306 F. Supp. 3d 684
E.D. Pa.2018Background
- Wills Eye Hospital (a trust) operated an ASC at 840 Walnut St.; in 2013 it added four inpatient beds, obtained state hospital licensure, and applied to enroll in Medicare as a hospital.
- CMS and the Medicare intermediary agreed state licensure and surveys were satisfied, but CMS denied enrollment, concluding Wills Eye was not "primarily engaged" in providing inpatient services.
- Wills Eye administratively appealed (reconsideration, ALJ hearing, HHS Appeals Board); each level upheld CMS, applying a holistic inquiry that considered inpatient/outpatient volume among other factors.
- Wills Eye argued CMS had effectively adopted a new comparative-volume test without notice-and-comment rulemaking, violated equal protection, and denied fair notice; CMS replied the volume consideration is interpretive and only one factor in a case-by-case review.
- The District Court reviewed under the APA substantial-evidence/arbitrary-and-capricious standard and granted summary judgment to the Secretary, concluding CMS’s decision was supported by substantial evidence and lawful.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CMS lawfully denied hospital enrollment by considering inpatient/outpatient volume | CMS applied a new comparative-volume test and thus improperly denied enrollment | CMS used volume as one factor among many in a holistic inquiry; denial supported by operations, staffing, history, and low inpatient use | Held for Secretary: denial supported by substantial evidence; not arbitrary or capricious |
| Whether CMS needed notice-and-comment rulemaking for the comparative-volume consideration (APA & Medicare Act) | The comparative-volume consideration is a new substantive standard requiring rulemaking | The volume consideration is interpretive/policy guidance, not a substantive rule, so notice-and-comment not required | Held for Secretary: interpretive/policy guidance; no APA or Medicare-Act notice-and-comment required |
| Whether CMS’s application of the volume consideration violated Equal Protection | CMS singled out Wills Eye or applied the rule discriminatorily | CMS had a rational basis (neutral, evidence-based factors) and applied consideration case-by-case | Held for Secretary: equal protection claim fails; rational basis met |
| Whether Wills Eye lacked fair notice of the standard | Wills Eye lacked "ascertainable certainty" that comparative volume would be considered | Public agency statements and prior decisions put applicants on notice that inpatient predominance is a central, case-specific factor | Held for Secretary: adequate public notice from agency decisions, reports, and statements; no fair-notice violation |
Key Cases Cited
- Heckler v. Ringer, 466 U.S. 602 (agency administration of Medicare programs)
- Mercy Home Health v. Leavitt, 436 F.3d 370 (3d Cir.) (substantial-evidence and deference to agency interpretations)
- Albert Einstein Med. Ctr. v. Sebelius, 566 F.3d 368 (3d Cir.) (standard for reviewing Medicare provider decisions)
- Motor Vehicle Mfrs. Ass'n v. State Farm, 463 U.S. 29 (arbitrary and capricious review principles)
- Allina Health Servs. v. Price, 863 F.3d 937 (D.C. Cir.) (definition of substantive legal standard under Medicare Act)
- Clarian Health West, LLC v. Hargan, 878 F.3d 346 (D.C. Cir.) (distinguishing agency policy guidance from substantive rule)