BRIDGEPORT HOSPITAL, DOING BUSINESS AS YALE NEW HAVEN HEALTH, ET AL., APPELLEES v. XAVIER BECERRA, SECRETARY, UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, APPELLANT
No. 22-5249
United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT
Decided July 23, 2024
Argued October 27, 2023; Consolidated with 22-5269
David L. Peters, Attorney, U.S. Department of Justice, argued the cause for appellant/cross-appellee. With him on the briefs were Brian M. Boynton, Principal
Katrina A. Pagonis argued the cause for appellees/cross-appellants. With her on the briefs was Kelly A. Carroll.
Before: RAO and WALKER, Circuit Judges, and RANDOLPH, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge WALKER.
WALKER, Circuit Judge: Parts of the United States Code are notoriously short on details. When should the FCC license a radio station? When “public interest, convenience, and necessity” require it.
But sometimes Congress speaks precisely. And it did so in the section of the Medicare Act at issue in today‘s case. See
The Department of Health and Human Services does not like the result of those formulas. So it categorically inflated reimbursements for 25 percent of hospitals — at a cost of $245 million more than Congress prescribed. Then, to balance the budget, HHS reduced reimbursements for all other hospitals. The district court held that HHS cannot deviate in that way from Congress‘s directive. Without vacating HHS‘s action, the district court remanded the rule with instructions to recalculate the reimbursements.
Like the district court, we hold that HHS exceeded its authority. Unlike the district court, we conclude that HHS‘s unlawful action must be vacated.
I. Background
A. Medicare‘s Reimbursement System
Medicare covers the health care of elderly and disabled Americans. Its coverage includes inpatient care. When hospitals provide that care, they receive Medicare reimbursements. See
The Department of Health and Human Services calculates inpatient reimbursements according to formulas chosen by Congress. See Empire Health Foundation, 597 U.S. at 428-29. The formulas include predetermined fixed rates. The rates approximate the amount of money “an efficiently run hospital, in the same region, would expend to treat a patient with the same diagnosis.” See id. at 429; see also
To fully understand how all the Medicare formulas work, you would have to read the tens of thousands of words in
To account for those differences, Congress added the wage-index provision. See
The wage index tags the national “wage index value” at 1.0. See Bridgeport Hospital, 589 F. Supp. 3d at 6; id. at 5 n.3. A region with higher-than-average wages is assigned a value greater than 1.0 — and a hospital there gets a higher-than-average rate. See id. at 5 n.3. Likewise, a low-wage region is assigned a value less than 1.0 — and a hospital there gets a lower-than-average rate. See id.
In addition to prescribing all that, Congress passed two other provisions relevant to this case. First, it provided that annual fluctuations in the wage index must be budget neutral.
B. The Wage-Index Redistribution Policy
In 2018, HHS decided that wage disparities among hospitals were too great. 84 Fed. Reg. 19,158, 19,394 (May 3, 2019). It reasoned that high reimbursements for high-wage hospitals make it easy for them to maintain high wages. See id. Meanwhile, low reimbursements for low-wage hospitals prevent them from paying higher wages, which keeps them at the low end of the wage index. See id.; see also Bridgeport Hospital, 589 F. Supp. 3d at 6. HHS calls that a “downward spiral.” 84 Fed. Reg. at 19,394.
In response, HHS in 2019 “proposed inflating the wage index value of the hospitals in the lowest quartile.” Bridgeport Hospital, 589 F. Supp. 3d at 6; see also 84 Fed. Reg. at 19,394-96. To be precise, HHS decided to raise each of these low-wage hospitals’ “wage index value” by half the difference between (1) their congressionally prescribed value and (2) the value of a hospital at the 25th percentile line for wages. Bridgeport Hospital, 589 F. Supp. 3d at 6. So if a hospital had a congressionally prescribed value of 0.5, and if the 25th percentile of all hospitals had a value of 0.8, then HHS would now give that hospital a value of 0.65 instead of 0.5. See id.
To balance the budget, HHS also proposed “applying a budget neutrality factor” for all other hospitals. 84 Fed. Reg. at 19,672. So while the lowest quartile of hospitals would be over-paid by $245 million, all other hospitals will be under-paid by $245 million. Later that year, HHS promulgated a final rule adopting its wage-index adjustment for fiscal years 2020 to at least 2023. See Final Rule, 84 Fed. Reg. 42,044, 42,048 (Aug. 16, 2019). A coalition of hospitals
The district court held that HHS lacks authority to create its redistribution policy and so granted summary judgment to the Hospitals. See Bridgeport Hospital, 589 F. Supp. 3d at 10-15. But rather than vacating HHS‘s rule, the district court remanded it to HHS with instructions to recalculate the challenged reimbursements. See Bridgeport Hospital v. Becerra, 2022 WL 4487114, at *3-4 (D.D.C. July 27, 2022).
