Anna Jacques Hosp. v. Burwell

Decision Date14 August 2015
Docket NumberNo. 14–5125.,14–5125.
Citation797 F.3d 1155
PartiesANNA JACQUES HOSPITAL, et al., Appellants v. Sylvia Mathews BURWELL, Appellee.
CourtU.S. Court of Appeals — District of Columbia Circuit

Keith D. Barber argued the cause for appellants. With him on the briefs were N. Kent Smith and Amy L. Brown.

Katherine T. Allen, Attorney, U.S. Department of Justice, argued the cause for appellee. On the brief were Ronald C. Machen, Jr., U.S. Attorney at the time the brief was filed, and Michael S. Raab, Attorney. Samantha L. Chaifetz, Attorney, and R. Craig Lawrence, Assistant U.S. Attorney, entered appearances.

Before: KAVANAUGH, MILLETT and WILKINS, Circuit Judges.


Opinion for the Court filed by Circuit Judge MILLETT.

MILLETT, Circuit Judge:

The Medicare Act, 42 U.S.C. §§ 1395 et seq., established a nationwide, federally funded health insurance program for the elderly and individuals with disabilities. Unsurprisingly, reimbursing hospitals for Medicare services provided to patients across the entire United States is a complicated business. One reason is that the cost of providing such care can vary significantly depending on where a hospital is located. An influential factor in that variation is the wages paid to hospital employees, which fluctuate based on the cost of living in different geographic areas. To help compensate for those disparities, the Medicare Act charges the Secretary of Health and Human Services with computing annually a “wage index” that compares hospital wages within defined geographic areas to a national average, and adjusts Medicare reimbursements accordingly.

This case arises from the Secretary's decision in 2005 to change the boundaries of the geographic areas used to compute those regional wage indices. The new lines fell in a way that left three multi-campus hospitals straddling different geographic areas. One is the Southcoast Hospital Group, which found itself with campuses in both the Boston–Quincy, Massachusetts region and in the neighboring Providence–New Bedford–Fall River (“Providence”) region.1 Consistent with longstanding agency regulations, the Secretary factored all of Southcoast's wages into the Boston–Quincy index because that is where its principal campus with the group's Medicare provider and reporting number was situated. Concerned that the inclusion of wages from the Providence-area campuses lowered their wage index and thus their Medicare reimbursements, a group of hospitals challenged the Secretary's decision to include wage data from Southcoast campuses outside the Boston–Quincy area in calculating the index for that area for fiscal years 2006 and 2007.

We uphold the Secretary's decision. The Secretary's treatment of Southcoast hewed to the existing administrative treatment of such multi-campus hospital groups. And reasonably so—there were substantial informational and operational obstacles to implementing a different computational method quickly in 2006 or retroactively now. Moreover, appellants admit that the temporary effect of Southcoast's multi-campus data on the wage index was a “one-off” occurrence arising from “unusual circumstances” that apparently did not affect any other multi-campus hospital group's treatment. Oral Arg. Tr. 52–53. Nothing in the Medicare Act or established principles of administrative review mandate that the Secretary individually tailor one hospital's reporting treatment to fit plaintiffs' preferred computational outcome.

IStatutory and Regulatory Framework

As has oft been noted, Medicare is a “complex and highly technical regulatory program.” Thomas Jefferson University v. Shalala, 512 U.S. 504, 512, 114 S.Ct. 2381, 129 L.Ed.2d 405 (1994) (citation omitted). The Medicare program is administered by the Centers for Medicare and Medicaid Services (“Centers”), a division of the Department of Health and Human Services, under the executive management of the Secretary of Health and Human Services. St. Elizabeth's Medical Center of Boston, Inc. v. Thompson, 396 F.3d 1228, 1230 (D.C.Cir.2005). As part of the program, health care providers are reimbursed for certain costs that they incur in treating Medicare beneficiaries. Methodist Hospital of Sacramento v. Shalala, 38 F.3d 1225, 1227 (D.C.Cir.1994).

Originally, health care providers were reimbursed for the “reasonable costs” of services furnished to Medicare patients. Methodist Hospital, 38 F.3d at 1227. In 1983, Congress substantially revised that payment regime and created the Prospective Payment System. See Social Security Amendments of 1983, Pub.L. No. 98–21, § 601, 97 Stat. 65, 149; see also Methodist Hospital, 38 F.3d at 1227. The Prospective Payment System reimburses hospitals for medical care requiring at least one night's stay on the basis of a preestablished formula, regardless of the actual costs incurred by the hospital. 42 U.S.C. § 1395ww(d) ; see generally Anna Jaques Hospital v. Sebelius, 583 F.3d 1, 2 (D.C.Cir.2009). The payment rates are tied to the national average cost of treating a patient's particular ailment. See 42 U.S.C. § 1395ww(d). Congress intended for those rates to “reform the financial incentives hospitals face [and] promot[e] efficiency in the provision of services[.] Methodist Hospital, 38 F.3d at 1227 (quoting H.R.Rep. No. 25, 98th Cong., 1st Sess. 132 (1983)).

