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A federal judge ruled Friday that Health and Human Services Secretary Mike Leavitt failed to "outfox" Congress when he pushed through a Medicaid rule that would have wiped out more than $40 million in annual funding to Utah's teaching hospitals.

U.S. District Judge James Robertson's decision came just days before the Centers for Medicare and Medicaid Services (CMS) rule was slated to take effect, causing $5 billion in losses to the country's safety net hospitals over the next five years.

The rule would have deprived the University of Utah of $36 million in annual federal funding, and $3 million for Primary Children's Medical Center. Six rural hospitals, serving Monticello, Milford, Beaver, Gunnison, Kanab and Panguitch, also stood to lose $1.2 million.

"It would have meant we couldn't use Medicaid dollars for anything other than providing care to Medicaid patients," said Kim Wirthlin, the U.'s vice president of government affairs. "Prior to that, we got additional [Medicaid] money that could be used to assist in funding medical education and [health care for] the uninsured."

Early last year, the U.S. Department of Health and Human Services proposed a rule to return to a system in which, for some Medicaid institutions, reimbursement would be on a cost-to-provider scheme.

Congress disapproved, tucking away a year-long moratorium on the rule in its revised war-funding bill, which passed May 24, 2007.

That same day, Robertson wrote, Leavitt - who had full knowledge the moratorium had been passed but had not yet been signed by the president - rushed a "typo-ridden" final rule to the Office of the Federal Registrar for "emergency display and publication," thus making it final.

President Bush signed the war-funding bill the next day.

"The Executive Branch thought that it could have its war appropriation and its Medicaid rule, too," Robertson wrote for the U.S. District of Columbia.

In March, California's Alameda County Medical Center sued Leavitt, accusing him of violating the congressional moratorium on the rule. The U. weighed in on the case in support of the plaintiff.

Wirthlin said the U. is "pleased with the result."

The judge vacated the rule, she said, forcing CMS to begin the rule-making process all over again. This includes a 60-day public comment period, which should buy Congress enough time to pass a bill extending the moratorium to March 31, 2009.

"Then we'll have a new administration and we can look at this whole policy issue of whether or not Medicaid funds should be used to assist in supporting graduate medical education and care for the uninsured," Wirthlin said. "And that is an important policy debate that needs to happen."

Wirthlin said the House has already passed a bill extending the moratorium by a veto-proof margin. The Senate followed suit on Thursday.

"The political reality of things is it has to happen before they [Congress] adjourn in August," she said.

Jeff Nelligan, a spokesman for CMS, said Leavitt voluntarily agreed to refrain from making the rule effective until Aug. 1, and offered to work with Congress and governors to discuss their concerns.

"We remain convinced that the rule will ultimately be upheld on its merits," he said.


* Tribune reporter BRIAN MAFFLY and THE ASSOCIATED PRESS contributed to this story