Federal Court Blocks Key Nursing Home Staffing Mandates
Federal Court Blocks Key Nursing Home Staffing Mandates
Earlier this year, a federal judge in Texas struck down significant portions of the Department of Health and Human Services’ (“HHS”) recently finalized nursing home staffing requirements, holding that the agency exceeded its statutory authority. The staffing mandate would have required nursing homes receiving Medicare and Medicaid funding to employ a registered nurse on-site 24 hours a day and to meet minimum staffing levels of 3.48 nursing hours per resident per day. The phased rollout was set to begin in 2026 but will not move forward. HHS initiated an appeal in June but moved to dismiss the appeal just last week.
The financial impact of the rule was widely criticized. CMS projected that roughly three-quarters of nursing homes would need to increase staffing, at an estimated collective cost of $4 billion. Industry analyses placed the figure even higher, at $6.8 billion, warning that many facilities might reduce resident headcounts rather than absorb the added expense. Already, several facilities have filed for bankruptcy in recent years.
Legal Challenge and Court Ruling
The American Health Care Association (“AHCA”) and Texas Attorney General Ken Paxton led lawsuits challenging the staffing mandate, which were consolidated in federal court. The Court ultimately ruled that HHS had exceeded its statutory authority:
•The statute requiring “at least” eight hours of on-site nursing could not be stretched to require 24-hour staffing.
•Federal law requires facilities to provide services “sufficient to meet the nursing needs” of residents — a flexible, qualitative standard — not the rigid minimum-hour requirements sought by HHS.
The decision vacated the provisions requiring 24/7 nurse staffing and per-resident minimum hours but left the remainder of the rule intact.
California Court Revives Challenge to Medi-Cal Overpayment Formula
In a separate case, the California Court of Appeal has breathed new life into a challenge against the Department of Health Care Services’ (“DHCS”) formula for calculating Medi-Cal reimbursement overpayments. The dispute centers on patients covered by both Medicare and Medi-Cal who receive subacute and ancillary services. While Medi-Cal pays an all-inclusive daily rate, Medicare reimburses on a per-item basis — creating potential duplicative payments. DHCS used a formula that attributed Medicare’s entire ancillary reimbursement as a Medi-Cal overpayment.
Skilled nursing facilities (“SNFs”) filed suit, arguing that DHCS’s formula constituted an unlawful “underground regulation” because it was adopted without compliance with the Administrative Procedure Act (“APA”). A trial court dismissed the claims, but the Court of Appeal reversed.
Key Holdings of the Court of Appeal
The appellate court ruled that:
•Agency policies are subject to the APA if they are intended to apply generally and implement or interpret existing law.
•The SNFs adequately alleged that the DHCS formula operated as a generally applicable rule governing all reimbursement calculations.
•SNFs also sufficiently alleged that the formula was adopted without required APA procedures, making it an unlawful underground regulation.
The case has been remanded for further proceedings, opening the door to renewed scrutiny of DHCS’s reimbursement practices.
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