Alameda Health Sys. v. Ctrs. for Medicare & Medicaid Servs., 287 F. Supp. 3d 896

Plaintiffs allege CMS violated APA by interpreting DSH payments to exclude hospital-based FQHC costs from the hospital-specific DSH limit.
The dispute centers on DSH law, the hospital-specific limit, and the treatment of FQHC costs under California's Medi-Cal State Plan.
The 1994 CMS letter and later 2008 and 2014 rulemakings provide context for whether outpatient and FQHC costs may be counted in DSH calculations.
Plaintiffs operate hospitals that also run certified hospital-based FQHCs and have historically included FQHC costs in DSH-eligible, uncompensated care costs.
CMS issued a controversial 2014 preamble stating hospital-based FQHC costs are not recognized or paid as outpatient hospital services, effectively excluding them from the DSH limit.
The court grants the plaintiffs’ motion and vacates CMS’s 2014 preamble/New Rule for lack of proper notice-and-comment procedures.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Is the 2014 New Rule legislative or interpretive?	CMSNew Rule is legislative, changing law.	New Rule is interpretive, explains existing law.	New Rule is legislative.
Did CMS need notice-and-comment rulemaking for the New Rule?	APA requires notice-and-comment for legislative rules.	Rule was interpretive; notice-and-comment not required.	Notice-and-comment required; violation found.
Was the preamble to the 2014 rule a logical outgrowth of the proposed rule?	Pre-amendment preamble should reflect proposed rule and comments.	Preable can reflect policy guidance consistent with prior rules.	Not a logical outgrowth; invalid without proper notice.

Hemp Indus. Assoc. v. Drug Enforcement Admin., 333 F.3d 1082 (9th Cir. 2003) (interpretive vs legislative rule; weight of rule depends on force of law)
Shalala v. Guernsey Mem. Hosp., 514 U.S. 87 (U.S. 1995) (interpretive rules do not have the force of law)
Guernsey Mem. Hosp., 514 U.S. 87 (U.S. 1995) (interpretive rules do not have the force of law)
Occidental Eng'g Co. v. INS, 753 F.2d 766 (9th Cir. 1985) (APA review limited; not fact-finding; review within administrative record)
Hall v. U.S. EPA, 273 F.3d 1146 (9th Cir. 2001) (logical outgrowth and notice-and-comment considerations)