Baylor Cnty. Hosp. Dist. v. Price, 16-10310

• Decision Date: 07 March 2017
• Docket Number: No. 16-10310,16-10310
• Citation: 850 F.3d 257
• Parties: BAYLOR COUNTY HOSPITAL DISTRICT, doing business as Seymour Hospital, Plaintiff–Appellant v. Thomas PRICE, Secretary, U.S. Department of Health and Human Services, Defendant–Appellee
• Court: U.S. Court of Appeals — Fifth Circuit

850 F.3d 257

BAYLOR COUNTY HOSPITAL DISTRICT, doing business as Seymour Hospital, Plaintiff–Appellant

v.Thomas PRICE, Secretary, U.S. Department of Health and Human Services, Defendant–Appellee

No. 16-10310

United States Court of Appeals, Fifth Circuit.

FILED March 7, 2017

Britton Dale McClung, Joshua L. Hedrick, Hedrick Kring, P.L.L.C., Dallas, TX, for Plaintiff–Appellant.

Brian Walters Stoltz, Dallas, TX, Ann Elizabeth Cruce–Haag, Assistant U.S. Attorney, Lubbock, TX, U.S. Attorney's Office, Northern District of Texas, for Defendants–Appellees.

Before JONES, BARKSDALE, and COSTA, Circuit Judges.

EDITH H. JONES, Circuit Judge:

In 1997, Congress created a favorable Medicare reimbursement schedule for rural facilities designated as "critical access hospitals." 42 U.S.C. §§ 1395i–4, 1395f. A critical access hospital is defined in part by the type of roads that connect the facility to the next nearest hospital. Congress used the term "secondary roads" in the definition, but it neither defined that term nor contrasted it with "primary roads." To fill that gap, an agency within the Department of Health and Human Services (DHHS) issued a manual that defines "primary roads" as, inter alia , numbered federal highways and defines "secondary roads" as non-primary roads. Appellant Baylor County Hospital District d/b/a Seymour Hospital (Seymour), located in Seymour, Texas, challenges DHHS's decision, founded on the manual, that it is not a critical access hospital. The district court, in a thorough and thoughtful opinion, granted DHHS's motion for summary judgment. We accord Skidmore deference, find nothing arbitrary or capricious in the agency's decisionmaking, and AFFIRM .

I. BACKGROUND

For 20 years, the Medicare Rural Hospital Flexibility Program has provided a special reimbursement scheme for certain rural facilities that serve Medicare beneficiaries. See generally 42 U.S.C. §§ 1395i–4, 1395f. These "critical access hospitals," id. § 1395f(l)(1), must meet several criteria, including geographical, staffing, and services requirements. See id. § 1395i–4(c)(2)(B). At issue in this case is the geographical requirement measured by a facility's distance from another hospital and the types of roads available to travel that distance:

A State may designate a facility as a critical access hospital if the facility ... is a hospital that ... is located more than a 35–mile drive (or ... in areas with only secondary roads available, a 15–mile drive) from a hospital, or another facility described in this subsection[.]

Id. § 1395i–4(c)(2)(B)(i)(I). Within that criterion, Congress created two standards—a 15–mile standard if "only secondary roads [are] available" between facilities, and a 35–mile default standard if roads other than secondary roads are available. Despite the reference to "secondary roads," Congress defined neither that term nor its comparator, "primary roads." The implementing regulations are similarly blank. See 42 C.F.R. § 485.610(c).

To remedy the lack of formally binding definitions, the Centers for Medicare and Medicaid Services (CMS), the agency within DHHS charged with administering Medicare, issued "guidance" in a State Operations Manual (the Manual). The Manual explains that a facility falls within the "secondary roads" provision when "there are more than 15 miles between the [facility] and any hospital or other [critical access hospital] where there are no primary roads." The Manual then articulates three types of "primary roads:"

1. A numbered federal highway, including interstates, intrastates, expressways or any other numbered federal highway;

2. A numbered state highway with 2 or more lanes each way; and

3. A road shown on a map prepared in accordance with the U.S. Geological Survey's Federal Geographic Data Committee (FGDC) Digital Cartographic Standard for Geologic Map Symbolization as a "primary highway, divided by median strip."

CMS, State Operations Manual, ch. 2, § 2256A. The end result is that to qualify under the "secondary roads" provision, a facility must be separated from the nearesthospital by more than 15 miles in which there is no primary road—a numbered federal highway, a numbered state highway with two or more lanes each way, or a road shown on a particular map as a "primary highway, divided by median strip."

