Earlier this month, the 2nd U.S. Circuit Court of Appeals declared that the HHS “reclassification rule” was invalid and hospitals could be considered “rural” in some circumstances and “urban” in others.

In the case of Lawrence + Memorial Hospital v. Burwell, et al, the court struck down the HHS regulation from 2000 that said hospitals could only be classified as “urban” if they cancelled their “rural” status altogether. In addition, the regulation said hospitals classified as “rural” had to wait a full 12-month cost reporting period before changing that classification to “urban.”

The distinction carries significant importance, because providers often get lower drug pricing if they can be officially classified as “rural.” At the same time, providers can acquire better employees and provide those employees with better benefits if they are considered “urban.”

Representatives from the Department of Justice have said they are reviewing the appeals court’s decision.