Bates Cnty. Mem'l Hosp. v. Azar, Civil Action No. 19-1767 (TJK)
| Citation | 464 F.Supp.3d 43 |
| Decision Date | 14 May 2020 |
| Docket Number | Civil Action No. 19-1767 (TJK) |
| Parties | BATES COUNTY MEMORIAL HOSPITAL et al., Plaintiffs, v. Alex M. AZAR II et al., Defendants. |
| Court | U.S. District Court — District of Columbia |
Joseph David Glazer, Law Office of Joseph D. Glazer P.C., Princeton, NJ, for Plaintiffs.
Christopher Charles Hair, U.S. Attorney's Office for the District of Columbia, Kara Wilcox Mundy, U.S. Department of Health & Human Services, Washington, DC, for Defendants.
This case involves the interaction of two procedures through which hospitals may be reclassified for different Medicare reimbursement purposes. Bates County Memorial and five other plaintiff hospitals are geographically located in urban areas of their states, but they qualify for—and in all but one case have secured—reclassification to rural status for certain reimbursement purposes under Section 401 of the Medicare Act. They also applied for rural status for different reimbursement reasons under a Medicare reclassification scheme administered by the Medicare Geographic Classification Review Board (MGCRB). The Secretary of Health and Human Services denied their applications, and Plaintiffs assert that the Secretary's unlawful interpretation of Section 401 is why they have not attained reclassification under that process.
Hospitals that are reclassified under Section 401 must be treated, for purposes of Subsection (d) of the Medicare Act (which includes the MGCRB process), "as being located in the rural area" of their states. 42 U.S.C. § 1395ww(d)(8)(E)(i). A key MGCRB regulation, in turn, requires the MGCRB to compare the hospitals’ hourly wage rates with others "in the area in which [they are] located." 42 C.F.R. § 412.230(d)(1)(iii)(C). But in doing so, the Secretary interpreted Section 401 to allow him to use other hospitals in the urban area in which applicant hospitals are geographically located, instead of the rural area to which they were reclassified under Section 401.
Plaintiffs sued, arguing that Section 401's command that they be treated as located in the rural areas of their states forecloses the Secretary's application of the MGCRB regulation to them in this way. The Secretary argues, to the contrary, that the statute is vague, his interpretation is reasonable, and it is entitled to Chevron deference. Not so. The Court agrees with Plaintiffs that the text of the statute requires it to enter summary judgment on their behalf, and it will remand the case to the Secretary for action consistent with this opinion.
Under Subsection (d) of the Medicare Act, 42 U.S.C. § 1395ww(d), the Center for Medicare and Medicaid Services (CMS) of the Department of Health and Human Services (HHS) reimburses hospitals prospectively for inpatient costs at fixed rates. Those rates depend in large part on a wage index the Secretary assigns to the specific geographic area where the hospital is located. "Hospitals located in urban areas are grouped and treated as a single labor market based on the area, known as the Core Based Statistical Area (‘CBSA’), in which they are physically located." Geisinger Cmty. Hosp. Med. Ctr. v. Sec'y U.S. Dep't of Health & Human Servs. , 794 F.3d 383, 387 (3d Cir. 2015). "Hospitals located in rural areas receive a wage index that applies to all rural areas in their state." Id. ; see 42 U.S.C. § 1395ww(d)(2)(D) ().
Subsection (d) includes the two reclassification systems at issue here that allow hospitals designated as urban to reclassify as rural to obtain more favorable reimbursement rates: (1) Section 401 reclassification and (2) MGCRB reclassification. Under Section 401 of the Medicare Act, 42 U.S.C. § 1395ww(d)(8)(E), a hospital that successfully reclassifies as rural may obtain, for example, more favorable drug pricing than if it was urban. Lawrence + Mem'l Hosp. v. Burwell , 812 F.3d 257, 258 (2d Cir. 2016). And by successfully applying to the MGCRB under 42 U.S.C. § 1395ww(d)(10) for reclassification as rural, a hospital can receive a higher wage reimbursement rate. Id. Section 401 requires the Secretary, upon receiving a satisfactory application from an urban hospital to reclassify as rural, 42 U.S.C. § 1395ww(d)(8)(E)(ii), to "treat the hospital as being located in the rural area ... of the State in which the hospital is located" "[f]or purposes of" Subsection (d), id. § 1395ww(d)(8)(E)(i), which includes the MGCRB process, id. § 1395ww(d)(10).
