MEMORANDUM OPINION
Under the Medicare program, the government reimburses health care providers for certain expenses incurred in treating Medicare beneficiaries. See Social Security Act of 1965, Pub. L. No. 89-97, tit. XVIII, 79 Stat. 286, 291 (codified as amended at 42 U.S.C. § 1395 et seq.) (“Medicare Act”). The Medicare wage index reflects regional variations in hospital wage costs and is one factor used to determine the amount of a provider’s reimbursement. In 2005, the Department of Health and Human Services adopted a rule that purported to clarify the accounting method used to calculate the wage index. In this action, numerous hospitals and related entities challenge the application of the 2005 Rule to the wage indices for federal fiscal years (“FFYs”) 2007 and 2008.
The matter is presently before the Court on the parties’ cross-motions for summary judgment. Dkts. 21, 23. The Court held oral argument on the motions on February 16, 2016. Plaintiffs contend that application of the 2005 Rule to the FFYs 2007 and 2008 wage indices constitutes impermissible, retroactive rulemak-ing because the wage index for a given fiscal year is based on cost data submitted by providers three or four years earlier, and Plaintiffs submitted their cost data in accordance with the accounting rules then in effect. Plaintiffs further argue that the 2005 Rule “is inconsistent with the overall purpose and objective of the wage index statute;” that the Secretary of Health and Human Services (“Secretary”) and her intermediaries have inconsistently applied the rule without an adequate explanation; and that “the Secretary erred in applying it to the ... plaintiffs in this case.” Dkt. 21-1 at 21. The Secretary responds that the 2005 Rule is a valid exercise of the discretion delegated to her pursuant to the wage-index provision of the Medicare Act. Dkt. 23 at 13-21. She also contends that Plaintiffs waived any retroactivity claim by failing to raise it in the notice-and-eomment process preceding adoption of the rule, id. at 21-22; that, in any event, the rule does not operate retroactively, id. at 22-26; and that, even if it did, the statute authorizes retroactive regulation in these circumstances, id. at 26-28. Finally, she contends that any alleged inconsistency in the application of the 2005 Rule is merely a byproduct of the agency’s discretion whether to initiate an audit, id. at 30-32, and that Plaintiffs are not entitled to a special exemption from the rule, id. at 33-
I. BACKGROUND
A. Statutory and Regulatory Background
Prior to 1983, Medicare providers “were reimbursed for the actual costs that they incurred, provided they fell within certain cost limits,” including the requirement that they be reasonable. Methodist Hosp. of Sacramento v. Shalala,
Under the PPS, wages and wage-related costs are a “significant component of the Medicare payment” that qualifying hospitals receive. Anna Jaques Hosp. v. Sebeli-us,
The wage index reflects a requirement in the 1983 Amendments that the federal rate be adjusted to reflect geographic variations in labor costs. See 42 U.S.C. § 1395ww(d)(2)(H). The area wage indexes for each region are based on wage-cost data periodically submitted by Medicare hospitals across the country. The indexes are used at two points in the prospective payment rate calculation. First, regional wage indexes are used (along with other factors, such as inflation and hospital case-mix ratios) to modify and standardize the data used to establish the nationwide “federal rate.” See 42 U.S.C. § 1395ww(d)(2)(C)(ii). Second, once the federal rate has been set, the wage indexes are used to make regional adjustments to the labor-related portion of the federal rate. See 42 U.S.C. § 1395ww(d)(2)(H). Because each wage index is used to develop the base national rate as well as to adjust that rate by region, a change in any single wage index can affect the reimbursement rate of each hospital in the country.
Methodist Hosp.,
The Medicare Act requires the Secretary to update the wage index “at least
To calculate the wage index, the Secretary uses data from cost reports that hospitals file annually with fiscal intermediaries, which act as the Secretary’s agents in administering the PPS.
The present case concerns regulations governing the accounting method used to calculate the wage index. In particular, the Plaintiffs challenge the application of a rule adopted in August 2005 to pension costs reported in June 30, 2004 and June 30, 2005 cost reports and used to calculate the wage indices for FFYs 2007 and 2008, respectively. The following is an overview of the evolution of the relevant rules.
