Regents of the University of California v. Burwell
155 F. Supp. 3d 31
| D.D.C. | 2016Background
- The Medicare wage index adjusts prospective hospital PPS payments for regional differences in wage and wage-related costs; indexes for a given FFY are calculated from hospitals’ cost-report data submitted 3–4 years earlier.
- In 1994 CMS instructed hospitals to follow GAAP for Worksheet S‑3 wage-related costs; in 1995 CMS adopted §413.100 (timely liquidation rule) for reasonable-cost reimbursement but did not apply it to PPS hospitals.
- OIG found inconsistent reporting of pension and other postretirement costs and recommended adjustments; in August 2005 CMS issued a rule (the 2005 Rule) clarifying that pension and deferred compensation costs used for the wage index must comply with §413.100 (timely liquidation) and related Medicare instructions.
- Plaintiffs (107 hospitals and 13 related entities) challenge application of the 2005 Rule to pension data from FY2004 and FY2005 used in the FFY 2007 and 2008 wage indices, arguing retroactivity, inconsistency with the Medicare wage-index statute, inconsistent enforcement, and improper application to fully funded plans.
- Fiscal intermediaries adjusted UC and CHW pension amounts downward for the relevant wage-index calculations; PRRB consolidated appeals but said it was bound to apply §413.100 and declined to resolve the retroactivity issue; plaintiffs sought judicial review under the APA and Medicare Act.
- District court granted summary judgment to the Secretary, holding the 2005 Rule validly applied prospectively to FFY 2007 and 2008 wage-index computations and that plaintiffs failed to show arbitrary, capricious, or unlawful agency action.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Retroactivity | Applying the 2005 Rule to FY2004–2005 cost data is impermissibly retroactive because hospitals reported under prior accounting rules and had vested expectations. | The 2005 Rule affects only future reimbursements (prospective PPS rates); using historical data to set future rates is not retroactive; waiver argument also raised. | Court: No retroactivity — the rule governs calculation of future prospective rates and does not alter past legal consequences or recoup past payments. |
| Statutory fit / Chevron | The 2005 Rule conflicts with the Medicare wage-index objective to measure relative labor costs and with prior GAAP guidance. | The statute is silent on accounting methodology; Secretary has broad discretion; the 2005 Rule is a reasonable construction to improve accuracy and prevent overreporting. | Court: Chevron step two — Secretary's interpretation is reasonable and not arbitrary or capricious. |
| Consistency of application | Fiscal intermediaries applied the rule inconsistently; plaintiffs’ evidence (expert Baker) shows selective or uneven enforcement, undermining wage-index accuracy. | The rule is uniform; alleged inconsistent enforcement is speculative and unsupported; selective enforcement claim lacks particulars and material showing. | Court: Plaintiffs failed to prove arbitrary or capricious inconsistent application or material effect on the wage index. |
| Application to funded pension plans | No rational basis to exclude actuarial pension expense for fully funded plans; the Rule irrationally treats funded and unfunded plans the same. | Agency need not adopt the best or most narrowly tailored approach; uniform timely-liquidation rule is reasonable to ensure consistency and guard against overreporting. | Court: Applying the Rule to funded plans is within agency discretion and not arbitrary. |
Key Cases Cited
- Bowen v. Georgetown Univ. Hosp., 488 U.S. 204 (agency may not promulgate retroactive rules absent clear congressional authorization)
- Landgraf v. USI Film Prods., 511 U.S. 244 (distinguishes primary vs. secondary retroactivity; retroactivity inquiry framework)
- Northeast Hosp. Corp. v. Sebelius, 657 F.3d 1 (D.C. Cir.) (invalidated retroactive change that altered past reimbursement amounts)
- Anna Jaques Hosp. v. Sebelius, 583 F.3d 1 (D.C. Cir.) (deference to Secretary’s wage-index implementation; agency may revise methodology with reasoned explanation)
- DIRECTV, Inc. v. FCC, 110 F.3d 816 (D.C. Cir.) (rule upset expectations is not necessarily retroactive)
- Heckler v. Chaney, 470 U.S. 821 (agency enforcement discretion principles cited)
- Nat’l Mining Ass’n v. Dep’t of Labor, 292 F.3d 849 (D.C. Cir.) (administrative retroactivity standard)