Citrus Hma, LLC v. Azar, Civil Action No. 2020-0707

Thirty-four urban hospitals in Arizona, Connecticut, and Florida sued HHS under the APA challenging the FY 2020 IPPS wage-index methodology. Plaintiffs say the methodology produced urban hospital wage indexes lower than their states’ rural wage index.
Under IPPS, CMS adjusts DRG payments by a geographic "wage index." Congress enacted a "rural floor" to ensure no urban area wage index is below the state rural wage index.
Historically, the Secretary computed a single rural wage index per state that included both geographically rural hospitals and urban hospitals that had been reclassified as rural.
For FY 2020 the Secretary adopted a new method: exclude reclassified urban-to-rural hospitals when calculating the rural floor (but still include them when calculating the rural wage index used for reimbursement), effectively producing two different rural indexes and lowering the rural floor in some states.
PRRB declined to decide the legal question and expedited judicial review; the district court reviewed agency action under the APA and Chevron framework.
The court held the rural-floor provision unambiguously requires the rural floor to equal the rural wage index (i.e., a single rural index per state) and remanded to the Secretary for further proceedings but declined to vacate the FY 2020 rule.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the Secretary lawfully computed a separate "rural floor" excluding reclassified urban-to-rural hospitals	The statute unambiguously requires the rural floor to be the area wage index applicable to rural hospitals (one rural wage index per state), so the Secretary may not calculate a different index for the rural floor	The statute is ambiguous; "applicable" allows the Secretary discretion to compute a separate index for the rural floor and to exclude reclassified hospitals	Court held the statute is unambiguous: the rural floor must equal the rural wage index as calculated under § 1395ww(d)(3)(E); the Secretary’s separate calculation violated the statute
Remedy: whether to vacate the FY 2020 rule or remand without vacatur	Plaintiffs sought vacatur and recalculation of FY 2020 wage indexes for plaintiffs	Secretary urged remand without vacatur, citing substantial disruption and budget-neutrality concerns	Court remanded for further proceedings consistent with its opinion but declined to vacate the FY 2020 rule (remand without vacatur)

Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984) (two-step framework for reviewing agency statutory interpretation)
Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (agency must articulate rational connection between facts and decision)
Anna Jacques Hosp. v. Burwell, 797 F.3d 1155 (D.C. Cir. 2015) (description of wage-index adjustment in IPPS)
Thomas Jefferson Univ. v. Shalala, 512 U.S. 504 (1994) (deference appropriate in complex Medicare regulatory programs)
Bellevue Hosp. Ctr. v. Leavitt, 443 F.3d 163 (2d Cir. 2006) (discussion of ambiguity in wage-index calculation)
Allina Health Servs. v. Sebelius, 746 F.3d 1102 (D.C. Cir. 2014) (agency should address payment adjustments in first instance)
Allied-Signal, Inc. v. U.S. Nuclear Regul. Comm'n, 988 F.2d 146 (D.C. Cir. 1993) (factors for remand without vacatur)
Friends of the Earth v. EPA, 446 F.3d 140 (D.C. Cir. 2006) (courts must apply plain statutory text)
Pavelic & LeFlore v. Marvel Entm't Grp., 493 U.S. 120 (1989) (courts apply statutory text, not a preferable policy)