Baylor County Hospital Dist v. Thomas Price, 2017 U.S. App. LEXIS 4023

Background

Congress created a Medicare reimbursement preference for “critical access hospitals” with a geographic distance requirement: 35-mile drive generally, but 15-mile if "only secondary roads" are available. 42 U.S.C. § 1395i-4(c)(2)(B)(i)(I).
Congress and the implementing regulations did not define "secondary" or "primary" roads, leaving ambiguity about which roads trigger the 15-mile standard.
CMS (DHHS) issued guidance in its State Operations Manual defining "primary roads" as: (1) numbered federal highways; (2) numbered state highways with two or more lanes each way; or (3) roads mapped as "primary highway, divided by median strip." "Secondary roads" were defined as non-primary roads.
Seymour Hospital (Baylor County Hospital District) applied for critical access designation; nearest hospital is 31.8 miles away, but ~28.4 miles of that route are on U.S. Highway 183/283 (a numbered federal highway), leaving only ~3 miles of non-primary road—under the Manual CMS denied designation.
Seymour challenged the Manual and CMS decision as unreasonable and sought review; ALJ and DHHS Departmental Appeals Board upheld CMS’s bright-line rule as reasonable and administratively efficient. District court granted summary judgment for DHHS; Fifth Circuit affirmed.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether CMS’s Manual definition of "primary/secondary roads" merits deference	Seymour: Manual is nonbinding guidance and not entitled to Skidmore; the "numbered federal highway" rule is arbitrary and ignores travel-safety factors	DHHS: Manual is a reasonable, administratively feasible interpretation of ambiguous statutory terms and entitled to Skidmore deference	Court: Accorded Skidmore deference; Manual is persuasive and entitled to deference
Whether the agency decision was arbitrary and capricious under the APA	Seymour: Rule relies on irrelevant criteria (route designation) and treats similarly situated roads differently without adequate justification	DHHS: Bright-line rule rationally implements statute, balances access goals, and avoids impractical case-by-case road surveys	Court: Decision was not arbitrary or capricious; met minimal rationality standards
Whether agency lacked expertise to classify roads	Seymour: Road classification is outside DHHS’s core expertise and should be based on travel/condition factors	DHHS: Road classification is integral to administering rural health policy and Medicare access goals; practical expertise suffices	Court: DHHS’s role in rural health justifies its approach; classification within agency purview
Whether inconsistency or past agency practice undermined Manual	Seymour: Cites ALJ decisions suggesting arbitrary results	DHHS: Manual has been applied consistently; no evidence of deviation	Court: Found consistent application and no change undermining deference

Key Cases Cited

Skidmore v. Swift & Co., 323 U.S. 134 (1944) (informal agency interpretations entitled to deference based on persuasiveness)
United States v. Mead Corp., 533 U.S. 218 (2001) (distinguishing Chevron and Skidmore deference for informal agency actions)
Luminant Gen. Co. v. EPA, 675 F.3d 917 (5th Cir. 2012) (applying Skidmore factors to informal agency interpretations)
Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (arbitrary-and-capricious standard for agency decisionmaking)
Thomas Jefferson Univ. v. Shalala, 512 U.S. 504 (1994) (agency entrusted to administer complex Medicare programs)
Fox v. Clinton, 684 F.3d 67 (D.C. Cir. 2012) (discussing overlap between Skidmore deference and arbitrary-and-capricious review)
Hayward v. U.S. Dep’t of Labor, 536 F.3d 376 (5th Cir. 2008) (standards for appellate review of agency summary judgment)
Tex. Oil & Gas Ass’n v. EPA, 161 F.3d 923 (5th Cir. 1998) (explaining arbitrary-and-capricious review standards)
Estate of Morris v. Shalala, 207 F.3d 744 (5th Cir. 2000) (discussing the scope of judicial review under 42 U.S.C. § 405(g))