Select Specialty Hospital - Akron, LLC v. Sebelius, 820 F. Supp. 2d 13

Hospitals filed suit challenging CMS’s augmentation of LTCH HwH policy via a correcting amendment to the final rule; plaintiffs self-disallowed 2005 Medicare reimbursements; NPRs issued denying disputed amounts; expedited judicial review was sought for issues beyond PRRB authority; court reviews the correcting amendment under the APA; the ruling grants defendant summary judgment.
The 25 percent policy requires HwHs to limit host-hospital admissions to 25% of discharges or face LTCH PPS payment adjustments; the 2004 final rule introduced a four-year transition with a hold-harmless first year; the correcting amendment added missing language aligning the CFR with the preamble.
The preamble to the 2004 final rule stated the hold-harmless year would limit host admissions to 2004 FY levels; the final CFR language initially omitted that constraint and CMS later issued a correcting amendment.
CMS’s correcting amendment was issued after public comment had already occurred on the underlying policy and did not require a new notice-and-comment period, as the amendment reflected the logical outgrowth of prior rulemaking.
The court concludes the action is not retroactive to past actions, is not arbitrary and capricious, and substantial-evidence review does not apply to rulemaking; the agency’s action is consistent with the APA and Medicare Act.
The court ultimately denies plaintiffs’ motion and grants defendant’s cross-motion for summary judgment.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the correcting amendment violated notice and comment	CMS failed to provide new notice and comment	Amendment is a logical outgrowth of prior rulemaking	No; proper under APA and Medicare Act
Whether the preamble binds plaintiffs to the 25% limit	Preamble alone cannot bind without CFR language	Preamble valid contemporaneous evidence of intent	Yes; preamble suffices to bind
Whether the correcting amendment was arbitrary and capricious	Amendment retroactive and improperly issued	Explanation for correction shows reasoned decisionmaking	No; not arbitrary or capricious
Whether substantial evidence applies to the rulemaking context	Substantial-evidence standard governs	Standard does not apply to rulemaking	Inapplicable; rulemaking review governs
Whether the amendment effects retroactive harms	Changes affect past reimbursements	Only clarifies future reimbursement; not retroactive	No retroactivity concern; no harm shown

Health Ins. Ass’n of Am., Inc. v. Shalala, 23 F.3d 412 (D.C. Cir. 1994) (final rule need not be identical to proposed rule; logical outgrowth)
Small Refiner Lead Phase-Down Task Force v. EPA, 705 F.2d 506 (D.C. Cir. 1983) (final rule may differ from proposal; no strict sameness required)
Trans-Pac. Freight Conf. v. Fed. Mar. Comm’n, 650 F.2d 1235 (D.C. Cir. 1980) (notice and comment flexibility in rulemaking)
Am. Mining Congress v. Mine Safety & Health Admin., 995 F.2d 1106 (D.C. Cir. 1993) (agency may correct ministerial errors via rulemaking with proper process)
State Farm Mut. Auto. Ins. Co. v. United States, 463 U.S. 29 (Supreme Court 1983) (requires rational explanation and record support)
Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402 (U.S. 1971) (presumption of regularity; contemporaneous agency intent from preamble)
Fertilizer Inst. v. EPA, 935 F.2d 1303 (D.C. Cir. 1991) (preamble may inform agency intent in rulemaking)
AMA v. United States, 887 F.2d 760 (7th Cir. 1989) (possible caution against successive rounds of notice)
Northeast Hosp. Corp. v. Sebelius, 2011 WL 4036318 (D.C. Cir. 2011) (retroactivity analysis in Medicare context)
Nat’l Mining Ass’n v. Dep’t of Labor, 292 F.3d 849 (D.C. Cir. 2002) (retroactivity and rulemaking considerations)
Mobile Relay Assocs. v. FCC, 457 F.3d 1 (D.C. Cir. 2006) (retroactivity and future effects of rules)