fed. Reg. at 37785 (conceding that the 2023 Rule “effects a ‘substantive
change’ to the DSH regulations”); and second, to the extent the 2023 Rule was retroactive, whether
that retroactivity violated Section 1395hh(e)(1)(A), see ECF No. 31, at 31-40. The court answered
both questions in the affirmative. ECF No. 31, at 26-40. But Montefiore challenged only the
2023 Rule, ECF No. 1 ¶¶ 72-100, which the Secretary issued after notice and comment, 2023 Rule,
88 Fed. Reg. at 37772 (explaining HHS’s “proposed rule” and the “approximately 110 timely
pieces of correspondence containing multiple comments” that the agency received). The
Secretary’s authority to adopt the 2023 Rule’s interpretation of the phrase “entitled to benefits
under Part A” without notice-and-comment rulemaking was therefore not at issue. See ECF
No. 31, at 30 (explaining that “Allina II expressly leaves open the question whether notice and
8
The court underscores that it takes no position on the lawfulness of any hypothetical “appli[cation]” of a “substantive change in regulations, manual instructions, interpretative rules, statements of policy, or guidelines of general applicability.” 42 U.S.C. § 1395hh(e)(1)(A). Instead, the court simply determines that neither of the Secretary’s proposed approaches defies the court’s conclusions in the summary-judgment opinion.
22
comment is required” if “the Medicare statute is best read to require the Secretary to include Part C
patients in the Medicare fraction”); cf. Margolin v. Nat’l Ass’n of Immigr. Judges, 146 S. Ct. 1285,
1288 (2026) (per curiam) (“Because courts are ‘essentially passive instruments of government,’
[they] rely on the parties to ‘frame the issues for decision’ and decide ‘only the questions
presented.’” (quoting United States v. Sineneng-Smith, 590 U.S. 371, 375-76 (2020))). Nothing in
the court’s opinion can be read to decide the legality of an agency action that Montefiore has not
challenged. See MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007) (explaining that
federal courts cannot render opinions “advising what the law would be upon a hypothetical state
of facts” (quoting Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 241 (1937))).
The Secretary may also consider whether Empire Health alone requires him to retroactively
apply the interpretation adopted in the 2023 Rule. The court’s retroactivity analysis cannot be
understood to preemptively foreclose that approach because it was not the justification offered for
the 2023 Rule.9 Instead, the Secretary premised the 2023 Rule on the following: (1) although
Empire Health “did not address specifically whether Part C enrollees remain ‘entitled to Part A,’”
the statutory provision defining the DSH fractions nonetheless “requires the Secretary to count
Part C days in the Medicare fraction”; (2) to the extent any statutory gap exists, retroactive
application is necessary “to comply with the statutory requirement to make DSH payments,”
because HHS had no prior “policy to govern” Part C days; and (3) the failure to retroactively apply
this policy for Part C days would be contrary to the public interest. 88 Fed. Reg. at 37774-75
(emphasis added). The court could not have upheld the 2023 Rule on the ground that Empire
Health alone requires retroactive application of the rule’s interpretation of the DSH fraction
9
Nor did the court purport to decide whether Empire Health was “mandatory or persuasive authority.” ECF No. 31, at 17.
23
provisions because that was not one of the agency’s rationales. See Window Covering Mfrs. Ass’n
v. Consumer Prod. Safety Comm’n, 82 F.4th 1273, 1289 (D.C. Cir. 2023) (“[I]t is not [the court’s]
role to ‘supply a reasoned basis for the agency’s action that the agency itself has not given.’”
(quoting Bowman Transp., Inc. v. Ark.-Best Freight Sys., Inc., 419 U.S. 281, 285-86 (1974)));
NTCH, Inc. v. Fed. Commc’ns Comm’n, 841 F.3d 497, 506 (D.C. Cir. 2016) (explaining that a
challenged action rises or falls on the agency’s “rationale at the time of the decision” (quoting
Pension Benefit Guar. Corp. v. LTV Corp., 496 U.S. 633, 654 (1990))).
Montefiore maintains that the Secretary “raised this same” Empire Health “argument” in
both his summary-judgment briefing and the 2023 Rule. ECF No. 37, at 3 (emphasis omitted).
