ANNA JAQUES HOSPITAL, et al., Plaintiffs, v. Kathleen SEBELIUS, Secretary of the U.S. Dept. of Health and Human Services, Defendant.
Civil Action No. 13-0053 (ABJ)
United States District Court, District of Columbia.
Signed March 31, 2014
Peter C. Pfaffenroth, U.S. Attorney‘s Office, Washington, DC, for Defendant.
MEMORANDUM OPINION
AMY BERMAN JACKSON, United States District Judge
Forty-one hospitals have sued the Secretary of the United States Department of Health and Human Services (“HHS“) challenging her calculation of the “wage index” for their geographic area under the Medicare Act. Specifically, they complain that the Secretary improperly included two hospitals located outside their geographic area, the Boston-Quincy Core-Based Statistical Area (“CBSA“), when calculating the wage index for that CBSA for fiscal years (“FY“) 2006 and 2007. This resulted in lower Medicare payments to the plaintiffs for those years.
Because the Medicare Act does not unambiguously set forth how HHS must define “geographic area” or what data it must use in calculating a geographic area‘s wage index and the Secretary‘s calculation of the wage index for the Boston-Quincy CBSA for those two years is reasonable, the Court will uphold the agency‘s calculation of the index for FY 2006 and 2007.
I. BACKGROUND AND STATUTORY FRAMEWORK
The federal Medicare program provides healthcare coverage to individuals who are at least 65 years old and eligible for Social Security benefits, among others.
HHS pays hospitals for acute inpatient care they provide to Medicare enrollees under the Prospective Payment System (“PPS“).
A. The Wage Index
Because a significant component of hospitals’ costs are attributable to wages and wage-related costs, Anna Jaques Hosp. v. Sebelius, 583 F.3d 1, 2 (D.C.Cir.2009), and these costs vary widely across geographic areas, the Medicare statute provides adjustments to DRG payments to address wage variations. Methodist Hosp. of Sacramento, 38 F.3d at 1227, citing
adjust the proportion, (as estimated by the Secretary from time to time) of hospitals’ costs which are attributable to wages and wage-related costs, of the DRG prospective payment rates computed under subparagraph (D) for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level.
Congress requires the Secretary “at least every 12 months ... [to] update the factor ... on the basis of a survey conducted by the Secretary (and updated as appropriate) of the wages and wage-related costs” of the hospitals.
B. The Geographic Area
Before October 2004, HHS used Metropolitan Statistical Areas (“MSAs“) to set the geographic boundaries for calculating the wage index of geographical areas under the statute. Medicare Program; Prospective Payments for Medicare Inpatient Hospital Services,
Tobey Hospital, St. Luke‘s Hospital, and Charlton Hospital, all located in southeastern Massachusetts, merged in 1996 to form the Southcoast Hospital Group. AR 000003.2 When they merged, Southcoast adopted the Medicare provider number of Tobey Hospital for the group. AR 000003; AR 000312. Tobey Hospital is the smallest of the three hospitals, comprising only ten percent of Southcoast Hospital Group‘s beds. Pls.’ Opp. to Def.‘s Cross-Mot. for Summ. J. and Reply to Def.‘s Opp. to Pls.’ Mot. for Summ. J. [Dkt. # 22] (“Pls.’ Reply“) at 4. All three hospitals were located in the Boston-Quincy MSA. When CBSAs replaced MSAs in 2004, Tobey Hospital remained in the Boston-Quincy CBSA, but St. Luke‘s Hospital and Charlton Hospital became part of neighboring Providence-New Bedford-Falls River CBSA. AR 000006; AR 000310-12.
