Bridgeport Hosp. v. Becerra

Docket NumberCivil Action No. 1:20-cv-01574 (CJN)
Decision Date02 March 2022
Citation589 F.Supp.3d 1
Parties BRIDGEPORT HOSPITAL, et al., Plaintiffs, v. Xavier BECERRA, in his official capacity as Secretary of Health and Human Services, Defendant.
CourtU.S. District Court — District of Columbia

Katrina A. Pagonis, Hooper Lundy & Bookman, PC, San Francisco, CA, Kelly Anne Carroll, Robert L. Roth, Hooper Lundy & Bookman, PC, Washington, DC, for Plaintiffs.

Lisa Zeidner Marcus, U.S. Department of Justice, Civil Division, Pittsburgh, PA, for Defendant Alex M. Azar, II.


CARL J. NICHOLS, United States District Judge In 2019, the Department of Health and Human Services promulgated a regulation to address wage disparities among hospitals. The regulation increases the amount hospitals in certain low-wage geographic areas receive in Medicare-reimbursement payments and offsets that increase by reducing reimbursement payments for all hospitals. A group of hospitals filed this lawsuit challenging the regulation on several grounds. See generally Compl. , ECF No. 1. Those hospitals have since moved for summary judgment, see Pls.’s Mot. for Summ. J. ("Pls.’s Mot."), ECF No. 14, and the government has cross-moved for summary judgment, see Def.’s Cross-Mot. for Summ. J. ("Def.’s Mot."), ECF No. 16. For the reasons explained below, the Court grants the hospitals’ motion in part, denies the government's cross-motion, and orders additional briefing on the issue of the appropriate remedy in light of this Memorandum Opinion.

I. Statutory & Regulatory Background

Title XVIII of the Social Security Act, commonly known as Medicare, establishes a federal healthcare program that covers the cost of medical services for the elderly and disabled. See 42 U.S.C. § 1395 et seq.1 The federally funded Medicare program consists of four Parts.2 Part A, the Part relevant here, provides coverage and payment for, among other things, inpatient hospital services (i.e. , medical services that require admission to and discharge from a hospital). See generally 42 U.S.C. § 1395ww(d) ; see id. § 1395c; see also Am. Hosp. Ass'n v. Becerra , ––– U.S. ––––, 141 S. Ct. 2883, 210 L.Ed.2d 990 (2021) (considering a challenge to an HHS rule setting reimbursement rates for outpatient rather than inpatient services).

For the first two decades after its passage in 1965, Medicare reimbursed hospitals providing inpatient services based on the actual costs of the services, assuming they were within certain limits. See 42 U.S.C. § 1395f(b)(1) (1988) ; see Methodist Hosp. of Sacramento v. Shalala , 38 F.3d 1225, 1227 (D.C. Cir. 1994) ("[P]roviders were reimbursed for the actual costs that they incurred, provided they fell within certain cost limits."). That system provided "little incentive for hospitals to keep costs down," as higher costs often meant more reimbursement. Tucson Med. Ctr. v. Sullivan , 947 F.2d 971, 974 (D.C. Cir. 1991). In 1983, Congress changed the way Medicare reimbursed hospitals for inpatient services. See Cape Cod Hosp. v. Sebelius , 630 F.3d 203, 205 (D.C. Cir. 2011). Instead of reimbursing hospitals for their actual costs, Congress created the Prospective Payment System, which reimburses hospitals based on predetermined fixed rates. Id. ; see 42 U.S.C. § 1395ww(d)(1)-(5). The System sets a fixed amount that a hospital will receive for a particular service regardless of the actual costs the hospital incurs. See Toledo Hospital v. Xavier Becerra , No. 19-CV-3820 (DLF), 2021 WL 4502052, at *1 (D.D.C. Sept. 30, 2021) ; Dignity Health v. Price , 243 F. Supp. 3d 43, 45 (D.D.C. 2017) ("The system [ ] aims to avoid rewarding hospitals for operating at higher-than-average cost.").

In general terms, HHS relies on a base payment rate (known as the "standardized amount") tied to the national average cost of treating any given ailment. See Centra Health, Inc. v. Shalala , 102 F. Supp. 2d 654, 656 (W.D. Va. 2000) ; Adventist GlenOaks Hosp. , 663 F.3d at 941. The standardized amount consists of both a "non-labor-related" portion and a "labor-related" portion. Centra Health, Inc. , 102 F. Supp. 2d at 656. The non-labor-related portion involves the Medicare beneficiary's diagnosis among other considerations. Id. The labor-related portion consists of the proportion "of hospitals’ costs which are attributable to wages and wage-related costs." 42 U.S.C. § 1395ww(d)(3)(E) ; see also 84 Fed. Reg. 42044, 42325 (Aug. 16, 2019).

