950 F.3d 84
D.C. Cir.2020Background
- Baystate hospitals (Massachusetts) challenged HHS’s FY2017 wage-index rule after CMS refused to accept late corrections to Nantucket Cottage Hospital’s wage-data, which sets Massachusetts’s rural floor.
- CMS set a firm September 2, 2015 deadline for hospitals to request revisions to preliminary wage files; Nantucket submitted corrections in April 2016 estimating a large increase in its average hourly wage.
- CMS published the proposed rule April 27, 2016 and, after notice-and-comment, issued the final rule enforcing the deadline and excluding Nantucket’s late data to preserve timeline, finality, and nationwide budget neutrality.
- Baystate argued the exclusion was arbitrary and capricious and contrary to the Medicare statute’s mandate to calculate a wage index that reflects actual local wage levels, because Nantucket’s erroneous data depressed the rural floor and affected other Massachusetts hospitals.
- The district court granted summary judgment to the Secretary; the D.C. Circuit affirmed, holding CMS’s decision was a permissible statutory construction and not arbitrary and capricious.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforcing deadline / rejecting Nantucket’s late data | CMS knowingly used false data; rejecting corrected data produced inaccurate wage index | CMS reasonably enforces deadlines; late data was unvetted and would force reopening national, budget‑neutral process | CMS’s enforcement was reasonable; not arbitrary and capricious |
| Consideration of important aspect (third‑party hospitals unable to contest others’ data) | CMS failed to account for effect on other MA hospitals that couldn’t review Nantucket’s data | CMS addressed commenters’ concerns and considered statewide effects in rulemaking summary | CMS sufficiently considered the issue; not arbitrary and capricious |
| Statutory duty to reflect actual wage levels (Chevron issue) | Statute requires wage index reflecting true local wages; excluding corrected data violates that mandate | Statute grants discretion to balance accuracy, finality, and administrative efficiency; enforcing deadlines is a permissible interpretation | Secretary’s interpretation is permissible under Chevron; within statutory bounds |
Key Cases Cited
- Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) (framework for reviewing agency statutory interpretation)
- Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (arbitrary and capricious/APA review standard)
- Anna Jacques Hosp. v. Burwell, 797 F.3d 1155 (D.C. Cir. 2015) (Secretary may use reasonable approximations in wage‑index calculations)
- Methodist Hosp. of Sacramento v. Shalala, 38 F.3d 1225 (D.C. Cir. 1994) (agency may balance accuracy against finality and administrative efficiency)
- Bellevue Hosp. Ctr. v. Leavitt, 443 F.3d 163 (2d Cir. 2006) (wage‑index adjustments must be cost neutral)
- Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117 (2016) (unexplained inconsistency can render a changed policy arbitrary)