Select Specialty Hospital-Bloomington, Inc. v. Sebelius
774 F. Supp. 2d 332
D.D.C.2011Background
- Plaintiffs Select Specialty Hospital Bloomington and Select Specialty Hospital Augusta are LTCHs that leased space from host hospitals and sought capital-cost reimbursement under the 'new hospital' exemption (85% of reasonable costs) rather than Capital PPS.
- The regulation defining 'new hospital' is 42 C.F.R. § 412.300(b): a hospital that has operated for less than 2 years, with several listed exclusions; plaintiffs contend the term 'hospital' can mean either the business entity or the physical assets.
- Intermediaries denied the exemption, issuing NPRs at Capital PPS rates; plaintiffs appealed to the Provider Reimbursement Review Board (PRRB), which found the regulation ambiguous and that the provision concerns newly built hospitals.
- The PRRB majority held that the exemption targets physical assets, implying a narrow 'new hospital' meaning; the Secretary declined to review, adopting the Board’s decision by default.
- Plaintiffs filed suit (Oct/Dec 2009; consolidated 2010) challenging the Board’s interpretation as arbitrary, capricious, and not supported by substantial evidence, and alleging APA and constitutional violations.
- The court denied the plaintiffs’ summary judgment motion, granted in part the Secretary’s cross-motion, and remanded the two free-standing hospitals issue to the Board for further explanation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Board’s interpretation of 'new hospital' is reasonable. | Bloomington/Augusta assert the regulation is clear and unambiguous as to a hospital’s status by entity; Board’s reading is arbitrary. | Secretary contends ambiguity exists and Board’s asset-based interpretation is reasonable. | Board's interpretation is reasonable. |
| Whether the definition must account for a hospital’s physical assets to qualify as 'new'. | Plaintiffs rely on plain language that 'new hospital' is a new entity; renovation-filled facilities should qualify. | Regulation contemplates assets and control of a facility; physical assets analysis is permissible. | Regulation allows asset-based interpretation; this supports denial of exemption. |
| Whether plaintiffs’ capital-cost reimbursements were improperly denied during the 'gap year' and whether retroactive change violated APA. | CMS/Board denied gap-year exemptions; plaintiffs claim retroactive interpretation changed policy without notice. | Secretary acted within discretion; no compelled retroactive amendment; intermediary changes do not bind Secretary. | No APA violation; Board/Secretary actions upheld; gap-year handling permissible. |
| Whether notice-and-comment procedures were required for altering the 'new hospital' interpretation. | Intermediary/Board changes to interpretation should have followed APA notice and comment. | Intermediary actions do not bind Secretary; no change in regulation occurred; no additional rulemaking required. | APA notice-and-comment not required; no violation. |
Key Cases Cited
- Wyoming Outdoor Council v. U.S. Forest Serv., 165 F.3d 43 (D.C. Cir. 1999) (agency interpretations of ambiguous regulations deserve deference)
- Thomas Jefferson Univ. v. Shalala, 512 U.S. 504 (U.S. 1994) (agency interpretation entitled to deference; not Chevron, but substantial deference)
- Abington Crest Nursing & Rehab. Ctr. v. Leavitt, 541 F. Supp. 2d 99 (D.D.C. 2008) (high deference to agency interpretation of its regulations)
- Levin v. United States, 496 F. Supp. 2d 116 (D.D.C. 2007) (regulation ambiguity can yield multiple reasonable interpretations)
- Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1 (U.S. 2000) (agency interpretation of regulations entitled to deference)
- Cty. of Los Angeles v. Shalala, 192 F.3d 1005 (D.C. Cir. 1999) (remand allowed when record not supportive of agency action)
- Motor Vehicle Mfrs. Ass'n v. State Farm Mutual, 463 U.S. 29 (U.S. 1983) (arbitrary and capricious standard requires rational consideration of factors)
- Braniff Airways, Inc. v. C.A.B., 379 F.2d 453 (D.C. Cir. 1967) (agency must search entire record for fair factual findings)