In calculating those standard payments, the Secretary is required to adjust the “proportion” of the payment attributable to “wages and wage-related costs” for “area differences in hospital wage levels[.] 42 U.S.C. § 1395ww(d)(3)(E)(i). To ensure uniformity in the adjustment process, the statute requires the Secretary to compute a “factor” that “reflect[s] the relative hospital wage level in the geographic area of the hospital compared to the national average[.] Id. That “factor” is commonly referred to as “the wage index.” Southeast Alabama Medical Center v. Sebelius, 572 F.3d 912, 914–915 (D.C.Cir.2009) ; see also Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2006 Rates (“Final 2006 Rules”), 70 Fed.Reg. 47,278, 47,281 (Aug. 12, 2005) (“The base payment rate is comprised of a standardized amount that is divided into a labor-related share and a nonlabor-related share. The labor-related share is adjusted by the wage index applicable to the area where the hospital is located[.]).

The wage index must be updated each year “on the basis of a survey” of the wage-related costs for hospitals in the United States. 42 U.S.C. § 1395ww(d)(3)(E)(i). The Secretary collects annual cost reports from each hospital, see Anna Jaques, 583 F.3d at 3 ; 42 C.F.R. § 413.20(b), and she publishes a manual to guide hospitals through the reporting process, see Centers for Medicare & Medicaid Services, Medicare Provider Reimbursement Manual (“Reimbursement Manual”), Part 2, Chapter 1 §§ 100 et seq.2 Generally, each hospital or facility that has been assigned its own Medicare provider number must file its own report. Id. § 112 (“Each provider in a chain organization or other group of providers, except as noted below, must file a separate, individual cost report.”).3

A different rule applies, however, for multi-campus hospitals. A multi-campus hospital is an organization with multiple facilities that operates as a single institution with integrated finances, administration, and organization. See Centers for Medicare & Medicaid Services, Medicare State Operations Manual (“Operations Manual”), Chapter 2 §§ 2024, 2779F; 42 C.F.R. §§ 413.65(d) -(e).4 A multi-campus hospital may submit only one cost report each year under its “principal provider” number. See Reimbursement Manual, Part 2, Chapter 1 § 112 (“Institutions which have multiple facilities but only one provider number * * * are required to submit one cost report under that principal provider number[.]).

Multi-campus hospitals often form as the result of a hospital merger or joint venture. After such a change, the relevant state agency and the Centers regional office ascertain whether the hospitals have the extensive legal, financial, organizational, and administrative integration that is required to be certified to operate as a single institution. See 42 C.F.R. § 413.65(d) -(e) (listing criteria to qualify as a single institution); Operations Manual, Chapter 2 § 2024 (“When two or more hospitals merge,” the agency must decide “whether to continue to certify the hospitals separately or certify them as a single hospital (i.e., hospital with a main campus and an additional location).”). If any of the integration criteria is not met, the campuses are treated as [f]ree-standing facilit[ies],” see 42 C.F.R. § 413.65(a)(2), and each must operate under its own Medicare provider number and submit, inter alia, its own cost reports, see Reimbursement Manual, Part 2, Chapter 1 § 112.

If certified as a single institution, the hospital must designate a “main campus,” and that campus's Medicare provider number is adopted by the hospital for common use by all of its facilities. See generally Operations Manual, Chapter 2 § 2779F. The provider numbers that correspond to the other campuses, if any, are retired. See id. § 2779F. Multi-campus hospitals also operate under a single provider agreement with Medicare, id., through which they may bill for services provided to Medicare beneficiaries as long as they comply with all program requirements, 42 C.F.R. § 489.3. Multi-campus hospitals' subordinate campuses have “provider-based” status that entitles them to operate under the multi-campus hospital's number and agreement. Id. § 413.65(a)(2).

After collecting cost reports from each hospital or hospital group, the Secretary removes data that fails to meet set criteria for reasonableness, including data that is “incomplete[,] inaccurate * * *, or otherwise aberrant [.] Anna Jaques, 583 F.3d at 3 (quoting Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2005 Rates (“Final 2005 Rules), 69 Fed.Reg. 48,916, 49,049–49,050 (Aug. 11, 2004) ). Because of the extensive...

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