While the Secretary pressed that claim in his briefing, see ECF No. 31, at 14 (explaining that the
“parties dispute whether Empire Health governs this case”), his decision to do so is irrelevant
because a rule subject to an APA challenge can be sustained only on the rationale that the agency
offered when it issued the regulation, Window Covering Mfrs. Ass’n, 82 F.4th at 1289; NTCH, 841
F.3d at 506. And Montefiore’s suggestion that the 2023 Rule offered the same justification that
the Secretary wants to consider after remand is unfounded. To be sure, the Secretary responded
to a comment insisting that the Medicare statute “unambiguously forecloses” his position on Part C
days by asserting that “the opposite is true[] based on” Empire Health, which suggested that “the
statute itself requires [him] to count Part C days in the Medicare fraction.” 88 Fed. Reg. at 37775.
Elsewhere, however, he explained that Empire Health’s “reasoning supports [his] interpretation,”
not that the Supreme Court’s interpretation of a different statutory provision was binding on him
with respect to the one concerning the Medicare and Medicaid fractions. Id. at 37777; see 88 Fed.
Reg. at 37774-75 (explaining that Empire Health “did not address specifically whether Part C
enrollees remain ‘entitled to Part A’”).
24
What is more, the rest of the Secretary’s response to the comment clarifies that the
2023 Rule was not promulgated because Empire Health binds HHS to retroactively apply any
particular Part C policy. The Secretary instead believed that Empire Health made retroactivity
irrelevant. First, he asserted that his rule “simply reflects the ‘substantive legal standard’ already
set forth in the statute,” which would not “trigger [his] notice-and-comment obligations.” Id.
at 37775 (quoting 42 U.S.C. § 1395hh(a)(2)). Second, the Secretary explained that if the “statute
itself establishes the applicable ‘substantive legal standard,’” there is no “resulting need to rely on
the retroactive rulemaking authority.” Id. (quoting 42 U.S.C. § 1395hh(a)(2)); see id. at 37776
(explaining the agency’s position that if Empire Health “has now held that our interpretation of
the statute reflects its clear meaning, we need not rely on retroactive rulemaking authority”); id.
at 37777 (explaining that “retroactive rulemaking is required” “unless the statute itself establishes
the substantive legal standard”). Indeed, as for the second explanation—that retroactive
application of a regulation is unnecessary if Empire Health compels the Part C policy at issue—
the Secretary expressly disclaimed that argument in the 2023 Rule, even though Montefiore now
contends he relied on it. The Secretary stated in the rule that his “determination that retroactive
rulemaking is necessary to comply with statutory requirements is not based on the view that the
statute admits of only one interpretation of ‘entitled to benefits under part A,’”; “[r]ather, the basis
of the determination is that the statute requires the Secretary to make DSH adjustments, which in
turn requires him” to interpret the DSH provision. Id. at 37777 (emphasis added).
The court rejected both arguments. ECF No. 31, at 26-31. And the court has explained
that regardless of whether notice-and-comment rulemaking is necessary or whether the Secretary’s
interpretation comports with the statute’s best meaning, the Medicare statute’s retroactivity
provision applies. Id. at 31-40; see supra pp. 20-22. Advancing one of those same two rationales
25
after remand would flout this court’s ruling, but the Secretary may consider whether D.C. Circuit
precedent requires “retroactive application of a judicial decision,” ECF No. 36, at 6 (quoting Nat’l
Gas Fuel Supply Corp. v. Fed. Energy Regul. Comm’n, 59 F.3d 1281, 1289 (D.C. Cir. 1995)), so
long as such application is consistent with Section 1395hh(e)(1)(A).
