Federal judge tosses CMS final rule cutting Medicare payments for hospital clinic services

The ruling marks a stinging rebuke of HHS efforts to steer some services from the hospital outpatient setting to physicians.

A federal judge has ruled that a Centers for Medicare & Medicaid Services (CMS) final rule slashing Medicare payments for certain hospital outpatient clinical evaluation and management (E&M) services to the tune of more than $1 billion over just two years never should have been enacted. 

In the matter of American Hospital Association (AHA) v. U.S. Department of Health and Human Services Director Alex M. Azar II, U.S. District Court Judge Rosemary M. Collyer on Tuesday granted the AHA’s motion to vacate the final rule, denied a cross-motion filed by CMS, and remanded the matter for consideration of future remedies.

“CMS believes it is paying millions of taxpayer dollars for patient services in hospital outpatient departments that could be provided at less expense in physician offices,” Collyer wrote in the conclusion of her 28-page decision. “CMS may be correct. But CMS was not authorized to ignore the statutory process for setting payment rates in the Outpatient Prospective Payment System (OPPS) and to lower payments only for certain services performed by certain providers.”

The two parties are now required to submit a joint status report to the Court within two weeks to “determine if additional briefing on remedies is required, along with the CMS estimate as to the duration of further proceedings.”

Specifically, Collyer noted that the CMS rule, which took effect at the start of the calendar year, didn’t qualify as an approved “method” for controlling spikes in hospital usage.

“That context (the applicable governing statutory language) does not make clear what a ‘method’ is, but it does make clear what a ‘method’ is not: it is not a price-setting tool, and the government’s effort to wield it in such a manner is manifestly inconsistent with the statutory scheme,” she wrote. “CMS cannot shoehorn a ‘method’ into the multi-faceted congressional payment scheme when Congress’s clear directions lack any such reference.”

The ruling was interpreted as a striking and clear-cut victory for providers; Modern Healthcare noted that AHA had projected cuts of about $380 million this year and $760 million in 2020 as a direct result of the final rule.

While the ruling did not order CMS to repay hospitals what had been withheld to this point, as the plaintiffs had requested, the scope of the remedy to come is anticipated to be substantial in scope.

Facebook
Twitter
LinkedIn

Mark Spivey

Mark Spivey is a national correspondent for RACmonitor.com, ICD10monitor.com, and Auditor Monitor who has been writing and editing material about the federal oversight of American healthcare for more than a decade.

Related Stories

Leave a Reply

Please log in to your account to comment on this article.

Featured Webcasts

Trending News

Featured Webcasts

Ask Dr. Hirsch: Clarifying Medicare’s Most Misunderstood Rules – Part 2

Medicare regulations are complex and even seasoned professionals struggle to apply them consistently. Due to overwhelming demand, Dr. Hirsch returns for Part 2 of Ask Dr. Hirsch: Clarifying Medicare’s Most Misunderstood Rules to answer even more of Medicare’s most misunderstood questions, covering inpatient status, observation, SNF access, Medicare Advantage denials, and more. Join Dr. Hirsch as he provides clear, referenced answers to real-world questions submitted by your peers, helping you navigate Medicare compliance with confidence and clarity.

June 18, 2026

Reengineering Utilization Management: Building an Adaptive Model for the New Payer Era

Traditional utilization management models can no longer keep pace with regulatory shifts, payer scrutiny, and operational pressures. In this webcast, Tiffany Ferguson, LMSW, CMAC, ACM, ACPA-C, introduces an Adaptive Model strategy that modernizes UM through role specialization, technology-driven workflows, and proactive, team-based processes. Attendees will learn how to restructure programs to improve efficiency, strengthen clinical collaboration, and enhance financial performance in a rapidly changing healthcare environment.

May 20, 2026

Compliance for the Inpatient Psychiatric Facility (IPF-PPS): Minimizing Federal Audit Findings by Strengthening Best Practices

Federal auditors are intensifying their focus on inpatient psychiatric facilities, using advanced data analytics to spotlight outliers and pursue high‑dollar repayments. In this high‑impact webcast, Michael Calahan, PA, MBA, Compliance Officer and V.P., Hospital & Physician Compliance, breaks down what regulators are really targeting in IPF-PPS admissions, documentation, treatment and discharge planning. Attendees will learn practical steps to tighten processes, avoid common audit triggers and protect reimbursement and reduce the risk of multimillion-dollar repayment demands.

April 9, 2026

Mastering MDM for Accurate Professional Fee Coding

In this timely session, Stacey Shillito, CDIP, CPMA, CCS, CCS-P, CPEDC, COPC, breaks down the complexities of Medical Decision Making (MDM) documentation so providers can confidently capture the true complexity of their care. Attendees will learn practical, efficient strategies to ensure documentation aligns with current E/M guidelines, supports accurate coding, and reduces audit risk, all without adding to charting time.

March 31, 2026

Trending News

Celebrate Lab Week with MedLearn! Sign up to win one year of our Laboratory All Access Pass! Click here to learn more →

Have a Medicare regulation question you’d love Dr. Hirsch to answer? Now is your chance! CLICK HERE to learn more→

Happy National Doctor’s Day! Learn how to get a complimentary webcast on ‘Decoding Social Admissions’ as a token of our heartfelt appreciation! Click here to learn more →

This Memorial Day, we honor those who gave all for our freedom. Take 20% off sitewide through May 29 with code MEMORIAL26 at checkout

CYBER WEEK IS HERE! Don’t miss your chance to get 20% off now until Dec. 1 with code CYBER25

CYBER WEEK IS HERE! Don’t miss your chance to get 20% off now until Dec. 2 with code CYBER24