C. The Policy on the Wage Costs of Hospital Groups
Under Medicare regulations, HHS treats multi-facility groups as a single entity. These groups submit a single cost report for the set of facilities under the group‘s principal provider number. Def.‘s Mot. for Summ. J. and Mem. in Supp. of Def.‘s Summ. J. Mot. and in Opp. to Pls.’ Summ. J. Mot. [Dkt. # 19] (“Def.‘s Mot./Opp.“) at 5, citing PRM-II § 112, available at http://www.cms.gov/regulations-and-guidance/Guidance/Manuals/Paper-Based-Manuals-Items/ CMS021935.html?DLPage=1&DLSort=0&DLSortDir=ascending, and Medicare State Operations Manual § 2779F, available at http://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Internet-Only-Manuals-IOMs-Items/CMS1201984.html (edits in original) (“[I]f the merged facilities operate as a single institution, it must submit a single cost report .... [I]n the case of the merger of 2 provider corporations, use[ ] the CNN [CMS Certification Number] of the surviving corporation and re-
Because HHS treats hospital groups as a single entity and hospital groups submit a single cost report, HHS adopted a policy starting in FY 2006 to attribute all the wage costs of a hospital group to the CBSA where the facility with the principal provider number is located.
[S]ection 2779F of the Medicare State Operations Manual provides that, in the case of a merger of hospitals, if the merged facilities operate as a single institution, the institution must submit a single cost report, which necessitates a single provider identification number. This provision does not differentiate between merged facilities in a single wage index area or in multiple wage index areas. As a result, the wage index data for the merged facility is reported for the entire entity on a single cost report.
Id.; see also
Because Southcoast Hospital Group adopted Tobey Hospital‘s provider number for the group, HHS included the wages of all three Southcoast hospitals in calculating the FY 2006 and FY 2007 wage index for the Boston-Quincy CBSA—even though St. Luke‘s and Charlton were located in the Providence-New Bedford-Falls River CBSA.
Beginning with FY 2008, HHS announced a change in its policy that would provide for the allocation of each hospital group member‘s costs to the CBSA where its campus is located.
Plaintiffs challenge HHS‘s inclusion of St. Luke‘s and Charlton‘s costs in calculating the wage index for the Boston-Quincy CBSA for FY 2006 and 2007. Pending before the Court are the parties’ cross-motions for summary judgment. See Pls.’ Mot. for Summ. J. [Dkt. # 16]; Def.‘s Mot./Opp.
II. STANDARD OF REVIEW
Summary judgment is appropriate when the pleadings and evidence show that “there is no genuine dispute as to any material fact and [that] the movant is entitled to judgment as a matter of law.”
Under the APA, a court must “hold unlawful and set aside agency action, findings, and conclusions” that are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,”
In reviewing an agency‘s interpretation of a statute, courts use the two-step analysis outlined in Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Step one involves determining whether Congress has spoken directly to the “precise question at issue,” for if it has, then “the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” Id. at 842-43, 104 S.Ct. 2778. If it has, then that is the end of the matter. Id.; Nat‘l Treasury Emps. Union v. Fed. Labor Relations Auth., 392 F.3d 498, 500 (D.C.Cir.2004). However, if the statute is silent or ambiguous on the question (Chevron “step two“), “the question for the court is whether the agency‘s answer is based on a permissible construction of the statute.” Chevron, 467 U.S. at 843, 104 S.Ct. 2778. The agency‘s interpretation only needs to be reasonable to warrant deference. Pauley v. BethEnergy Mines, Inc., 501 U.S. 680, 702, 111 S.Ct. 2524, 115 L.Ed.2d 604 (1991).
“[I]n framing the scope of review, the court takes special note of the tremendous complexity of the Medicare statute. That complexity adds to the deference which is due to the Secretary‘s decision.” Methodist Hosp. of Sacramento, 38 F.3d at 1229 (giving heightened deference to the Secretary‘s policy of denying retroactive effect to a revised wage index); see also Robert Wood Johnson, 297 F.3d at 282 (edits in original), quoting Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512, 114 S.Ct. 2381, 129 L.Ed.2d 405 (1994) (“The broad deference of Chevron is even more appropriate in cases that involve a ‘complex and highly technical regulatory program,’ such as Medicare, which ‘require[s] significant expertise and entail[s] the exercise of judgment grounded in policy concerns.‘“).
