Owensboro Health, Inc. v. Secretary of Health & Human Services
706 F. App'x 302
6th Cir.2017Background
- CMS administers Medicare reimbursements under the Inpatient Prospective Payment System (IPPS), adjusted by a geographic wage index and, since 2005, by an occupational mix adjustment to control for staffing-choice effects on wage-based payments.
- Congress required CMS to measure earnings and paid hours by occupational category and to exclude skilled-nursing facility wages; CMS had discretion on survey design and implementation.
- Under a court deadline (Bellevue), CMS ran an expedited 2006 occupational-mix survey that reduced job categories from 20 to 5 and grouped low-frequency jobs into an "all other occupations" category, which was effectively excluded from the occupational-mix calculation.
- Owensboro Health, Inc. (OHI) classified its medical technicians as "nursing aides, orderlies, and attendants" on the 2006 survey; a fiscal intermediary reclassified those technicians as "other occupations," removing their wages from the adjustment and reducing OHI's reimbursement by an estimated $575,000.
- OHI appealed administratively (PRRB upheld the fiscal intermediary's adherence to CMS policy) and sued in district court; the district court granted summary judgment for the Secretary; OHI appealed to the Sixth Circuit.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CMS's survey design and exclusion of the "other occupations" data violated 42 U.S.C. § 1395ww(d)(3)(E)(i) | OHI: Statute requires inclusion of non–skilled-nursing wages; excluding "other occupations" effectively excludes OHI's technicians and violates the statute | Secretary/CMS: Statute is silent on category detail; CMS reasonably exercised discretion to balance accuracy and reporting burden when defining categories and excluding low-frequency "other occupations" from the adjustment | Court: Chevron deference applies; CMS's interpretation was reasonable and not arbitrary or manifestly contrary to statute — upheld CMS |
| Whether CMS/its intermediaries acted arbitrarily in classifying OHI's technicians in "other occupations" | OHI: CMS treated similar technicians differently across hospitals; OHI's technicians fit nursing-aide category and reclassification was arbitrary | CMS: Survey instructions and supplemental guidance supported classifying technicians as "other occupations"; fiscal intermediaries followed CMS policy | Court: PRRB and district court found classification supported by substantial evidence; not arbitrary or capricious — upheld classification |
| Whether inconsistent classification at other hospitals required recalculation of OHI's wage index | OHI: FOIA showed at least 10 hospitals classified technicians as nursing aides; disparate treatment should trigger correction | CMS: Review regulation does not authorize correction of other hospitals' data; uniform recalculation nationwide would be unworkable and destabilizing (budget-neutrality constraint) | Court: No precedent or regulatory basis to require correction based on other hospitals' audits; decline to create such a rule here |
| Whether agency missed procedural or substantive obligations given expedited timeline | OHI: Time pressure and fiscal intermediary errors produced unfair results | CMS: Acted under court-imposed deadline, issued supplemental instructions, and balanced competing obligations reasonably | Court: Considered circumstances and found CMS acted reasonably under the APA despite imperfections |
Key Cases Cited
- Chevron U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837 (1984) (agency statutory-interpretation deference framework)
- Motor Vehicles Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (arbitrary-and-capricious standard for agency action)
- Bellevue Hosp. Ctr. v. Leavitt, 443 F.3d 163 (2d Cir. 2006) (ordering CMS to collect improved occupational-mix data on expedited schedule)
- Atrium Med. Ctr. v. U.S. Dep't of Health & Human Servs., 766 F.3d 560 (6th Cir. 2014) (recognizing broad CMS discretion in wage-index implementation)
- Sarasota Mem'l Hosp. v. Shalala, 60 F.3d 1507 (11th Cir. 1995) (example of court ordering recalculation when CMS treated similar payroll items differently)
- Battle Creek Health Sys. v. Leavitt, 498 F.3d 401 (6th Cir. 2007) (standard of review for district court summary-judgment decisions involving Medicare administrative actions)