Cape Cod Hospital v. Sebelius
394 U.S. App. D.C. 59
D.C. Cir.2011Background
- Medicare uses a standardized amount, wage index, and DRG weights to calculate hospital payments, with the standardized amount carried forward and inflated annually.
- The 1997 rural floor requires urban wage indexes not to be less than rural ones in the same state, and budget neutrality ensures no net change in total inpatient payments year to year.
- CMS implemented budget neutrality by adjusting the standardized amount cumulatively from year to year, while wage indexes became noncumulative starting in 2008.
- Hospitals allege CMS committed arithmetic errors by mixing cumulative adjustments with noncumulative ones, progressively reducing aggregate payments for inpatient services.
- In 2007 CMS proposed and finalized adjustments that applied the rural-floor effect to the standardized amount; the hospitals challenged these rules in district court.
- In 2008 CMS switched to adjusting wage indexes (noncumulatively) and issued a one-off adjustment to reverse the 2007 impact; hospitals contested whether past errors were properly addressed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did CMS violate 4410(b) by mixing cumulative and noncumulative adjustments to the standardized amount? | Cape Cod contends the 2007 rule deflated payments by duplicating prior year adjustments. | Sebelius argues hospitals waived objections by not following procedures and CMS acted within discretion. | Remanded for reasoned response; not decided on merits here. |
| Was CMS's failure to respond adequately to a consultant’s 2006 comment letter improper in the 2007 rulemaking? | Hospitals argue the letter revealed an error and CMS ignored it, requiring remand for a proper response. | CMS argues the letter was not properly submitted per procedures and thus not in the record. | Remanded to provide a reasoned response to the comment. |
| Did CMS's 2008 rule adequately address prior rural-floor adjustments when transitioning to noncumulative wage-index methodology? | Hospitals contend past cumulative adjustments should have been reversed to reflect noncumulative methodology. | CMS asserts finality and not revisiting past calculations; argues no statutory requirement to reverse all prior adjustments. | Remanded to justify reversal scope or recalculate to remove prior adjustments. |
| Did the district court err in considering the 2006 consultant letter and the 2007 rulemaking record? | Hospitals rely on supplementation to ensure relevant comments are considered. | Secretary contends record supplementation was improper under agency procedures. | Affirmed remand; focus on reasoned response and proper record treatment. |
| Does CMS’s finality rationale defeat the hospitals’ request to correct prior computational errors affecting current payments? | Past errors embedded in the formula must be corrected to satisfy budget neutrality. | CMS emphasizes finality of rates and prospective payment system integrity. | Remanded for explanation or recalculation consistent with 4410(b). |
Key Cases Cited
- Methodist Hosp. of Sacramento v. Shalala, 38 F.3d 1225 (D.C. Cir. 1994) (background on Medicare inpatient prospective payment system and standard concepts)
- Se. Ala. Med. Ctr. v. Sebelius, 572 F.3d 912 (D.C. Cir. 2009) (district court review and related statutory interpretation)
- James Madison Ltd., by Hecht v. Ludwig, 82 F.3d 1085 (D.C. Cir. 1996) (agency record supplementation when agency negligently excluded adverse documents)
- Pub. Citizen, Inc. v. Dep't of Health & Human Servs., 332 F.3d 654 (D.C. Cir. 2003) (requirement to respond to relevant and significant public comments)
- Fox Television Stations, Inc. v. FCC, 280 F.3d 1027 (D.C. Cir. 2002) (agency must address comments in reasoned rulemaking)
- Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (U.S. 1983) (reasoned decisionmaking requirement for agency action)
- Regions Hospital v. Shalala, 522 U.S. 448 (U.S. 1998) (administrative corrections to reimbursements and retroactivity considerations)
- Methodist Hosp. of Sacramento v. Shalala, 38 F.3d 1229 (D.C. Cir. 1994) (analysis of finality vs. retroactive corrections in wage/index adjustments)