HHS appealed the merits. The Hospitals cross-appealed the remedy.1
II. The Statute Does Not Authorize HHS‘s Wage-Index Redistribution Policy
The Department of Health and Human Services lacks the power to inflate reimbursement rates beyond the congressionally prescribed wage-index values for an entire quartile of hospitals. The wage-index provision does not authorize it. See
A. The Wage-Index Provision
The wage-index provision does not authorize HHS to depart from Congress‘s established formula for a favored quartile of hospitals simply because HHS wants those favored hospitals to be able to pay their employees higher wages in the future.
We begin by examining the text of the wage-index provision:
[T]he Secretary shall 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 [diagnosis-related group] 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. Not later than October 1, 1990, and October 1, 1993 (and at least every 12 months thereafter), the Secretary shall update the factor under the preceding sentence on the basis of a survey conducted by the Secretary (and updated as appropriate) of the wages and wage-related costs of subsection (d) hospitals in the United States.
As we have said before, the wage-index provision “is hardly a paragon of clarity.” Southeast Alabama Medical Center v. Sebelius, 572 F.3d 912, 915 (D.C. Cir. 2009). Nevertheless, the provision includes four textual clues relevant to our inquiry. Together, they persuade us that the wage-index provision does not authorize HHS‘s wage-index redistribution policy.
We begin with the unremarkable observation that Congress gave HHS a mandatory duty. It said HHS “shall adjust” wage-based reimbursements.
2. “by a factor”
Congress further restrained HHS by specifying that it must make the annual wage-based adjustment “by a factor.”
3. “the”
That factor must “reflect[] the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level.”
4. “on the basis of”
In addition, the factor must be updated “on the basis of a survey” of each hospital‘s “wages and wage-related costs.”
5. Putting the Four Textual Clues Together
Based on those four textual clues, we conclude that the wage-index provision imposes (1) a mandatory duty on HHS to make the annual wage adjustment, (2) based on a uniform factor (3) comprised of definite, objective data, (4) drawn from a survey of each hospital‘s wages and reflecting the disparities between regional and national wages. And that simply is not what HHS has done here. Its proposed
Of course, HHS has some discretion in how it conducts the survey or compiles the data for calculation. See Anna Jacques Hospital v. Burwell, 797 F.3d 1155, 1164-65 (D.C. Cir. 2015). But the wage-index provision requires “that the wage index must be uniformly determined and applied.” Atrium Medical Center v. HHS, 766 F.3d 560, 569 (6th Cir. 2014). It also must “encompass only wages and wage-related costs and must reasonably reflect the relative hospital wage level in a given area.” Id. (cleaned up); see also Anna Jacques Hospital, 797 F.3d at 1158; Methodist Hospital of Sacramento v. Shalala, 38 F.3d 1225, 1230 (D.C. Cir. 1994). Once that uniform calculation of the comparative wage rates has been calculated, nothing in the wage-index provision permits HHS to change those rates simply because it would rather give preferred hospitals more money and disfavored hospitals less.
B. The Adjustments Provision
HHS offers a back-up argument. It points to an adjustments provision that applies to inpatient reimbursements:
HHS “shall provide by regulation for such other exceptions and adjustments to such payment amounts under this subsection as the Secretary deems appropriate.”
To be sure, this adjustments provision does some real work. It allows HHS to “fill[]” the “space that the specific provisions do not occupy.” Adirondack Medical Center v. Sebelius, 740 F.3d 692, 699 (D.C. Cir. 2014) (interpreting “adjustment” in
But the adjustments provision has limits, beginning with the limits of the word “adjustments.” We have said that “similar limits inhere in the term ‘adjustments’ to those the Supreme Court found in the word ‘modify.‘” Amgen, Inc. v. Smith, 357 F.3d 103, 117 (D.C. Cir. 2004) (emphases added); see also Biden v. Nebraska, 143 S. Ct. 2355, 2368-69 (2023) (“modify”); MCI Telecommunications Corp. v. AT&T, 512 U.S. 218, 225 (1994) (“modify”).
Those cases teach that the terms “modify” and “adjust” mean “to change moderately or in minor fashion.” MCI, 512 U.S. at 225. Each term connotes “increment or limitation.” Id. So the adjustments provision in
To begin with, the wage-index adjustment does not fill a gap left by statutory silence. Far from it. The statute already instructs how to account for geographic differences in wages. See
Indeed, the Medicare Act prescribes formulas for inpatient reimbursements in excruciating detail. For a flavor of that detail, read the 1,300-word formula for extra inpatient reimbursements to hospitals with “indirect costs of medical education.”