III. ANALYSIS
Plaintiff hospitals contend that HHS‘s calculation of the Boston-Quincy CBSA wage index for FY 2006 and 2007 violates
A. The Statute Does Not Clearly Address How the Agency Must Calculate the Wage Index for a Geographic Area
The Medicare statute requires the Secretary to adjust payments to hospitals to account for area differences in hospital wage levels “by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level.”
The Court agrees with defendant. The text of the statute does not support plaintiffs’ argument because it does not clearly speak to the issue. First, the term “geographic area“—especially as it is used broadly here to differentiate the area around a hospital from the whole nation—is not a term of art, but it is ambiguous, and the statute leaves it to the agency‘s discretion to define geographic areas in calculating the wage index. See Bellevue Hosp. Ctr., 443 F.3d at 175 (“[T]he statute leaves considerable ambiguity as to the term ‘geographic area,’ which, based only on the literal language of the provision, could be as large as a several-state region or as small as a city block.“). And though the requirement to create an index that reflects the relative wage level “in the geographic area” could be read to imply that an area‘s wage index can include the wages only of hospitals in that area, the statute does not clearly provide that. Methodist Hosp. of Sacramento, 38 F.3d at 1230 (noting that “[t]he statute does not specify how the Secretary should construct the index .... Congress through its silence delegated these decisions to the Secretary,” and that the statute “merely requires the Secretary to develop a mechanism to remove the effects of local wage differences“); see also Anna Jaques Hosp., 583 F.3d at 5-6 (upholding HHS policy to remove certain aberrant data from the wage calculation index, in part, because the statute is silent about whether the agency must use all of survey data it receives in calculating the wage index). Rather, the statute expressly leaves the wage index calculation to the agency.
The court in St. Michael‘s Medical Center v. Sebelius considered a question similar to the one before this Court: whether HHS‘s policy of calculating the wage index for urban areas excluding data from hospitals that had reclassified into those urban areas under section 1395ww(d)(8)(B)(i) violated section 1395ww(d)(3)(E), the provision at issue here. 648 F.Supp.2d 18. The Medicare statute allows a hospital to seek reclassification from its geographically-based wage area to a nearby wage area for payment purposes if it meets certain criteria, because the geographic classification procedures can impose a burden on some hospitals—like those in rural areas that compete for employees with hospitals in nearby urban areas. Id. at 20 n. 3, 21, citing section 1395ww(d)(8)(B)(i) and Robert Wood Johnson, 297 F.3d at 276. For FY 2000 and 2001, HHS did not include the cost data of hospitals that had been reclassified under section 1395ww(d)(8)(B)(i) into an urban MSA in calculating the wage index for the MSA.3 The question before the court was whether section 1395ww(d)(E)(3) required HHS to include those costs because those hospitals had been reclassified into the “geographic area.” The court held it did not. It ruled that section 1395ww(d)(3)(E) “leave[s] open the question of whether a hospital should be treated as located ‘in the geographic area’ from which it has reclassified.” St. Michael‘s Med. Ctr., 648 F.Supp.2d at 27.
Although St. Michael‘s involves a different policy and concerns hospitals reclassified under a specific statutory provision, the Court finds that the court‘s underlying analysis applies equally here: section 1395ww(d)(3)(E) leaves open the question of how HHS must treat the costs of a hospital group when its individual hospitals are located in more than one geographic area. Accordingly, the Court must turn to step two of the Chevron analysis and determine if the agency‘s interpretation of the statute is reasonable.
B. The Agency‘s Interpretation of the Wage Index Provision is Reasonable
When a statute is silent or ambiguous with respect to an issue, courts must consider whether an agency‘s interpretation of the statute is “arbitrary, capricious, or an abuse of discretion.”