On September 1, 1994, the Secretary promulgated a final rule making changes to, inter alia, the methodology for calculating the wage index. See Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 1995 Rates, 59 Fed. Reg. 45,330 (Sept. 1, 1994) (“1994 Rule”). As relevant here, the Preamble to the 1994 Rule stated that hospitals should “follow Generally Accepted Accounting Principles (GAAP) in developing the wage-related costs contained in the Worksheet S-3, Part II, for purposes of the hospital wage index.” Id. at 45,357. The Secretary explained:
We believe it is appropriate to apply GAAP for these purposes because the function of the wage index is to measure relative hospital labor costs across areas. This function is distinct from that of cost reimbursement, in which applicable Medicare principles (which may differ from GAAP) measure the actual costs incurred by individual hospitals. We believe the application of GAAP for purposes of compiling data on wage-related costs used to construct the wage index will more accurately reflect relative labor costs, because certain wage-related costs (such as pension costs) as recorded under GAAP tend to be more static from year to year. Application of Medicare principles, on the other hand, could create large swings in these costs from year to year, particularly in years when there are large over- or under-funded pension estimates; such application might lead to a wage index that does not accurately reflect relative labor costs.
Id. (emphasis in original). The regulation was made “effective for cost reporting pe
On June 27, 1995, the Secretary promulgated a final rule “to clarify the concept of ‘accrual basis of accounting.’ ” Medicare Program; Clarification of Medicare’s Accrual Basis of Accounting Policy, 60 Fed. Reg. 33,126, 33,126 (June 27, 1995) (“1995 Rule”). In so doing, she observed that “some providers ... believe that, for Medicare purposes, they [can] ... rely solely upon the generic definition of the accrual basis of accounting, whereby ... expenses are reported in the period in which they are incurred, regardless of when they are paid.” Id. If that interpretation were credited, Medicare “would be forced to pay currently for accrued liabilities that either may not be liquidated timely or may never be liquidated.” Id. As the Secretary further explained, although “Medicare recognizes only costs associated with a liability that is timely liquidated through an actual expenditure of fundsf,] GAAP does not offer this assurance for Medicare.” Id. at 33,131. In short, “Medicare payment policy and GAAP have different objectives. Medicare’s objective for cost payment ... is to pay providers ... the reasonable and proper cost of furnishing services ... in a specific fiscal period. ... [T]he primary goal of GAAP is the full and proper presentation of accounting data through statements and reports.” Id. at 33,127.
The 1995 Rule, codified at 42 C.F.R. § 413.100, accordingly adopted an express requirement that “[f]or accrued costs to be recognized for Medicare payment in the year of the accrual,” the liability must be liquidated within a specified timeframe.
In June 2003, the Secretary attempted to clarify the 1995 Rule’s application to PPS providers by including a note in the Medicare Provider Reimbursement Manual stating that “[although hospitals should use GAAP in developing wage related costs, the amount reported for wage index purposes must meet the reasonable costs provisions of Medicare.” Dkt. 14-5 at 38; see also Medicare Program; Changes to the Hospital Inpatient Prospective Pay
In May 2005, the Office of Inspector General of the Department of Health and Human Services (“OIG”) “alerted [the Centers for Medicare & Medicaid Services (“CMS”) ] to ... preliminary findings regarding hospitals’ inconsistent reporting of pension and other postretirement benefit costs as wage data in their cost reports.” Dkt. 14-5 at 115. The OIG explained that “[w]hile some hospitals included millions of dollars in unfunded pension and other postretirement benefit costs in their annual wage data, others included only funded amounts.” Id. In its final report, issued in February 2007, the OIG found that hospitals “overstated their wage data by a total of $326.4 million by reporting unliquidated and/or other postretirement benefit costs,” id. at 118, and recommended, among other things, that CMS ensure “that its [F]FY 2007 wage indexes were adjusted, and its [F]FY 2008 wage indexes will be adjusted, as appropriate, to account for the inaccurate wage data identified.” Id. at 111, 122.
On August 12, 2005, the Secretary promulgated a final rule making a variety of revisions to the wage index. Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2006 Rates,
Since publication of the September 1, 1994 rule, we have periodically received inquiries for more specific guidance on developing wage-related costs for the wage index. ... Due to recent questions and concerns we received regarding inconsistent reporting and overreporting of pension and other deferred compensation plan costs, as a result of an ongoing Office of Inspector General review, we are clarifying in this final rule that hospitals must comply with the requirements in 42 CFR 413.100, the [Provider Reimbursement Manual], Part I, sections 2140, 2141, and 2142, and related Medicare program instructions for developing pension and ' other deferred compensation plan costs as wage-related costs for the wage index. The Medicare instructions for pension costs and other deferred compensation costs combine GAAPs, Medicare payment principles, and Department of Labor and Internal Revenue Service requirements. We believe that the Medicare instructions allow for both consistent reporting among hospitals and for the development of reasonable deferred compensation plan costs for purposes of the wage index.
