319 F. Supp. 3d 514
D.C. Cir.2018Background
- CMS's Prospective Payment System (PPS) uses an annual wage index, derived from hospital cost reports, to adjust Medicare reimbursements for regional labor-cost differences; states have a rural-floor rule that can raise a hospital's wage index.
- Nantucket Cottage Hospital — the only Massachusetts hospital designated "rural" for PPS purposes — submitted FY2013 cost report data that understated its wage rate; Nantucket requested corrections more than seven months after the published deadline for FY2017 wage-index revisions.
- CMS denied Nantucket's untimely correction and used the originally submitted data when finalizing the FY2017 wage index, which set Massachusetts' rural floor lower than it would have been had Nantucket's late corrections been accepted.
- Baystate Franklin Medical Center sued, arguing CMS's use of Nantucket's uncorrected data was arbitrary and capricious under the APA and that 42 U.S.C. § 1395oo (the Board statute) requires the Board to have authority to grant relief when one provider's reimbursement is harmed by another provider's erroneous data.
- The Board concluded it lacked authority to grant the remedy Baystate sought and granted expedited judicial review; the district court considered cross-motions for summary judgment on the administrative record.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1) Was CMS's use of Nantucket's uncorrected data arbitrary and capricious under the APA? | Baystate: Using uncorrected data produced an inaccurate wage index and caused large monetary harm; CMS should use most reliable data. | Azar: CMS reasonably enforced published timetables and relied on the best available data; deadlines preserve finality and administrability. | Court: CMS reasonably applied its deadlines; decision not arbitrary or capricious. |
| 2) Did the FY2017 wage index fail to reflect the relative regional wage level as required by 42 U.S.C. § 1395ww? | Baystate: The uncorrected Nantucket error made the index unrepresentative of the region. | Azar: Even with uncorrected data, Baystate benefited from a higher index and regional wages supported CMS's result. | Court: Index reasonably reflected regional wage levels given available data and statutory discretion. |
| 3) Does 42 U.S.C. § 1395oo require the Board to grant relief based on inaccuracies in another hospital's data? | Baystate: The Board must have authority to remedy harms caused by another provider's erroneous submissions. | Azar: Statute authorizes hearings to challenge a provider's own cost reports or a final Secretary determination; it does not require Board relief based on another hospital's data. | Court: § 1395oo does not obligate the Board to grant relief for challenges to other hospitals' data; Secretary's interpretation permissible. |
| 4) Is retroactive correction warranted given burden and budget neutrality concerns? | Baystate: Equity favors correction to avoid substantial underpayment. | Azar: Retroactive recalculation would impose severe administrative burdens and nationwide redistributive effects; precedent endorses finality. | Court: Administrative burden and precedent support denying retroactive corrections. |
Key Cases Cited
- Good Samaritan Hosp. v. Shalala, 508 U.S. 402 (1993) (Medicare reimbursement governed by complex statutory/regulatory regime administered by HHS)
- Anna Jacques Hosp. v. Burwell, 797 F.3d 1155 (D.C. Cir. 2015) (Secretary has broad discretion in constructing wage index)
- Dignity Health v. Price, 243 F. Supp. 3d 43 (D.D.C. 2017) (summarizes wage-index review and correction procedures)
- Methodist Hosp. of Sacramento v. Shalala, 38 F.3d 1225 (D.C. Cir. 1994) (upholding CMS refusal to retroactively recalculate wage index due to administrative burden)
- Regents of the Univ. of Cal. v. Burwell, 155 F. Supp. 3d 31 (D.D.C. 2016) (discusses significance of regional wage adjustment)
- Thomas Jefferson Univ. v. Shalala, 512 U.S. 504 (1994) (deference to agency in complex, technical regulatory programs)
- Murray Energy Corp. v. F.E.R.C., 629 F.3d 231 (D.C. Cir. 2011) (agency must articulate rational connection between facts and choice)
- Baystate Med. Ctr. v. Leavitt, 545 F. Supp. 2d 20 (D.D.C. 2008) (agency duty is to produce sufficiently accurate figures)
- Mt. Diablo Hosp. v. Shalala, 3 F.3d 1226 (9th Cir. 1993) (agency not required to recalculate index for subsequently identified data issues)