Next, plaintiffs emphasize the fact that, in 2008, the Secretary began treating multicampus hospitals the way they contend is required here. Pls. Mem. at 12. The fact that the agency changed its policy does not, however, make the initial policy unreasonable. Chevron, 467 U.S. at 863-64, 104 S.Ct. 2778 (“An initial agency interpretation is not instantly carved in stone. On the contrary, the agency, to engage in informed rulemaking, must consider varying interpretations and the wisdom of its policy on a continuing basis.“); see also Smiley v. Citibank (S.D.), N.A., 517 U.S. 735, 742, 116 S.Ct. 1730, 135 L.Ed.2d 25 (1996) (“Of course the mere fact that an agency interpretation contradicts a prior agency position is not fatal.“); ILGWU v. Donovan, 722 F.2d 795, 814 n. 33 (D.C.Cir. 1983) (“Agencies remain free to react to new information as part of their standard regulatory procedure ....“). Indeed, the D.C. Circuit has specifically noted that the agency may appropriately consider the importance of finality when deciding whether to apply a change to a wage index calculation retroactively. See Methodist Hosp. of Sacramento, 38 F.3d at 1235 (upholding the agency‘s policy to apply corrections to a hospital‘s cost reports prospectively but not retroactively, in part, because the policy was a reasonable choice between the competing values of finality and accuracy). Here, HHS carefully considered how to treat the costs of hospital groups with hospitals in more than one CBSA given the data available to it at the time,4 and it provided rational reasons for deciding to attribute the costs of the hospital group as a whole into the CBSA where the facility with the principal provider was located. See
Plaintiffs further argue that HHS‘s policy was arbitrary and capricious because including St. Luke‘s and Charlton‘s costs in the Boston-Quincy CBSA calculation undermined the requirement that the agency create “a uniform picture of area wage levels.” Pls.’ Mem. at 12-13. They contend that “uniformity is compromised by inconsistent treatment of wage data across providers.” Id. at 12, citing Centra Health, Inc. v. Shalala, 102 F.Supp.2d 654 (W.D.VA.2000) and Sarasota Mem‘l Hosp. v. Shalala, 60 F.3d 1507 (11th Cir.1995). But here, HHS treated wage data consistently across providers. For the FY 2006 and 2007, the cost data of all multicampus hospitals with locations in multiple CBSAs were treated the same.
Sarasota Memorial Hospital concerned how the agency treated plaintiff Sarasota Memorial‘s payments of its employee‘s portion of Federal Insurance Contributions Act (“FICA“) taxes in calculating the wage index. Because Sarasota Memorial paid its employees’ portion of FICA taxes, instead of the employees paying them from their gross wages, HHS treated these payments as fringe benefits, excluding them from Sarasota Memorial‘s wage costs when it calculated the Sarasota MSA‘s wage index. For other hospitals, however, HHS treated the employee portion of FICA taxes paid by employees as wages, including them in those hospitals’ wage costs. The Eleventh Circuit ruled there was no reasonable basis for classifying the same FICA payments as wages when paid by the employee but as fringe benefits when paid by the employer, citing the FICA statute which excluded employer-paid employee FICA taxes from the definition of wages only for purposes of calculating FICA taxes and noting that the agency did not explain why the FICA payments were not considered salary or wages in the first place. Sarasota Mem‘l Hosp., 60 F.3d at 1512, citing
Finally, plaintiffs point out that “CMS‘s task is unambiguous: to calculate a factor that reflects geographic-area wage-level differences, and nothing else.” Pls. Mem. at 13, quoting Bellevue Hosp. Ctr., 443 F.3d at 174. But plaintiffs fail to quote the rest of the Bellevue opinion, which holds that because “the statute leaves considerable ambiguity as to the term ‘geographic area,’ ... the agency has considerable discretion.” Bellevue Hosp. Ctr., 443 F.3d at 175. As discussed above, the statute similarly leaves open the question of how the agency must calculate the wage index, leaving the agency to determine how to account for the costs of a hospital group with hospitals located in more than one geographic area.
Given this, the Court holds that it was not arbitrary and capricious for the Secretary to include the wage costs of St. Luke‘s Hospital and Charlton Hospital in calculating the wage index of the Boston-Quincy CBSA for FY 2006 and 2007.
IV. CONCLUSION
For the reasons set forth above, plaintiffs’ motion for summary judgment will be denied and defendant‘s cross-motion for summary judgment will be granted. A separate order will issue.