The issue in this case is standing to challenge a regulatory safe harbor where the direct cause of injury is the independent action of a third party. The same issue was before this court in National Wrestling Coaches Ass’n v. Department of Education,
I
Congress first enacted the “Stark Law” as part of the Omnibus Budget Reconciliation Act of 1989. See Pub.L. 101-239, § 6204, 103 Stat. 2106, 2236-43 (1989). The law, which added section 1877 to the Social Security Act, limited the ability of a physician to refer Medicare patients to clinical laboratories with which the physician had a “financial relationship.” 42 U.S.C. § 1395nn(a)(l). In 1993, Congress extended the law to several other health services, id. § 1395nn(h)(6), and also included Medicaid patient referrals within the scope of the law, id. § 1396b(s). See Pub.L. 103-66, §§ 13562, 13624, 107 Stat. 312, 604, 636 (1993). Among other things, the law prohibits payment for services furnished pursuant to a prohibited referral, 42 U.S.C. §§ 1395nn(a)(l)(B), 1396b(s), imposing civil penalties in the case of a prohibited referral, id. § 1395nn(g). The Stark Law includes several exceptions, id. § 1395nn(b)-(e), and authorizes the Secretary of Health and Human Services to make additional exceptions by regulation, where the “financial relationship ... does not pose a risk of program or patient abuse,” id. § 1395nn(b)(4).
One of the exceptions to the referral prohibition is for “[pjersonal service arrangements.” Id. § 1395nn(e)(3). Essentially, this exception covers market-rate, pay-for-service arrangements. In other words, if the physician’s only financial interest in the clinic is receipt of agreed-upon compensation at or below “fair market value” for “reasonable and necessary” services, then the physician may make referrals to the clinic without violating the law. Id. § 1395nn(e)(3)(A). The Stark Law, however, limits the extent to which the physician’s compensation may be based on the volume or value of patient referrals. Id. at § 1395nn(e)(3)(B). The law defines “fair market value” as “the value in arm[’]s length transactions, consistent with the general market value.” Id. § 1395nn(h)(3) (emphasis added). Obviously, this definition of “fair market value” is critical to determining the scope of the Stark Law exception, and the definition hinges on the term “general market value.”
The Centers for Medicare and Medicaid Services (“CMS”) — formerly called the Health Care Financing Administration (“HCFA”) — is the division within the United States Department of Health and Human Services that oversees regulatory implementation of the Stark Law. In 1998, in a notice of proposed rulemaking, HCFA proposed a set of regulations to clarify and implement the various provisions of the law, including defining “general market value” as “the compensation that would be included in a service agreement, as the result of bona fide bargaining between well-informed parties to the agreement ... at the time of the service agreement.” 63 Fed.Reg. 1659, 1721 (Jan. 9, 1998). Several comments on this proposed rule focused on how (i.e., with what sort of evidence) a party could establish it had met this standard.
The 2001 rulemaking did not address several subsections of the Stark Law, and HCFA stated it would address those subsections “shortly” in a “Phase II” rulemaking. 66 Fed.Reg. at 856. In addition, this Phase II rulemaking would address comments received in response to the 2001 rulemaking (i.e., “Phase I”). Id. Phase II was completed in 2004, when HCFA (by this time renamed “CMS”) issued an interim final rule, which it planned to finalize within three years. 69 Fed.Reg. 16,054, 16,126 (Mar. 26, 2004). To a large extent, the new rulemaking duplicated portions of the 1998 proposed rulemaking, addressing Stark Law subsections Phase I had not covered. Id. at 16,125. However, because a new law (effective December 8, 2003) required the agency to finalize its proposed rules within three years, see 42 U.S.C. § 1395hh(a)(3)(B), a question arose about the continuing viability of the 1998 proposal. Although the agency was unsure the new law prohibited the Secretary from finalizing rules proposed more than three years before December 8, 2003, it took the cautious approach of publishing the new rule as an interim final rule with a comment period. See 69 Fed.Reg. at 16,-125.