Id. She further directed that, starting “[w]ith the [F]FY 2007 wage index, hospitals and fiscal intermediaries must ensure that pension, post-retirement health benefits, and other deferred compensation plan costs for the wage index are developed according to the above terms.” Id. Although by 2005 hospitals had already reported the data used to calculate the wage index for FFYs 2007 and 2008, the Secretary concluded that this was not a problem because, “since cost reporting periods beginning during [F]FY 1995,” hospitals had been required “to complete Form 339, a reconciliation worksheet between GAAP and Medicare principles.” Id. at 47,370. When combined with wage costs included on Worksheet S-3, that reconciliation form
B. Factual and Procedural History
This action is brought under the Administrative Procedure Act, see 5 U.S.C. § 706, and the Medicare Act, see 42 U.S.C. § 1395oo, and arises from the consolidation of numerous administrative appeals concerning the accounting rule applicable to the computation of the wage indices for FFYs 2007 and 2008. Compl. ¶ 60. Plaintiffs consist of 107 hospitals that participated in Medicare in those years, as well as 13 entities that owned and/or operated participating hospitals at the relevant times. Id. ¶ 9.
It is undisputed that the Plaintiffs experienced declines in their FFYs 2007 and 2008 wage indices because of downward adjustments made by fiscal intermediaries to pension costs reported by the University of California (“UC”) and/or Catholic Healthcare West (“CHW”). Dkt. 21-1 at 15. As relevant here, the wage index for FFY 2007 used data on UC and CHW’s pension costs from the providers’ 2004 fiscal year-end cost reports (“FY 2004”), and the index for FFY 2008 included data on UC’s pension costs from its 2005 fiscal year-end cost report (“FY 2005).
UC’s hospitals were among the 21 hospitals selected by the OIG for review. Dkt. 14-5 at 126. On January 26, 2006, based on the OIG’s preliminary findings, UC’s fiscal intermediary proposed audit adjustments for the “Wage Index Audit” that omitted certain previously reported pension costs from the FFY 2007 wage-index calculation. Dkt. 14-3 at 366-69. UC’s fiscal intermediary similarly limited the UC pension costs incorporated into the FFY 2008 wage index to the amounts actually funded and liquidated within a year. Dkt. 7-1 at 7.
UC, CHW, and the non-UC and CHW hospitals involved in this case appealed the intermediaries’ calculations of the pension costs incorporated into the FFYs 2007 and 2008 wage indices to the Provider Reimbursement and Review Board (“PRRB”), and the PRRB consolidated the appeals. Dkt. 7-1 at 6-7. The PRRB issued its decision on March 12, 2013. Id. at 3-17. As relevant here, the PRRB concluded that under 42 C.F.R. § 405.1867, the regulation defining its legal authority, it was “bound to apply 42 C.F.R. § 413.100 as amended by the August 2005 Final Rule,” and that it accordingly lacked authority to consider Plaintiffs’ retroactivity argument.
