589 F.Supp.3d 1
D.D.C.2022Background
- In 2019 HHS adopted a Final Rule implementing a “low wage index hospital policy” that inflates wage-index values for hospitals in the bottom quartile and offsets that increase by reducing the national standardized amount paid to all hospitals (budget neutrality).
- The wage index is statutorily required to be updated annually on the basis of a survey of hospitals’ wages and wage‑related costs and to reflect relative hospital wage levels compared to a single national average.
- A group of hospitals challenged the Rule under the Administrative Procedure Act, arguing HHS lacked statutory authority to alter wage-index values for bottom‑quartile hospitals apart from the survey‑based calculation; HHS defended the policy and invoked the exceptions-and-adjustments clause to justify the budget‑neutral reduction.
- The hospitals sought expedited judicial review after the Provider Reimbursement Review Board concluded it lacked authority to decide the regulatory validity question. The Rule took effect October 1, 2019.
- The Court found the hospitals had standing to challenge the combined policy (inflation for bottom quartile plus standardized‑amount reduction), held the low wage index hospital policy exceeded HHS’s statutory authority, rejected HHS’s reliance on the exceptions-and-adjustments clause as a basis to authorize the policy, set aside that aspect of the Rule, and ordered additional briefing on remedy.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether HHS lawfully increased wage‑index values for bottom‑quartile hospitals independent of survey data | HHS exceeded §1395ww(d)(3)(E): the wage index must be calculated from survey data and must reflect actual relative wages; inflating bottom‑quartile values departs from the statutory method | The statute is ambiguous; HHS has discretion to structure the index and to adopt technical adjustments to address a "downward spiral," so Chevron deference should apply | Held for plaintiffs: the policy exceeded statutory authority because it did not reflect survey‑based relative wage levels and produced nonuniform, non‑data‑driven adjustments |
| Whether the general “exceptions and adjustments” clause authorizes the low‑quartile adjustment | The clause cannot be read to override the specific wage‑index survey and single‑national‑average directives; specific statute controls | HHS can rely on §1395ww(d)(5)(I)(i) as a broad grant of authority to make exceptions and budget‑neutral adjustments | Held for plaintiffs: the exceptions/adjustments clause does not permit HHS to adopt the bottom‑quartile inflation in a way that subverts the specific wage‑index statutory scheme |
| Standing: Are plaintiffs’ injuries traceable to the low wage index policy given only a standardized‑amount reduction was applied to them? | The standardized‑amount reduction was adopted to ensure budget neutrality for the low‑quartile policy and is thus causally linked; plaintiffs therefore suffered traceable injury | The hospitals are not in the bottom quartile and thus cannot be harmed by the low‑quartile policy; at most they are affected only by a separate, permissible standardized‑amount adjustment | Held for plaintiffs: the reduction to the standardized amount was inextricably linked to the low‑quartile policy, so hospitals have standing to challenge the Rule |
| Scope of APA/Chevron review and deference to agency technical judgments | Plaintiffs: statutory text and survey mandate constrain agency discretion; court should not defer to an interpretation that permits data‑departing adjustments | HHS: complex Medicare scheme warrants deference; the term “reflecting” and survey methods are ambiguous so agency interpretation merits Chevron deference | Held: court reviewed under the APA and rejected HHS’s interpretation — Chevron deference did not save the policy because the statute’s text and survey requirement foreclosed the agency’s approach |
Key Cases Cited
- Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984) (framework for judicial deference to agency statutory interpretations)
- Varity Corp. v. Howe, 516 U.S. 489 (1996) (specific statutory provisions govern over general ones)
- Anna Jacques Hosp. v. Burwell, 797 F.3d 1155 (D.C. Cir. 2015) (wage index updates must be based on survey data)
- Baystate Franklin Med. Ctr. v. Azar, 950 F.3d 84 (D.C. Cir. 2020) (changes to the wage index must be budget neutral and can affect national payments)
- Atrium Med. Ctr. v. Sebelius, 766 F.3d 560 (6th Cir. 2014) (wage index must be uniformly determined and applied)
- Bellevue Hosp. Ctr. v. Leavitt, 443 F.3d 163 (2d Cir. 2006) (agency cannot use the wage‑index provision to consider unrelated policy objectives)
- Adirondack Med. Ctr. v. Sebelius, 740 F.3d 692 (D.C. Cir. 2014) (exceptions-and-adjustments clause is broad but does not authorize overriding specific statutory directives)