In short, CMS restarted the rulemaking process from scratch but waived publication of a notice of proposed rulemaking, finding the customary notice and comment period “impracticable, unnecessary, or contrary to the public interest” because the public had been afforded two prior opportunities to comment and could also comment on the interim final rule. See id. at 16,125 (quoting 5 U.S.C. § 553(b)).
As part of this interim final rule, CMS created a safe harbor provision within the existing regulatory definition of “fair market value.” Id. at 16,092, 16,128. The agency emphasized the safe harbor was “entirely voluntary; [health service providers] may continue to establish fair market value through other methods.” Id. at 16,-092. Thus, CMS added the safe harbor to give providers an easy way of proving fair market value, but providers remain free to ignore the safe harbor, and so long as they can show their personal service arrangements are nevertheless at fair-market rates, they are in full compliance with the law. The safe harbor offers two methods for showing that a physician’s hourly rate is at fair market value: (1) by reference to the hourly rate paid to emergency room physicians in the same market, and (2) by averaging the hourly compensation level for physicians in the same specialty, as determined in several national surveys. Specifically, the safe harbor provides as follows:
An hourly payment for a physician’s personal services ... shall be considered to be fair market value if the hourly payment is established using either of the following two methodologies:
(1) The hourly rate is less than or equal to the average hourly rate for emergency room physician services in the relevant physician market, provided there are at least three hospitals providing emergency room services in the market.
(2) The hourly rate is determined by averaging the 50th percentile national compensation level for physicians with the same physician specialty (or, if the specialty is not identified in the survey, for general practice) in at least four of the following surveys and dividing by 2,000 hours. [The regulation then lists six salary surveys.]
42 C.F.R. § 411.351.
Plaintiff Renal Physicians Association (“RPA”) brought this action in the district court, challenging the safe-harbor provision as violating the notice-and-comment requirements of the Administrative Procedure Act (“APA”) and as arbitrary and capricious agency action. RPA is “a national, nonprofit specialty society” whose “membership consists of nephrologists, advance practice nurses, and physician assistants specializing in the treatment of patients with kidney disease.” RPA’s complaint adds that “[m]any RPA members are medical directors of outpatient dialysis facilities.” The RPA alleges that a majority of nephrologists serve as medical directors of dialysis providers that own clinical laboratories. If these physicians refer patients to these in-house laboratories for services covered by Medicare or Medicaid, they violate the Stark Law, unless an exception applies. See 42 U.S.C. §§ 1395nn(a)(l)(A), 1395nn(h)(6)(A). Similarly, where a nephrologist has a financial relationship with a hospital-based dialysis facility, the physician may not refer patients to the hospital for hospital services covered by Medicare or Medicaid, unless an exception applies. Id. §§ 1395nn(a)(l)(A), 1395nn(h)(6)(K). As noted, health service providers that receive referrals in violation of the Stark Law face civil penalties, in addition to nonpayment for services furnished pursuant to the referral. Id. §§ 1395nn(a)(l)(B), 1395nn(g), 1396b(s).
The merits of RPA’s challenge to the safe harbor provision are not before us, because the district court dismissed the complaint for lack of standing. The complaint includes several paragraphs of allegations related to standing, though not the redressability aspect of standing. Specifically, RPA alleges:
[O]nly by complying with the safe harbor can a dialysis provider ensure that it will avoid investigation or prosecution relating to compensation paid to medical directors. Thus, in an effort to obtain the protection of the safe harbor, dialysis providers are likely to limit compensation for medical director services to the amount “allowed” under the safe harbor.
... [If this occurs,] a significant number of nephrologists, including RPA members, will experience a substantial reduction in medical director compensation.
... On the other hand, if nephrologists demand and are paid reasonable compensation, both parties run the risk that HHS will later allege, based upon the safe harbor, that the compensation paid is “excessive” and that the medical director arrangement violates the Stark Law.
... In fact, dialysis providers have already begun to insist upon strict compliance with the fair market value safe harbor. RPA members have advised RPA that in negotiating the renewal of a medical director agreement, certain dialysis providers have required reduction of medical director• compensation to safe-harbored levels. In at least one instance, that position has resulted in an executed agreement which provides for■ significantly reduced compensation to an RPA member.