II. ANALYSIS
Although “[s]ummary judgment is the proper mechanism for deciding, as a matter of law, whether an agency action is supported by the administrative record and consistent with the APA standard of reviewf,] ... the typical ... standards set forth in Federal Rule of Civil Procedure 56 are not applicable.” Styrene Info. & Research Ctr., Inc. v. Sebelius,
Plaintiffs contend that the application of the 2005 Rule to the FFYs 2007 and 2008 wage indices violates the APA and the Medicare Act in multiple respects: They argue that the relevant cost data was generated before the 2005 Rule was adopted, and that application of the rule to that data constitutes impermissible retroactive rule-making; that the rule is, in any event, inconsistent with the purposes of the wage-index provision of the Medicare Act;
A. Retroactivity
Plaintiffs first contend that application of the 2005 Rule to the wage indices for FFYs 2007 and 2008 constitutes impermissible, retroactive rulemaking. Dkt. 21-1 at 21. As an initial matter, the Secretary responds that Plaintiffs waived any retro-activity challenge to the rule by failing to raise that objection during the notice-and-comment period. Dkt. 23 at 21. “It is well established that issues not raised in comments before the agency are waived .... ” Nat’l Wildlife Fed’n v. EPA,
The Court need not resolve the parties’ dispute over waiver — and waiver of a waiver — because, “as a general matter,” failure to present an issue during the notice-and-comment process is not a jurisdictional bar to judicial review. Advocates for Highway & Auto Safety v. Fed. Motor Carrier Safety Admin., 429 F,3d 1136, 1148 (D.C.Cir.2005). And, although “courts should not topple over administrative decisions unless the administrative body ... has erred against objection made at the time appropriate under its practice,” id. at 1150 (quotation marks and citation omitted) (alteration in original), the Court concludes that the 2005 Rule does not, in any event, constitute impermissible, retroactive rulemaking.
“The general legal principles governing retroactivity are relatively easy to state, although not as easy to apply.” Nat’l Mining Ass’n v. Dep’t of Labor,
“To determine whether a rule is impermissibly retroactive,” the Court, accordingly, “first look[s] to see whether it effects a substantive change from the agency’s prior regulation or practice.” Ne. Hosp. Corp. v. Sebelius,
Even assuming without deciding that the 2005 Rule “effects a substantive change from the agency’s prior” regulation or practice regarding computation of the wage index, Ne. Hosp. Corp.,
In reaching this conclusion, the Court does not doubt that the Secretary’s decision to apply the 2005 Rule to historic data may have upset the expectations of some providers. But, a rule is not retroac
Even uncontroversially prospective [rules] may unsettle expectations and impose burdens on past conduct: a new property tax or zoning regulation may upset the reasonable expectations that prompted those affected to acquire property; a new law banning gambling harms the person who had begun to construct a casino before the law’s enactment or spent his life learning to count cards.
Because the Secretary’s action affects reimbursement rates only prospectively, Plaintiffs’ reliance on Northeast Hospital Corp. v. Sebelius,
Plaintiffs contend that the 2005 Rule nonetheless operates retroactively because it “alter[s] [providers’] methodology for reporting pension costs” and because the Secretary “determined that the Hospitals] should have reported their pension and benefit costs differently in [prior] years.”
Plaintiffs, moreover, do not identify any rule or law giving them a vested right to reimbursement for costs that were reported for PPS purposes under the procedures in effect in FYs 2004 and 2005. To the contrary, the wage-index provision of the Medicare statute requires the wage index to be updated at least annually. 42 U.S.C. § 1395ww(d)(3)(E)(i). And the 1994 Rule on which Plaintiffs purportedly relied in making their FYs 2004 and 2005 cost reports stated only that providers should follow GAAP “in developing the wage-related costs contained in the Worksheet S-3, Part II, for purposes of the hospital wage index.”
The principal thrust of Plaintiffs’ argument ultimately comes down to the claim that it was unfair to apply the 2005 Rule to the Secretary’s consideration of wage data submitted for FYs 2004 and 2005 because “providers such as CHW and the UC had no opportunity during FFY 2003 or FFY 2004 to consider whether and to what extent or how its decisions to fund pension and [postretirement benefit] liabilities in 2003 or 2004 would affect the FFYs 2007 and 2008 wage indexes.” Dkt. 21-1 at 25. Plaintiffs’ only evidence that, had they known which accounting rules would apply to compute the wage index for FFYs 2007 and 2008, they would have made different funding decisions in 2003 or 2004, was a single expert’s equivocal statement, unsupported by any evidence, that “[t]hey might
Here, it is possible — although far from proven — that UC and CHW would have made different pension-funding decisions for FYs 2004 and 2005 had they known that future wage indices would not be computed on the basis of GAAP alone. But Plaintiffs have failed to carry their burden of demonstrating that application of the 2005 Rule to historical pension cost data was “arbitrary” or “capricious” and thus “invalid” under the APA. See Bowen,
Finally, Plaintiffs point to the fact that the 1994 Rule applied only to future cost-reporting periods and contend that “the Secretary [should not be permitted] to reverse course from prior practice.” Dkt. 21-1 at 28. An agency, however, “is free to change its mind so long as it supplies a reasoned analysis[,] [and] [explanation of a change in policy is not subject to a heightened standard of review.” Anna Jaques I,
[W]e believe that hospitals and intermediaries should be able to ensure that pension and other deferred compensation costs are developed according to the above terms by the [F]FY 2007 wage index, as hospitals have been required, since cost reporting periods beginning during [F]FY 1995, to complete Form 339, a reconciliation worksheet between GAAP and Medicare principles.
