Federal appeals court: Hospitals can be 'rural' and 'urban' at the same time

The U.S. Court of Appeals for the 2nd Circuit has struck down a federal regulation that made it difficult for hospitals to claim they were "rural" for some purposes and "urban" for others, according to Reuters.

Medicare allows some hospitals to be simultaneously classified as "rural" and "urban." The "rural" classification allows hospitals to get lower drug pricing and the "urban" classification ensures they can attract and pay qualified staff, according to the report.

However, under HHS' "reclassification rule," implemented in 2000, hospitals could not be deemed urban by the agency's Medicare Geographic Classification Review Board if they have a rural classification to reduce drug prices.

In December 2014, a judge dismissed a challenge to the rule, holding it was vital to clarify ambiguous Medicare regulations. But the plaintiff in the case, Lawrence + Memorial Hospital in New London, Conn., was issued a win on Thursday when Judge Jed Rakoff, writing for the appeals court, said HHS lacked authority to pass the regulation and that the rule conflicted with the plain meaning of the federal Medicare statute.  

The hospital's lawyer, Joseph Glazer, said his client is pleased with the decision. A spokesman for U.S. Attorney Deirdre Daly in Connecticut, who defended the HHS regulation, told Reuters, "The Justice Department and HHS are reviewing the decision to determine how best to proceed."

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