...If interested parties had been accorded their statutory right to comment on the fair market value safe harbor, the RPA would have demonstrated that ... based upon the use of the safe harbor, the compensation paid to nephrologists for the provision of medical director services will significantly and unfairly decrease, causing RPA members direct economic injury and negatively affecting patient care.
... The Stark Law did not empower the Secretary to set “fair market value” compensation rates .... The Stark Law did not authorize the Secretary to reduce arbitrarily the compensation currently paid to physicians, in the free market, for personal services. The fair market value safe harbor in effect does both, and does so without benefit of any meaningful record.
... The fair market value safe harbor, now fully effective, poses the threat of imminent economic harm to RPA members and other medical directors of dialysis facilities who will not be compensated at fair market value. Although the safe-harbored compensation rates are well below the current market rate for medical director services furnished to dialysis providers, dialysis providers are insisting upon compensating medical directors in accordance with the safe harbor so as to avoid a governmental investigation or enforcement action.
(Emphases added.)
Despite these allegations regarding direct injury, the district court found RPA failed to meet the three-part test for standing set forth in Lujan v. Defenders of Wildlife,
Moreover, concluded the court, invalidating the safe harbor would not relieve the RPA’s alleged injury. At the time of the Phase I rulemaking, the agency clearly announced its intent “to accept any method [of proof] that is commercially reasonable and provides us with evidence that the compensation is comparable to what is ordinarily paid for an item or service in the location at issue, by parties in arm’s-length transactions who are not in a position to refer to one another.” 66 Fed.Reg. at 944. The safe harbor merely identified two “presumptively reasonable” methods of proof, without restricting parties from relying on other methods of proof. Renal Physicians Ass’n,
The district court granted the government’s motion to dismiss,
II
We review a dismissal for lack of standing de novo. Nat’l Wrestling Coaches Ass’n,
The government emphasizes that the safe harbor is voluntary and that, even if the safe harbor were rescinded, the fair market value requirement would still remain. Therefore, the clinics might take the same action even without the safe harbor. Standing, however, surely cannot be so easily defeated solely on the basis that the challenged regulation creates a voluntary safe harbor. Voluntary or not, a safe harbor must achieve some useful purpose or an agency would not bother to create it, which suggests that every safe harbor has at least some substantive impact. The extent of this substantive impact turns on the scope of the risk associated with not using the safe harbor; the higher the risk, the more likely the safe harbor will attract regulated entities into its calm (litigation free) waters. If an agency uses a safe harbor to coerce parties toward a substantive result the agency prefers, and the safe harbor is voluntary in name only, then the agency is making substantive law.
Here, however, the alleged impact of the safe harbor on RPA members is indirect, the result of the actions of third parties. In Lujan,
When ... a plaintiffs asserted injury arises from the government’s allegedly unlawful regulation (or lack of regulation) of someone else, much more is needed. In that circumstance, causation and redressability ordinarily hinge on the response of the regulated (or regulable) third party to the government action or inaction — and perhaps on the response of others as well.... [I]t becomes the burden of the plaintiff to adduce facts showing that ... choices [of the independent actors] have been or will be made in such manner as to produce causation and permit redressability of injury. Thus, when the plaintiff is not himself the object of the government action or inaction he challenges, standing is not precluded, but it is ordinarily substantially more difficult to establish.
We grappled with these competing considerations in National Wrestling, a case involving a challenge to a 1979 “Policy Interpretation” of the Department of Education (“DOE”) addressing how colleges could comply with Title IX’s ban on sex discrimination in intercollegiate athletics. Nat’l Wrestling Coaches Ass’n,
The plaintiffs in National Wrestling were “several membership organizations that represent the interests of collegiate men’s wrestling coaches, athletes, and alumni.” Id. at 933. The organizations claimed injury “from decisions by educational institutions to eliminate or reduce the size of men’s wrestling programs,” allegedly to comply with the first prong of the Three-Part Test. Id. at 935. The district court concluded the plaintiffs lacked standing, and we affirmed. Id. at 949.