Although the Secretary focuses on avoiding rulemaking altogether and relying on the
retroactive application of a prior judicial decision, ECF No. 36, at 5-7, he may also contemplate
adopting a new “substantive change in regulations, manual instructions, interpretative rules,
statements of policy, or guidelines of general applicability,” 42 U.S.C. § 1395hh(e)(1)(A), that
meets either the “necessary to comply” or the “public interest” allowance for retroactivity. Indeed,
the court has analyzed only the justifications for those allowances set forth in the 2023 Rule. ECF
No. 31, at 31-40. The Secretary’s “necessary to comply” rationale was that retroactive application
was necessary at least in part because, without the 2023 Rule, HHS had no policy to calculate DSH
payments. 88 Fed. Reg. at 37776 (“[A]s to necessity to comply with statutory requirements, there
will not always be, as there is here, a statutory directive to calculate payments that demands an
interpretation of the very statutory provision interpreted in the vacated rule coupled with the
absence of a prior rule addressing the issue that needs to be resolved.” (emphasis added)); see
ECF No. 31, at 32-36 (rejecting that argument). And he limited his “public interest” rationale to
his need to fill any statutory gap. The court rejected this justification as irrelevant in light of his
statutory analysis and because he failed to adequately explain his retroactivity determination. ECF
No. 31, at 33 n.9, 36-40; see id. at 40-49 (holding that the 2023 Rule is arbitrary and capricious
with respect to its discussion of the rule’s “financial impact on regulated parties,” which overlaps
with the court’s conclusion on the “public interest” exception that the Secretary did not “grapple
with the costs of imposing [the rule’s] requirement retroactively”). Nothing in the court’s opinion
26
should be construed to prohibit the Secretary from taking new action that complies with the APA
and the Medicare statute’s retroactivity provision. See Ctr. for Sci. in the Pub. Int. v. Regan, 727
F.2d 1161, 1164 (D.C. Cir. 1984) (“[I]t is not improper for an agency to engage in new rulemaking
to supersede defective rulemaking.”); cf. City of Billings v. Transp. Sec. Admin., 153 F.4th 46, 54
(D.C. Cir. 2025) (requiring the agency to “adopt a procedurally sound rule” after remand).
In sum, Montefiore is incorrect to contend that “there are no other options for the agency
to try on remand.” ECF No. 37, at 6. The Secretary has identified at least two options he may
pursue. The court takes no position on the lawfulness of those potential actions other than to
observe that they are not foreclosed by its summary-judgment decision or the other cases involving
challenges to the Secretary’s Part C policy. Specific remand instructions thus cannot be justified
on the theory that the Secretary has only “one lawful option available on remand.” Id. at 2.
2. The Secretary’s compliance with court orders
Montefiore fares no better with its second argument—that directing the Secretary to
recalculate the DSH fractions in accordance with HHS’s pre-2004 policy is necessary because
HHS has previously “refus[ed] to accept previous binding court rulings.” ECF No. 34, at 9. The
court appreciates Montefiore’s concern about the protracted dispute between HHS and various
hospitals challenging their pre-2013 DSH payments. But this is not the “rare case[] of an agency’s
persistent failure to explain itself,” so a “remand . . . with instructions” would be unwarranted.
Checkosky v. Sec. & Exch. Comm’n, 139 F.3d 221, 222 (D.C. Cir. 1998).
“Only in extraordinary circumstances do [courts] issue detailed remedial orders.” Baptist
Med. Ctr. v. Sebelius, 855 F. Supp. 2d 1, 3 (D.D.C. 2012) (alteration in original) (quoting N.C.
Fisheries Ass’n, Inc. v. Guttierez, 550 F.3d 16, 20 (D.C. Cir. 2008)). The litigation history and
various agency actions that Montefiore identifies, while undoubtedly frustrating, do not justify
27
deviating from the “ordinary ‘remand’ rule,” Est. of Insinga v. Comm’r of Internal Revenue, 149
F.4th 709, 719 (D.C. Cir. 2025) (quoting Immigr. & Naturalization Serv. v. Orlando Ventura, 537
U.S. 12, 18 (2002)), according to which “‘the function of the reviewing court ends when an error
of law is laid bare[,]’ and ‘[a]t that point the matter once more goes to the [agency] for
reconsideration,’” id. (alterations in original) (quoting Fed. Power Comm’n v. Idaho Power Co.,
344 U.S. 17, 20 (1952)). Montefiore points to HHS’s several failed efforts to implement a new
policy for Part C days: first, the 2004 Rule, which the D.C. Circuit vacated in Allina I, 746 F.3d
at 1109-10; second, the publication of Medicare fractions on an agency website, which the
Supreme Court rejected in Allina II, 587 U.S. at 572-84; and third, the 2023 Rule, which this court
has concluded must be vacated, see supra Section IV.A; see also ECF No. 31. See ECF No. 34,
at 8-9; ECF No. 37, at 2-3. The court is unpersuaded.