Section 401 and the MGCRB each have their own reclassification criteria. For Section 401, a hospital must meet certain population or geographic characteristics. See id. § 1395ww(d)(8)(E)(ii). And as for the MGCRB, the Secretary—under his authority in Subsection (d) to "publish guidelines to be utilized by the [MGCRB] in rendering decisions on applications" for reclassification, id. § 1395ww(d)(10)(D)(i) —promulgated three criteria for a hospital to reclassify: (1) the hospital must be near the area to which it seeks reclassification (within 35 miles for a rural hospital or within 15 miles for an urban hospital), 42 C.F.R. § 412.230(b)(1) ; (2) the hospital's average hourly wage (AHW) must be at least 82 percent (for a rural hospital) or 84 percent (for an urban hospital) of the AHW for hospitals in the area to which it seeks reclassification, id. § 412.230(d)(1)(iv)(E) ; and (3) the hospital's AHW must be at least 106 percent (for a rural hospital) or 108 percent (for an urban hospital) of the AHW of hospitals "in the area in which the hospital is located," id. § 412.230(d)(1)(iii)(C).
When reviewing applications for MGCRB reclassification, the Secretary applies the three rural hospital criteria (35-mile proximity, 82-percent AHW, and 106-percent AHW) to hospitals in urban areas that have been reclassified to rural under Section 401. But for purposes of the third, the Secretary uses the geographic area of a hospital reclassified as rural under Section 401 as the "area in which the hospital is located." Thus, he requires a Section 401-reclassified rural hospital's AHW to be at least 106 percent of the AHW of hospitals in its urban CBSA.
Plaintiffs are six urban, acute care hospitals that sued the Secretary, the Administrator of CMS, and the Chairman of the MGCRB for violations of the Medicare Act, 42 U.S.C. § 1395ww(d)(8)(E)(i), and the Administrative Procedure Act, 5 U.S.C. § 701 et seq. , in June 2019. ECF No. 1. They each seek reclassification as rural both under Section 401 and before the MGCRB. ECF No. 16 ("2d Am. Compl.") ¶¶ 1–6, 13. And while they qualify for Section 401 reclassification as rural, they have been denied MGCRB reclassification as rural during the September 2019 application cycle. Hrg. Tr. 13:25–14:4, 14:17–18; Tobias Decl. ¶ 3; 2d Am. Compl. ¶¶ 13, 44.1 Each of them "would be able to prove to the MGCRB that its wages are at least 106% of the three-year average hourly wage of all other hospitals in the rural area of the state in which the Hospital is located. " Tobias Decl. ¶ 14. Plaintiffs allege that the practice of comparing them to urban hospitals where they are geographically located conflicts with Section 401's mandate to "treat the hospital as being located in the rural area ... of the State in which the hospital is located" "[f]or purposes of" Subsection (d). 42 U.S.C. § 1395ww(d)(8)(E)(i).2 According to Plaintiffs, the Secretary's practice has deprived them of hundreds of thousands of dollars in annual Medicare reimbursement. 2d Am. Compl. ¶ 42; Tobias Decl. ¶ 15. Plaintiffs seek declaratory relief that the Secretary's application of the regulation is contrary to Section 401 and an order that the Secretary decide their MGCRB applications without comparing their AHW to that of hospitals in their states’ urban CBSAs. 2d Am. Compl. at 12; ECF No. 13-3. The parties cross-moved for summary judgment. ECF No. 13 ("Pl.’s Br."); ECF No. 18 ("Def's Br."); see also ECF No. 20 ("Pl.’s Reply"); ECF No. 22 ("Def's Reply").
A court must grant summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "[W]hen a party seeks review of agency action under the APA, the district judge sits as an appellate tribunal." Am. Bioscience, Inc. v. Thompson , 269 F.3d 1077, 1083 (D.C. Cir. 2001). "The ‘entire case’ on review is a question of law." Id. "Under the Administrative Procedure Act, a court may set aside an agency's final decision only if it is ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.’ " Ams. for Safe Access v. DEA , 706 F.3d 438, 449 (D.C. Cir. 2013) (quoting 5 U.S.C. § 706(2)(A) ).
Courts analyze agency interpretations of statutes "under the familiar two-step framework of Chevron ." City of Clarksville v. FERC , 888 F.3d 477, 482 (D.C. Cir. 2018) (citing 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) ). "If the Court determines that ‘Congress has directly spoken to the precise question at issue,’ and ‘the intent of Congress is clear, that is the end of the matter.’ " Id. (quoting Chevron , 467 U.S. at 842, 104 S.Ct. 2778 ). "If, however, ‘the statute is silent or ambiguous with respect to the specific issue,’ then the Court must determine ‘whether the agency's answer is based on a permissible construction of the statute.’ " Id. (quoting Chevron , 467 U.S. at 843, 104 S.Ct. 2778 ). "[A]gencies only ‘possess whatever degree of discretion [an] ambiguity allows.’ " Loan Syndications & Trading Ass'n v. SEC , 882 F.3d 220, 224 (D.C. Cir. 2018) () (quoting City of Arlington v. FCC , 569 U.S. 290, 296, 133 S.Ct. 1863, 185 L.Ed.2d 941 (2013) ).
"[U]nder Chevron , [courts] owe an agency's interpretation of the law no deference...
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