On August 13, 2019, the D.C. Circuit issued its highly-anticipated decision in a lawsuit brought by the Children’s Hospital Association of Texas (CHAT) and others, challenging the legality of CMS’ 2017 Medicaid DSH third-party payer final rule that was set to take effect June 2, 2017. In March 2018, the D.C. district court invalidated the final rule nationwide, but the D.C. Circuit reversed. In the first significant legal loss for hospitals, the D.C. Circuit reinstated the 2017 final rule, concluding that the third-party payer policy is consistent with the federal DSH statute. The impact of today’s decision will vary across the states. In most states, the 2017 final rule will now be enforceable, meaning that states will need to account for Medicare and commercial payments in calculating the Medicaid DSH hospital-specific limit as of June 2, 2017.