In determining that the 2005 Rule would apply to the computation of the FFY 2007 wage index, but not to past wage indices or even to the FFY 2006 wage index, the Secretary acted well within her discretion to balance the competing goals of prompt implementation of the statutorily required updates to the wage index, on the one hand, and fairness to Medicare providers, on the other. The 2005 Rule does not operate retroactively, and the fact that the Secretary previously awaited the collection of new cost reports to implement a wide swath of changes to the wage index is not a sufficient basis to invalidate the 2005 Rule’s application to wage data collected in FYs 2004 and 2005.
B. Substantive Challenges
Plaintiffs also advance three substantive APA challenges to the 2005 Rule and the manner in which it was applied. They argue that (1) the 2005 Rule is inconsistent with the objectives of the wage-index provision of the Medicare Act; (2) the new accounting rules were not applied in a consistent manner to pension costs reported by other providers; and (3) there is no reasonable basis for applying the new rule to providers with funded pensions. Under 5 U.S.C. § 706, the party challenging an agency’s action “has the burden of showing that the agency action was ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.’ ” Advocates for Highway & Auto Safety,
1. Consistency with Statutory Authority
Plaintiffs contend that 2005 Rule is “contrary to statute and ... otherwise arbitrary and capricious” because it “does not fulfill the statutory mandate of measuring relative labor costs.” Dkt. 21-1 at 29. The Court reviews the Secretary’s interpretation of the wage-index provision of the Medicare Act under the two-step framework set forth in Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc.,
The relevant provision of the Medicare statute provides that:
The Secretary shall adjust the proportion, (as estimated by the Secretaryfrom time to time) of hospitals’ costs which are attributable to wages and wage-related costs, ... 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. Not less often than once every 3 years the Secretary (through such survey or otherwise) shall measure the earnings and paid hours of employment by occupational category and shall exclude data with respect to the wages and wage-related costs incurred in furnishing skilled nursing facility services. Any adjustments or updates made under this subparagraph for a fiscal year (beginning with fiscal year 1991) shall be made in a manner that assures that the aggregate payments under this subsection in the fiscal year are not greater or less than those that would have been made in the year without such adjustment.
42 U.S.C. § 1395ww(d)(3)(E)(i).
As Plaintiffs concede, the Secretary is vested with broad discretion in implementing the wage index, and the 2005 Rule does not “specifically and directly conflict” with the Medicare Act. Dkt. 24 at 6. The Act requires only that the Secretary update the wage index at least annually “on the basis of a survey” of participating hospitals and that “any adjustment ‘shall be made in a manner that assures that the aggregate payments ... are not greater or less than those that would have been made in the year without the adjustment.’ ” Anna Jacques II,
The Court, accordingly, turns to Chevron step two — that is, whether the Secretary’s interpretation of the statute is ’reasonable and consistent with the statutory scheme and legislative history.” Cnty. of L.A.,
In reviewing rules adopted to implement the wage-index provision, the D.C. Circuit has observed that the statute can “reasonably be interpreted to permit a variety of methods for using the survey data to calculate the wage index.” Anna Jaques I,
The crux of Plaintiffs’ argument that the 2005 Rule is contrary to the statute’s objectives and is “otherwise arbitrary and capricious” is their conviction that “the Secretary was right the first time with the adoption of the 1994 GAAP Policy.” Dkt. 24 at 7. An agency, however, “is free to change its mind so long as it supplies a reasoned analysis.” Anna Jacques I,
Plaintiffs’ request that the Court second-guess these policy judgments is, to once again borrow the phrase from the D.C. Circuit, “the antithesis of Chevron step” two. Anna Jacques II,
Plaintiffs also argue thát it was arbitrary and capricious to enforce the 2005 Rule in accounting for their pension costs because the rule was not consistently applied by fiscal intermediaries to other providers’ pension costs for purposes of the FFYs 2007 and 2008 wage indices. Dkt. 21-1 at 31-32. They premise this contention almost exclusively on the testimony of Dale Baker, their expert accountant and health-care consultant, before the PRRB. Id.; see also Dkt. 14-1 at 249-74 (Baker testimony). According to Plaintiffs, Baker testified that he had “discussed the 2005 [Rule] with more than 1200 hospitals from various regions of the United States after the policy was announced,” and that, “[b]ased on [these] conversations with these hospitals and his general knowledge and experience^] ... Baker became aware thát ... some Medicare fiscal intermediaries were applying the 2005 [Rule], while others were applying the 1994 GAAP Policy.” Dkt. 21-1 at 32. They add that Baker “testified that he would have been aware,” based on his work advising hospitals and his “connections with more than 30 hospital associations, ... of any significant or widespread adjustments based on the 2005 [Rule],” but he “heard of only a handful of adjustments” for the relevant years. Id. Finally, Plaintiffs argue that Baker “knew of several hospitals where adjustments were made for the first time in 2011,” and that, had the 2005 Rule been applied to these hospitals earlier, the same type of adjustments would have been required. Id. at 32-33.