Congress recognized that hospitals operate in geographic regions with different wage and labor costs. See Dignity Health , 243 F. Supp. 3d at 45 ; Robert Wood Johnson Univ. Hosp. v. Thompson , 297 F.3d 273, 275 (3d Cir. 2002) ("In order to account for wide variations in the cost of labor across the country, the amount of a hospital's payment under the PPS will vary depending on its location."). Congress thus required HHS to adjust a component of the labor-related portion of the standardized amount based on "the difference between hospitals’ local wages and wage-related costs and the national average." 42 U.S.C. § 1395ww(E)(iii). To accomplish that mandate, HHS must calculate the so-called "wage index" to account for geographic differences in hospital wage levels. See Toledo Hospital , 2021 WL 4502052, at *1 ; Bowen v. Georgetown Univ. Hosp. , 488 U.S. 204, 206, 109 S.Ct. 468, 102 L.Ed.2d 493 (1988).

Specifically, 42 U.S.C. § 1395ww(d)(3)(E) provides:

[T]he Secretary shall adjust the proportion, (as estimated by the Secretary from time to time) of hospitals’ costs which are attributable to wages and wage-related costs, of the DRG prospective payment rates computed under subparagraph (D) 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 .... [A]t least every 12 months ..., 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.

"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." Anna Jacques Hosp. v. Burwell , 797 F.3d 1155, 1158 (D.C. Cir. 2015). To satisfy that requirement, HHS has hospitals submit their wage-and-hour data on an annual basis. See Robert Wood Johnson Univ. Hosp. , 297 F.3d at 276 ("The wage index is updated each year based on hourly wage data collected from the hospitals."); see also Adventist GlenOaks Hosp. , 663 F.3d at 941 (noting that HHS "requires hospitals to report all paid hours, including paid lunch hours, overtime hours, paid holiday, vacation and sick leave hours, paid time-off hours, and hours associated with severance pay."). HHS then compiles those data and publishes a document "containing the cost data from all hospitals in a given area." See Dignity Health , 243 F. Supp. 3d at 47. After revising the data to account for corrections, the agency publishes a wage index in the federal register. Id. ; Baystate Franklin Med. Ctr. v. Azar , 950 F.3d 84, 86 (D.C. Cir. 2020). The agency then uses the data "to create the wage index for each geographic area," which involves comparing the "average hourly wage for hospitals in a given geographic area with the national average hourly wage." Robert Wood Johnson Univ. Hosp. , 297 F.3d at 276. That calculation "in turn determines the payment rate above or below the national average at which a hospital is reimbursed." Id.3

The wage data from each hospital therefore affect "the ultimate wage index for all hospitals, ... and thus data errors or omissions by one hospital can" affect reimbursement "rates for other hospitals." Baystate Franklin Med. Ctr. , 950 F.3d at 87 (quotation omitted). Beginning in 1991, Congress directed that the annual update to the wage index must not increase aggregate payments made to hospitals providing care to Medicare beneficiaries. See 42 U.S.C. § 1395ww(d)(3)(E) ("Any adjustments or updates made under [ 42 U.S.C. § 1395ww(d)(3)(E) ] for a fiscal year ... shall be made in a manner that assures that the aggregate payments under [ 42 U.S.C. § 1395ww(d) ] in the fiscal year are not greater or less than those that would have been made in the year without such adjustment."). Put differently, adjustments to the wage index must produce a budget-neutral outcome. See Baystate Franklin Med. Ctr. , 950 F.3d at 87 ("[C]hanges in the wage index must be budget neutral."). As the Court of Appeals has put it, because HHS "must calculate a national average wage rate to develop the wage index, and because changes in the wage index must be budget neutral, ... a change in any single wage index can affect the reimbursement rate of each hospital in the country." Id. (quotation omitted).

When a hospital objects to a payment it has received, it may appeal the decision to the Provider Reimbursement Review Board, which Congress established to hear Medicare reimbursement disputes. See 42 U.S.C. § 1395oo(a), (b) ; id. § 1395oo(a), § 1395oo(a)(1)(A)(ii), (2), (3). A group of hospitals may bring an appeal before the Board if the matter in controversy involves a common question and the amount in controversy aggregates to at least $50,000. Id. § 1395oo(b). If the Board lacks authority to decide the question presented on appeal, the Board may grant expedited judicial review, which allows the hospitals to bring their challenge in federal court. Id. § 1395oo(f)(1) (noting that a federal district court may hear a challenge to a payment made under the Medicare statute when the contested issue before the Board "involves a question of law or regulations relevant to the matters in controversy[, and] the [Board] determines ... that it is without authority to decide the question"); see also 42 C.F.R. § 405.1842. The Board may not review challenges "either to the constitutionality of a provision...

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