We reasoned that the “direct causes of appellants’ asserted injuries — loss of collegiate-level wrestling opportunities for male student-athletes — are the independent decisions of educational institutions .... Appellants offer nothing but speculation to substantiate their claim that a favorable decision from this court will redress their injuries by altering these schools’ independent decisions.” Id. at 936-37. In our discussion, id. at 933, 938-39, we relied on Lujan as well as several other Supreme Court decisions holding that standing to challenge a government policy cannot be founded merely on speculation as to what third parties will do in response to a favorable ruling. See Allen v. Wright,
In National Wrestling, we also relied on our earlier holding in Freedom Republicans, Inc. v. Federal Election Commission,
The same deficiency that defeated standing in these cases doomed the plaintiffs in National Wrestling. Specifically, the plaintiffs had not “suggested] that any particular school necessarily would forego elimination of a wrestling team or reinstate a previously disbanded program in the absence of [the Three-Part Test’s safe harbor].” Nat’l Wrestling Coaches Ass’n,
Even if appellants prevailed on the merits in their challenge to the Three-Part Test, Title IX and the 1975 Regulations would still be in place. Federally funded schools would still be required to provide athletic opportunities in a manner that equally accommodated both genders.... Schools would remain free to eliminate or cap men’s wrestling teams and may in some circumstances feel compelled to do so to comply with the statute and the 1975 Regulations. This is particularly so since Title IX itself permits evidence of disproportion in the distribution of benefits between sexes to be considered in enforcement proceedings against recipients of federal funding. Moreover, other reasons unrelated to the challenged legal requirements^ such as a desire to do what is morally right,] may continue to motivate schools to take such actions.
Id. at 939-40 (citations omitted).
We identified two categories of cases where standing exists to challenge government action though the direct cause of injury is the action of a third party. First, standing exists where the challenged government action authorized conduct that would otherwise have been illegal. Id. at 940. In such cases, if the authorization is removed, the conduct will become illegal and therefore very likely cease. Hence, “[c]ausation and redressability ... are satisfied in this category of cases, because the intervening choices of third parties are not truly independent of government policy.... [T]hey could only preclude redress if those third parties took the extraordinary measure of continuing their injurious conduct in violation of the law.” Id. at 940-41.
Second, standing has been found “where the record presented substantial evidence of a causal relationship between the government policy and the third-party conduct, leaving little doubt as to causation and the likelihood of redress.” Id. at 941. As examples we cited Tozzi v. United States Department of Health & Human Services,
In other words, to establish redressability at the pleading stage, we required more than a bald allegation; we required that the facts alleged be sufficient to demonstrate a substantial likelihood that the third party directly injuring the plaintiff would cease doing so as a result of the relief the plaintiff sought. Nat’l Wrestling Coaches Ass’n,
There is nothing in Tozzi and Block indicating that the third parties whose conduct injured the plaintiffs would have had reason to continue their injurious conduct unaltered in the absence of the challenged government action. In this case, by contrast, the continued vitality of Title IX itself and the 1975 Regulations means that schools must continue to take gender equity into account when designing their athletic programs. And appellants have offered nothing to indicate that the schools will act any differently than they have in the past regarding decisions to comply with Title IX.
Id.
“In sum,” we concluded, “[t]he problem here is that appellants have failed completely to satisfy the redressability prong of Article III standing, for there is nothing to support appellants’ claim that a favorable ruling would alter the schools’ conduct.” Id. at 944.
Ill
Here, as in National Wrestling, an agency has created a voluntary safe-harbor provision; various regulated entities have independently chosen to take advantage of the safe harbor; and a party that is indirectly affected by the safe harbor has brought a law suit, challenging it. Under National Wrestling, RPA needs to show that the decision of clinics to reduce the hourly wage of medical directors is linked to the continuing existence of the safe-harbor provision such that invalidating the provision will be reasonably likely to cause the clinics to raise the hourly wage. Moreover, it is not enough simply to plead this causative link. National Wrestling makes clear that, even at the pleading stage, a party must make factual allegations showing that the relief it seeks will be likely to redress its injury.