In response to this asserted inconsistency, the Secretary argues that the 2005 Rule treats all providers alike and that all providers were required to report their pension costs pursuant to that uniform rule. Dkt. 23 at 30-31. That contention, however, fails on two levels. First, Plaintiffs’ inconsistency argument is not a challenge to the rule itself, but to the application of the rule. Second, the Secretary elsewhere contends that the 2005 Rule did not impose any new reporting requirement on providers. Rather, as the Secretary has explained, providers were already required to submit the Form 339 reconciliation worksheet, which the Secretary used along with Worksheet S-3 to calculate liquidated pension costs under the new rule. See
The Secretary’s final argument, however, is on firmer ground. According to the Secretary, Plaintiffs’ contention that the 2005 Rule was applied erratically — and thus arbitrarily — is based on mere speculation. As she explains, Plaintiffs’ “evidence of selective enforcement is limited to [Baker’s statement] that he ‘did not hear of or become ‘aware ... of any significant or widespread adjustments’ caused by enforcement of the” 2005 Rule. Dkt. 25 at 12 (omission in original). Moreover, as the Secretary points out, Baker did not identi
As the Secretary argues, Plaintiffs’ challenge to the application of the 2005 Rule was premised almost exclusively on the testimony of Dale Baker. With only minor exceptions, however, that testimony was based on speculation and inferences. Plaintiffs contend, for example, that Baker based his conclusions on “conversations” with “more than 1200 hospitals from various regions of the United States.” Dkt. at 32. But, as the administrative record reveals, those 1200 hospitals did not provide Baker with information regarding how the Secretary accounted for their pension costs; rather, it was Baker who made presentations about the GAAP policy to these hospitals. See Dkt.14-1 at 251. Plaintiffs simply infer that had the hospitals or their fiscal intermediaries made adjustments to comply with the 2005 Rule, representatives of these 1200 hospitals would have provided him with that feedback. Similarly, Plaintiffs argue that “Baker ... would have been aware ... through his historic work assisting hundreds of hospitals with their wage data [and] through his industry connections ... of any significant or widespread adjustments based on” the 2005 Rule, but that “he heard of only a handful of adjustments for FFY 2007” and, likewise, for FFY 2008. Dkt. 21-1 at 32. But, in fact, Baker testified that, for FFY 2007 alone, he was aware of the 21 hospitals included in the OIG review, an unspecified number of CHW hospitals, nine hospitals in another system, and three other hospitals that were subject to adjustments based on the new rule. See Dkt. 14-1 at 259; Dkt. 14-5 at 115. That fact that he was unaware of other adjustments, moreover, does not show that they did not exist — only that no one told Baker about them. And, more importantly, Baker’s testimony does not attempt to quantify in any way the number of adjustments actually required by the 2005 Rule, which affected only those hospitals that reported accrued but unliquidated pension costs, or the number and statistical impact of any missed adjustments. Moreover, although Baker testified that on one occasion an intermediary proposed but did not implement an adjustment limiting the pension costs of another hospital, he did not know the intermediary’s reason for not making the adjustment and did not identify the hospital. Dkt. 14-1 at 272.
