812 F.3d 257
2d Cir.2016Background
- Lawrence + Memorial Hospital (Lawrence), geographically in an urban area, applied under 42 U.S.C. § 1395ww(d)(8)(E) ("Section 401") to be treated as rural and to obtain Rural Referral Center (RRC) status; CMS granted that reclassification effective July 3, 2013.
- Shortly after, Lawrence applied to the Medicare Geographic Classification Review Board (MGCRB) to be reclassified for wage-index purposes to a nearby higher-wage urban area; CMS had a regulation (42 C.F.R. § 412.230(a)(5)(iii)) barring MGCRB reclassification while Section 401 rural status was in effect.
- The district court denied Lawrence’s preliminary injunction and later granted summary judgment for defendants, upholding the Secretary’s regulation under Chevron deference and finding it not arbitrary and capricious.
- Lawrence appealed; the Second Circuit reviewed de novo and framed the statutory-interpretation issue under Chevron Step One (whether Congress clearly spoke).
- The Second Circuit held that the plain text of Section 401—"For purposes of this subsection... the Secretary shall treat the hospital as being located in the rural area"—unambiguously requires that Section 401 hospitals be treated like geographically rural hospitals for all purposes of 42 U.S.C. § 1395ww(d), including MGCRB reclassification.
- The court therefore invalidated 42 C.F.R. § 412.230(a)(5)(iii) as contrary to the statute, reversed the district court, and remanded for appropriate relief.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Section 401 requires CMS/MGCRB to treat Section 401 hospitals as rural for MGCRB reclassification purposes | Section 401's phrase "for purposes of this subsection" unambiguously includes MGCRB (part of § 1395ww(d)), so Section 401 hospitals must be treated like geographically rural hospitals when applying to the MGCRB | Section 401 is silent on the interplay; agency may fill the gap and may limit MGCRB reclassification while Section 401 rural status is active to prevent gaming | Held for Plaintiff: statutory text unambiguous — Section 401 covers MGCRB reclassification; the regulation barring MGCRB reclassification while Section 401 status is active is invalid |
| Whether Chevron deference saves the Secretary's regulation if statute ambiguous | Lawrence: statute is plain, so Chevron inapplicable | Secretary: statute ambiguous; agency interpretation is reasonable and entitled to deference | Court: Chevron Step One dispositive — statute is not ambiguous; deference not applied |
| Whether agency may treat "acquired rural status" differently than "geographically rural" for MGCRB | Lawrence: Congress meant acquired rural status to have same effect as geographic rural status for purposes of § 1395ww(d) | Secretary: can distinguish and limit benefits to avoid dual treatment (rural benefits + urban wage index) | Court: rejected Secretary’s distinction — absent statutory text, agency cannot create it |
| Whether the regulation produces absurd or impermissible results | Lawrence: no absurdity; statute contemplates different treatment in different contexts | Secretary: allowing reclassification would enable inappropriate gaming of rural/urban status | Court: no absurdity; statute contemplates such mixed treatment; agency cannot rewrite clear statutory terms |
Key Cases Cited
- Chevron U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837 (agency statutory‑interpretation framework)
- Barnhart v. Sigmon Coal Co., 534 U.S. 438 (presumption that statute means what it says)
- Corley v. United States, 556 U.S. 303 (interpretive canon to give effect to every statutory provision)
- Monsanto v. United States, 491 U.S. 600 (mandatory "shall" language indicates nondiscretionary duty)
- Lamie v. U.S. Trustee, 540 U.S. 526 (plain statutory text governs absent absurdity)
- Bellevue Hosp. Ctr. v. Leavitt, 443 F.3d 163 (describing Medicare inpatient prospective payment framework)
- Robert Wood Johnson Univ. Hosp. v. Thompson, 297 F.3d 273 (wage‑index inequities prompted MGCRB creation)
- Geisinger Community Med. Ctr. v. Sec’y U.S. Dep’t of Health & Human Servs., 794 F.3d 383 (Third Circuit reached similar statutory‑interpretation conclusion)