RPA claims standing as the representative of its members, who allegedly suffered injury as a result of the safe harbor. See Hunt v. Wash. State Apple Adver. Comm’n,
In support of standing, RPA supplemented the factual allegations in its complaint with a single affidavit of one of its members: Dr. Joseph Anzalone, a nephrologist, who was the medical director for the dialysis facility at Central Washington Hospital in Washington state. Affidavit of Joseph Anzalone, M.D. (June 9, 2005), Joint Appendix 83. In 2005, after the safe harbor was created, the facility where Dr. Anzalone performed services (and to which he made referrals) reduced his hourly wage, stating its “hands were tied” by a “new federal law.” Id. at 84-85. Rather than accept this reduction in his wage, Dr. Anzalone left his post as medical director of the facility, losing $35,000 in income as a result. Id. Since that time, he has not been able to obtain a similar post at another facility, because he has not identified an
Assuming, for purposes of argument, that Dr. Anzalone adequately asserts an injury, causation remains uncertain and redressability is not addressed at all. The affidavit does not even mention the safe-harbor provision in specific terms. Instead, it refers vaguely to a “new federal law,” which might be a reference to the Stark Law in general. Therefore, we really have no way of knowing why the dialysis facility at Central Washington Hospital reduced Dr. Anzalone’s hourly wage, and we cannot assume the safe-harbor provision was a critical factor. Nor do we have even an allegation that vacating the safe harbor would lead to an increase in Dr. Anzalone’s compensation.
Nor does the logic of Dr. Anzalone’s allegations regarding injury and causation make it “likely,” rather than “speculative,” that, if the safe harbor were invalidated or rescinded, the Central Washington Hospital dialysis facility would, in response, raise the hourly wage it pays its medical director. Ctr. for Law & Educ. v. Dep’t of Educ.,
There is a related point that the trial court found particularly persuasive, as do we. Even if a court invalidated the safe harbor, dialysis facilities would remain obligated under the Stark Law to pay no more than fair market value for medical director services, and CMS policy makes clear, in this regard, that a facility can offer any method of proof “that is commercially reasonable and provides [the agency] with evidence that the compensation is comparable to what is ordinarily paid ... in the location at issue, by parties in arm’s-length transactions who are not in a position to refer to one another.” 66 Fed.Reg. at 944. The effect of the safe-harbor provision has been to identify one relatively simple method of proof CMS finds persuasive, and there is no reason to think CMS will find this method of proof any less persuasive if the safe harbor is invalidated. See Renal Physicians Ass’n,
In sum, RPA has not satisfied the redressability prong of the standing requirement, because it has not alleged any facts showing that an order invalidating the safe harbor will likely cause dialysis facilities to increase the wages of RPA members. Specifically, RPA failed to allege facts showing that even a single hospital or dialysis center would pay a medical director more, or would forgo a planned pay cut, if the court held the safe-harbor provision invalid.
In reaching this conclusion, we do not read National Wrestling more broadly than is warranted by the facts of that case. We see National Wrestling as standing for two simple points, neither of which constitutes a shift in the law of standing, but both of which doom RPA’s claim of standing here. First, although less is required to survive a motion to dismiss than a motion for summary judgment, National Wrestling makes clear that a bald allegation of standing is not enough to survive even a motion to dismiss where neither the factual allegations nor their logic establish redressability. See Nat'l Wrestling Coaches Ass’n,
IV
RPA argues a lesser showing of redress-ability suffices here because it is alleging an injury to procedural rights. See Lujan,
The point of the lower standard for redressability in a procedural-injury case is that the injury in such a case is not associated only with the substantive decision the agency reached but also with the agency’s failure to follow proper procedures in reaching that decision. Therefore, in a procedural-injury ease, a plaintiff need not show that better procedures would have led to a different substantive result. See Nat'l Parks Conservation Ass’n v. Manson,
Y
We agree with the district court that RPA lacks standing to bring its case because it has not shown that a ruling in its favor will redress the injury it alleges. The dismissal for lack of subject matter jurisdiction is therefore
Affirmed.