Only slightly more helpfully, Plaintiffs also point to Baker’s testimony that he knew of three hospitals that received adjustments pursuant to the 2005 Rule for purposes of computing the FFYs 2011 and 2012 wage indices and that, in his view, these hospitals should have, but did not, receive similar adjustments in prior years. Dkt. 14-1 at 262. The intermediary, however, raised an objection that there was “no foundation in the record” for the examples, id. at 262-63, and when this Court inquired about this at oral argument, Plaintiffs’ counsel was unaware of whether or how this issue was resolved. Even assuming there was an evidentiary foundation for Baker’s statement, however, there is no basis for the Court to conclude that a failure to apply the 2005 Rule to three hospitals rendered the Secretary’s calculation of the wage index unreasonable or arbitrary. Plaintiffs offer no evidence of the magnitude of the allegedly omitted adjustments. Nor do they make any effort to show whether the failure to make these
Plaintiffs are correct that the “disparate treatment” of “similarly situated entities” may give rise to a valid APA challenge, Anna Jaques I,
Nor do the eases cited by Plaintiffs support their claim that the purportedly inconsistent application of the 2005 Rule violated the APA. In County of Los Angeles v. Shalala, the D.C. Circuit held that the Secretary arbitrarily treated similar cases differently without a reasonable explanation when she found a dataset too incomplete and unreliable to use in calculating Medicare outlier payments, yet found the same dataset suitable for calculating an across-the-board adjustment to Medicare payments.
Significantly, this is not a case where the Secretary has adopted conflicting policies that she cannot reconcile. She adopted a uniform rule applicable to all providers. The only question is whether that uniform policy was applied in such a slipshod manner that the resulting wage index did not reasonably reflect actual wage differences
3. Application to Funded Pension Plans
Finally, Plaintiffs contend that, even if the 2005 Rule is valid in other respects, it should not apply to entities like UC and CHW that have pension plans that are not underfunded. Dkt. 21-1 at 34-36. According to Plaintiffs, the 2005 Rule was adopted to ensure that the wage index does not include pension costs “that have not been funded and may never be funded,” id. at 34 (quoting
III. CONCLUSION
For the foregoing reasons, the Court holds that the challenged adjustments to UC and CHW’s reported pension costs for purposes of developing the FFYs 2007 and 2008 wage indices did not violate the APA. The Court, accordingly, DENIES Plaintiffs’ motion for summary judgment, Dkt. 21, and GRANTS Defendant’s motion for summary judgment, Dkt. 23. A separate order accompanies this opinion.
Notes
. Fiscal intermediaries are also known as "Medicare administrative contractors.” See generally 42 U.S.C. § 1395h.
. Unlike the federal fiscal year, which runs from October of the previous calendar year to September 30 of the year with which it is numbered, the providers’ fiscal years run from July 1 of the prior year to June 30 of the numbered year. See Dkt. 21-1 at 15, 17. The Court uses "FY” to indicate the provider’s fiscal year and "FFY” to indicate the federal government’s fiscal year.
. For example, the GAAP rules established for non-governmental entities by the Financial Accounting Standards Board ("FASB”), which UC applied to determine its pension costs, Dkt. 21-1 at 16, differ from the standards issued by the Government Accounting Standards Board ("GASB”) with respect to the reporting of pension and postretirement benefits. Id. "For instance, [Government Accounting Standard] 27 requires that pension expense should equal the required contributions. If the plan is overfunded, there are no required contributions or recorded pension expense.” Dkt. 14-2 at 69 n.9 (Providers' Final Position Paper before the Provider Reimbursement Review Board). By contrast, Financial Accounting Standard 87 "requires employers to report an amount on their financial statements regardless of whether they are making current contributions to their pension plan.” Id. at 68.
. The PRRB reversed with respect to a separate challenge to the calculation of CHW’s FFY 2008 pension costs, a matter not at issue in this case. Dkt. 7-1 at 17.
. The D.C. Circuit “has treat[ed] Justice Sca-lia’s concurring opinion as substantially authoritative, though noting that [t]he Bowen majority ... neither embraced nor rejected Justice Scalia’s view.” Nat’l Petrochem. & Refiners Ass’n v. EPA,
. In light of the Court's conclusion on the merits, it need not reach the Secretary’s argument that Plaintiffs’ claim should be rejected for the additional reason that "neither Plaintiffs, nor any other provider, raised it in comments to the rulemaking.” Dkt. 23 at 34.