We could go on and on, because
Furthermore, HHS‘s use of the adjustments provision “does not remotely resemble” any use of that provision held valid by this or any other court in a case identified by HHS. Id. at 2370. To the contrary, HHS has identified no time when it has relied on the adjustments provision to override a statutory command as specific as the congressionally required formula in the wage-index provision. Cf. Shands Jacksonville Medical Center v. Burwell, 139 F. Supp. 3d 240, 260 (D.D.C. 2015) (the adjustments “provision does not give the Secretary carte blanche to override the rest of the Act”).
In addition, the redistribution policy is neither low in cost nor narrow in scope. Rather, it redistributes $245 million in Medicare funding to 25 percent of reimbursed hospitals. And so far as we can tell, the supposed need for a redistribution might continue as long as there are geographical differences in wages — differences that are not going away any time soon. Those three factors — expense, scope, and longevity — add up to a “substantial departure from the default amounts” required by the (original) wage-index provision. Id.; see also Nebraska, 143 S. Ct. at 2368-69.
In HHS‘s defense of its (unprecedented, expensive, broad, and possibly never-ending) change to congressional policy, HHS says this case is like Adirondack Medical Center v. Sebelius, 740 F.3d 692 (D.C. Cir. 2014). There, Congress expressly authorized a specific adjustment for a group of hospitals that operated under what‘s called the “federal rate” of reimbursements. Id. at 694. We held that HHS could give a similar bump in funding to a different group of hospitals, which were classified under the “hospital-specific rate” of reimbursements. Id. at 695. That‘s because HHS could “fill[]” the silence in the statute about whether or not to provide an adjustment to the “hospital-specific rate” hospitals. Id. at 699. So the congressionally ordered adjustment and the HHS-created adjustment complemented each other, and
Here, in contrast, there is no silence. Instead, Congress created a detailed reimbursement scheme that reflects actual wages in different regions. HHS then swept aside the scheme‘s congressionally required formula because HHS determined that the scheme should serve a different policy goal altogether — namely, increasing wages at the lowest-wage hospitals. That is not in any sense a reimbursement “adjustment,” but an entirely different policy.
Adirondack did not uphold that kind of change to an express congressional policy, nor can we do so today.4 We hold instead that the adjustments provision in
III. The Rule Should Be Vacated
When an agency‘s action is unlawful, “vacatur is the normal remedy.” Allina Health Services v. Sebelius, 746 F.3d 1102, 1110 (D.C. Cir. 2014). That‘s because Congress directed us to “hold unlawful and set aside agency action” that is “not in accordance with law[.]”
Nevertheless, our court has sometimes remanded without vacating the agency‘s action. That is an “exceptional remedy.” American Great Lakes Ports Association v. Schultz, 962 F.3d 510, 519 (D.C. Cir. 2020). And our precedents allow it only if an agency‘s error is “curable.” U.S. Sugar Corp. v. EPA, 844 F.3d 268, 270 (D.C. Cir. 2016); see also Allied-Signal, Inc. v. U.S. Nuclear Regulatory Commission, 988 F.2d 146, 151 (D.C. Cir. 1993) (allowing the remedy when “there is at least a serious possibility that the [agency] will be able to substantiate its decision on remand”).5
Because an agency can‘t “cure” the fact that it lacks authority to take a certain action, remand-without-vacatur is unavailable here. HHS was powerless to adopt this wage-index adjustment, which means
IV. The Hospitals Should Receive an Award of Interest
The Medicare statute provides that when hospitals seek judicial review of HHS‘s decisions, “the amount in controversy shall be subject to annual interest,” which is then “to be awarded by the reviewing court in favor of the prevailing party.”
For its part, HHS does not dispute that the Hospitals were the “prevailing parties.” Instead, it argues that an award of interest is premature until the precise back-payments have been calculated.
Because the Medicare statute requires a “reviewing court” (not the agency) to “award[]” interest, we agree with the Hospitals.
V. Conclusion
Because HHS cannot manipulate wage-index rates up and down in a way that picks winners and losers by sweeping aside the congressionally required formula, HHS‘s wage-index redistribution policy is unlawful. And because the unlawful policy is not curable on remand, HHS‘s action must be vacated.
We therefore affirm in part, reverse in part, and remand to the district court for further proceedings consistent with this opinion.
So ordered.