The regulatory history does not demonstrate HHS’s “repeated[] fail[ure]” or “refus[al]” to
“change its approach on remand.” ECF No. 34, at 9. After the Supreme Court held in Allina II
that notice and comment are required “when the government establishes or changes an avowedly
‘gap’-filling policy,” 587 U.S. at 583-84, the Secretary followed that instruction by conducting
notice and comment for the 2023 Rule. 88 Fed. Reg. at 37772. And, notwithstanding the
2023 Rule’s defects, see ECF No. 31, at 26-49, the Secretary adopted the correct statutory
interpretation, id. at 13-25. The Secretary also retains several potentially lawful avenues to adopt
the 2023 Rule’s statutory interpretation while adhering to Section 1395hh’s procedural
requirements. See supra Section IV.B.1. Both the Secretary’s good-faith efforts to calculate the
DSH fractions and the different ways that Section 1395hh allows him to do so make this case
unlike those that Montefiore has cited. See, e.g., Nat’l Ass’n of Regul. Util. Comm’rs v. U.S. Dep’t
of Energy, 736 F.3d 517, 518-21 (D.C. Cir. 2013) (rejecting the government’s request for a remand
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so that the Secretary of Energy could reconsider his “statutory obligation to determine annually
the adequacy of [a required] fee” and concluding that the request was “so obviously disingenuous
that [the court had] no confidence that another remand would serve any purpose”); Greyhound
Corp. v. Interstate Com. Comm’n, 668 F.2d 1354, 1356-61, 1364 (D.C. Cir. 1981) (remanding a
case to the agency with directions to release the regulated entity from the agency’s jurisdiction
after the agency had arrived “at substantially the same conclusion” the D.C. Circuit had previously
rejected).
Nor is this case like Checkosky, in which the D.C. Circuit held that the “extraordinary”
remand-with-instructions remedy was warranted because a Securities and Exchange Commission
disciplinary proceeding involving two accountants had been ongoing “for more than ten years.”
139 F.3d at 226-27. Although roughly twenty years of litigation have unfolded over different
aspects of HHS’s Part C policy, the agency has tried to adhere to a unique statutory scheme. See
Allina II, 587 U.S. at 572-73 (noting that the notice-and-comment provision contains a phrase—
“substantive legal standard”—that “doesn’t seem to appear anywhere else in the entire United
States Code”); ECF No. 31, at 37-38 (explaining that no court appears to have interpreted
Section 1395hh(e)(1)(A)(ii)’s “public interest exception”). Additionally, HHS has done so while
interpreting judicial opinions that either expressly or impliedly suggest that other approaches might
comply with the Medicare statute’s procedural requirements. See, e.g., Allina II, 587 U.S.
at 583-84 (declining to consider whether the Secretary could argue that notice and comment were
unnecessary because the statute itself sets the relevant legal standard); Allina I, 746 F.3d at 1111
(noting that the question “whether the Secretary could reach the same result through adjudication
was not before the district court”); Allina Health Servs., 863 F.3d at 945 (reviewing the Secretary’s
decision to issue a rule without notice and comment following a Circuit decision holding that an
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earlier rule was not a logical outgrowth under Section 1395hh(a)(4) and explaining that the
Secretary cannot avoid notice and comment by pursuing the policy through adjudication instead).
While Montefiore has waited for twenty years to receive a DSH payment for Fiscal Year 2006, the
current dispute over the 2023 Rule’s application to the revised 2006 NPR is less than three years
old. See ECF No. 1 ¶ 66-67.
Against this backdrop, Montefiore’s challenge does not present the extraordinary situation
that would justify a remand with specific instructions for how to recalculate the hospital’s 2006
DSH payment. Vacatur without further instructions is warranted.
V. CONCLUSION
For the foregoing reasons, the court will vacate the 2023 Rule and remand the case to the
Secretary for further proceedings consistent with this opinion and the court’s opinion resolving the
parties’ cross-motions for summary judgment. A contemporaneous order will issue.
LOREN L. ALIKHAN
United States District Judge
Date: August 28, 2026
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