In 2013, Seymour applied to CMS for designation as a critical access hospital. The nearest hospital is located 31.8 miles away in Throckmorton, Texas. Approximately 28.4 miles of the road directly connecting the small towns of Seymour and Throckmorton are designated as U.S. Highway 183/283, rendering that 28.4–mile stretch a "primary road" under the "numbered federal highway" provision in the Manual. U.S. Highway 183/283 is designated a "Primary Highway," "Principal Highway," and "Major Road" by official sources such as the U.S. Geological Survey and the Texas Department of Transportation. Seymour does not satisfy the alternate 35–mile standard because Seymour lies less than 35 miles away from Throckmorton. But Seymour also fails to qualify under the "secondary roads" provision because for only approximately three miles (31.8 miles minus 28.4 miles) of the distance between Seymour and the Throckmorton hospital are "only secondary roads [ ] available"—well short of the 15–mile "secondary road" threshold. CMS rejected Seymour's application based on the plain language of the "guidance."

Seymour then requested a hearing from an administrative law judge (ALJ), "disput[ing] the validity of CMS' determination and the rationale for it." Seymour asserted that U.S. Highway 183/283 is a secondary road because it "is a two lane rural road," has "no shoulders," and its "dimension and condition" are those "of a poor quality farm road." Seymour acknowledged that its characterization of U.S. Highway 183/283 as a secondary road conflicted with the "numbered federal highway" provision in the Manual, but Seymour dismissed the Manual as "only guidance," "not controlling," and "not law." Seymour additionally challenged the "numbered federal highway" provision as "unreasonable, arbitrary and capricious."

Applying the Manual, the ALJ rejected Seymour's position. The ALJ found that the Manual was entitled to "considerable deference" and "justified in this case by practical considerations," such as CMS's "lack [of] resources and capacity for making case-by-case judgments about the driving characteristics of every stretch of highway in the United States." Further, the ALJ stated that "making a policy determination that a numbered United States Highway is a ‘primary road’ not only makes sense, but it may be the only reasonably objective way, along with the other criteria listed in the [Manual], of determining what is ‘primary’ and what is ‘secondary.’ "

The DHHS Department of Appeals Board affirmed, holding

CMS's interpretation provides a bright-line for what constitutes a primary road, based on objective criteria. CMS could reasonably assume that federal highways are likely to be bigger, better-maintained, and more well-traveled than state highways, and that state highways are more likely to have those characteristics than undesignated roads. Given those general expectations, CMS could reasonably require that state highways and undesignated roads be treated as equivalent to federal highways only when they demonstrated specific characteristics typical of most federal highways. Thus, CMS's decision to categorize as primary roads all federal highways, but only state highways with two or more lanes in each direction, and only "primary highways" divided by a median strip, is reasonable.

The Board emphasized that "CMS was not required to conduct case-by-case surveys of all the characteristics and traffic patterns of each stretch of road connecting two rural hospitals." According to the Board, "[a]dministrative efficiency justified developing a bright-line rule that would balance the goals [of the Program] without individual inquiry into each case."

Seymour sought judicial review of the Board's decision, and the district court, in turn, granted summary judgment for DHHS, "find[ing] that the Skidmore [v. Swift & Co. , 323 U.S. 134, 65 S.Ct. 161, 89 L.Ed. 124 (1944) ] factors counsel the Court to grant deference to the Secretary's final decision, as it is supported by substantial evidence and lacks any clear error of law." Seymour appeals, arguing that Skidmore deference is unwarranted and DHHS's final decision is arbitrary and capricious. (Seymour concedes that the decision is factually consistent with the Manual's definition of "primary roads.")

II. ANALYSIS

A. Standard of Review

This court reviews a grant of summary judgment de novo , applying the same standard to review the agency's decision that the district court used. E.g. , Hayward v. U.S. Dep't of Labor , 536 F.3d 376, 379 (5th Cir. 2008). But the parties dispute the nature of that standard of review. Seymour advocates arbitrary and capricious review under the Administrative Procedure Act (APA). See 5 U.S.C. § 706(2)(A) (requiring a reviewing court to hold unlawful and set aside agency action, findings, and conclusions found to be "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law"). Seymour also urges us to deny Skidmore deference to the Manual's "numbered federal highway" provision.

For its part, DHHS relies on section 405(g) of the Social Security Act, which authorized judicial review in this case. See 42 U.S.C. § 1395cc(h) (citing 42 U.S.C. § 405(g) ). Section 405(g) states in relevant part that "[t]he findings of [DHHS] as to any fact, if supported by substantial evidence, shall be conclusive[.]" Id. § 405(g). Quoting Estate of Morris v. Shalala , 207 F.3d 744, 745 (5th Cir. 2000), which ruled on the appeal of an individual Medicare claimant, DHHS contends that our review under section 405(g)"is limited to two issues: (1) whether [DHHS] applied the proper legal standards; and (2) whether [DHHS's] decision is supported by substantial...