Select Specialty Hospital - Bloomington, Inc. v. Sebelius, 893 F. Supp. 2d 1

Plaintiffs Select Specialty Hospital Bloomington and Augusta challenge the Board’s determination that freestanding hospitals are not “new hospitals” under 42 C.F.R. § 412.300(b), APA action against HHS Secretary Kathleen Sebelius.
The Court previously denied plaintiffs’ summary judgment and granted in part/denied in part defendant’s summary judgment, remanding for explanation on whether freestanding hospitals South Dallas and Victoria were “new hospitals.”
On remand, the Secretary concluded South Dallas and Victoria were not new hospitals; plaintiffs then moved for supplemental summary judgment, which the Court denied and which granted defendant’s cross-motion.
The Court reviews final agency action under the APA with deferential, substantial-evidence review and defers to the agency’s interpretation of its regulations if reasonable.
42 C.F.R. § 412.300(b) defines a new hospital by operating time and exclusions; the rule is designed to assist new entrants without historic asset bases by covering start-up costs.
The Secretary found the freestanding hospitals had operated with historic assets and facilities for more than two years, and that applying the “two years” concept as of immediately preceding the start-up period would undermine the regulation’s purpose; the court adopts this interpretation as reasonable.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether freestanding hospitals qualify as 'new hospitals' under §412.300(b).	Plaintiffs argue hospital status includes both operating entity and facility and freestanding hospitals meet the spirit of the regulation.	Secretary concluded freestanding hospitals had historic assets and thus were not new; the two-year operating requirement applies to both components, not just immediate prior years.	Yes; freestanding hospitals are not new hospitals; Secretary’s interpretation reasonable.
Whether the Secretary’s interpretation is arbitrary or unsupported by substantial evidence.	Plaintiffs contend the interpretation ignores the regulation’s plain meaning.	Secretary’s reading aligns with the regulation’s purpose to aid hospitals without a historic asset base.	The interpretation is not arbitrary or capricious; substantial evidence supports it.

Air Transport Ass'n of Am., Inc. v. Nat'l Mediation Bd., 719 F. Supp. 2d 26 (D.D.C. 2010) (deference in agency action review; record-based inquiry)
Abington Crest Nursing & Rehab. Ctr. v. Leavitt, 541 F. Supp. 2d 99 (D.D.C. 2008) (deferential treatment of agency interpretations of regulations)
Consolo v. Fed. Mar. Comm'n, 383 U.S. 607 (1986) (standards for determining substantial evidence)
Wyo. Outdoor Council v. U.S. Forest Serv., 165 F.3d 43 (D.C. Cir. 1999) (deferential review of agency interpretations when regulation ambiguous)
Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (summary judgment standard under Rule 56)
FCC v. Nat'l Citizens Comm. for Broad., 436 U.S. 775 (1978) (arbitrary and capricious review standard for agency action)
Thomas Jefferson Univ. v. Shalala, 512 U.S. 504 (1994) (agency deference to regulatory interpretation)