Citrus HMA, LLC v. Becerra

• Decision Date: 08 April 2022
• Docket Number: Civil Action No. 20-707 (CKK)
• Citation: 597 F.Supp.3d 450
• Parties: CITRUS HMA, LLC, d/b/a Seven Rivers Regional Medical Center, et al., Plaintiffs, v. Xavier BECERRA, Secretary of U.S. Department of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Columbia

597 F.Supp.3d 450

CITRUS HMA, LLC, d/b/a Seven Rivers Regional Medical Center, et al., Plaintiffs,

v.Xavier BECERRA, Secretary of U.S. Department of Health and Human Services,¹ Defendant.

Civil Action No. 20-707 (CKK)

United States District Court, District of Columbia.

Signed April 8, 2022

Alek Pivec, Pro Hac Vice, Christopher P. Kenny, Mark D. Polston, Daniel J. Hettich, King & Spalding LLP, Washington, DC, Joel L. McElvain, U.S. Department of Justice, Washington, DC, for Plaintiffs.

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

MEMORANDUM OPINION

COLLEEN KOLLAR-KOTELLY, United States District Judge

Thirty-four hospitals located in urban areas of Arizona, Connecticut, and Florida ("Plaintiffs") bring this action under the Administrative Procedure Act ("APA") against Secretary of Health and Human Services Xavier Becerra ("Defendant" or "the Secretary"). Plaintiffs contend that they were reimbursed at lower rates than "rural" hospitals in their respective states in FY 2020, in violation of the Medicare statute. Pending before this Court are Plaintiffs’ [23] Motion for Summary Judgment and Defendant's [26] Cross-Motion for Summary Judgment and Opposition to Plaintiffs’ Motion for Summary Judgment. Upon consideration of the pleadings,² the relevant legal authorities, and for the reasons below, the Court finds that the Medicare statute unambiguously bars the methodology employed by the Secretary in FY 2020, which resulted in Plaintiffs being reimbursed at lower rates than rural hospitals in their same states. Accordingly, the Court shall grant in part Plaintiffs’ Motion for Summary Judgment, but shall remand this action to the Secretary for further proceedings consistent with this Memorandum Opinion without vacating the Secretary's rule. The Court shall deny Defendant's Cross-Motion for Summary Judgment.

I. BACKGROUND

A. Statutory and Regulatory Background

The Medicare statute, Title XVII of the Social Security Act, provides healthcare coverage and insurance for the elderly and disabled. 42 U.S.C. § 1395, et seq. The Center for Medicare & Medicaid Services ("CMS") administers the Medicare program on behalf of the Secretary. Through the Medicare program, the federal government reimburses healthcare providers for hospital inpatient services at predetermined rates, known as the inpatient prospective payment system ("IPPS"). The methodology for calculating these rates is prescribed by 42 U.S.C. § 1395ww(d). Under IPPS, hospitals are paid a fixed, predetermined amount depending on a patient's category of illness—rather than for the actual costs incurred for a particular patient's care. See Anna Jacques Hosp. v. Burwell , 797 F.3d 1155, 1157–58 (D.C. Cir. 2015) ("[IPPS] 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."). These categories are referred to as "diagnostic-related groups" ("DRGs"). See 42 U.S.C. § 1395ww(d)(2)(G) ; Methodist Hosp. of Sacramento v. Shalala , 38 F.3d 1225, 1227 (D.C. Cir. 1994). CMS assigns a weight for each DRG reflecting how the cost of treating such diagnosis compares to the costs of treating the average inpatient. See 42 U.S.C. § 1395ww(d)(4)(B) ; Anna Jacques Hosp. , 797 F.3d at 1158. The more expensive the treatment for a DRG is relative to the average Medicare inpatient, the greater the weight assigned to that DRG. Final payments under IPPS are calculated by multiplying the patient's DRG weight by a standardized amount equivalent to the cost of treating the average patient. 42 U.S.C. § 1395ww(d)(3)(D)(iii).

1. Wage Index Adjustment

Because a significant portion of a hospital's costs are attributable to wages and labor costs—which vary widely among geographic areas—the Secretary is required to adjust IPPS rates to account for these differences through a "wage index adjustment." 42 U.S.C. § 1395ww(d)(3)(E) ; see also Anna Jacques Hosp. , 797 F.3d at 1157 ("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."). Because, as a general matter, labor costs tend to be higher in "urban" areas than in "rural" areas, see, e.g. , Def.’s Cross-Mot. & Opp'n at 6, the wage index adjustment ensures that "urban" hospitals are not undercompensated for their services and that "rural" hospitals are not overcompensated. Specifically, the statute 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.

42 U.S.C. § 1395ww(d)(3)(E)(i). The "factor" is equivalent to the "wage index," which is a comparison of the average hospital wages in a particular geographic area to the national average hospital wage. Anna Jacques Hosp. , 797 F.3d at 1158.

For the purposes of the wage index, there are two types of geographic locations: "urban" and "rural." 42 C.F.R. § 412.64(h). An "urban" area is a Metropolitan Statistical Area ("MSA"), as defined by the Office of Management and Budget. 42 U.S.C. § 1395ww(d)(2)(D) ; see also 42 C.F.R. § 412.64(b)(1)(ii)(A). The Secretary calculates a distinct wage index adjustment for each "urban" area in the country. See, e.g. , 79 Fed. Reg. 49,854 -01, 49,951 (Aug. 22, 2014). In this Memorandum Opinion, the Court shall refer to hospitals located in "urban" areas as "urban hospitals." "Rural" areas are any areas outside of an urban area. 42 U.S.C. § 1395ww(d)(2)(D) ; see also 42 C.F.R. § 412.64(b)(1)(ii)(C). Instead of calculating a distinct wage index adjustment for each rural area (as is the case with urban areas), the Secretary calculates only one rural wage index adjustment for each state. See, e.g. , 69 Fed. Reg. 48,916 -01, 49,026 (Aug. 11, 2004). The Court shall refer to hospitals located in "rural" areas as "rural hospitals." As an example, in a state with two distinct "urban" areas, an "urban wage index" specific to each area would apply to "urban hospitals," whereas the "rural wage index" would apply to all remaining hospitals in the same state—the "rural hospitals."

The Secretary updates the area wage indexes annually by conducting a survey of wage and hour data of all Medicare-participating IPPS hospitals nationally. 42 U.S.C.§ 1395ww(d)(3)(E)(i).

2. Rural Reclassification

In the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 ("BBRA"), Congress created a mechanism through which urban hospitals can apply to be treated as if they were located within a state's "rural" area for purposes of IPPS payments. BBRA, Pub. L. 106-113, § 401, 113 Stat. 1501, 1501A–321 (codified as 42 U.S.C. § 1395ww(d)(8)(E) ). In effect, this "rural reclassification" transforms an otherwise urban hospital into a rural one. Specifically, the statute provides

For purposes of this subsection [IPPS], not later than 60 days after the receipt of an application (in a form and manner determined by the Secretary) from a subsection (d) hospital described in clause (ii), the Secretary shall treat the hospital as being located in the rural area (as defined in paragraph (2)(D)) of the State in which the hospital is located.

42 U.S.C. § 1395ww(d)(8)(E)(i) (emphasis added). If an urban hospital satisfies the criteria specified by clause (ii),³ that hospital is treated as if it were "located within the rural area" of the relevant state for purposes of IPPS payments. Id. For clarity, the Court shall refer to such eligible "urban hospitals" that have elected to be treated as if they are "rural hospitals" as "reclassified urban-to-rural hospitals."

In calculating the rural wage index of a particular state, the Secretary includes wage data from both rural hospitals and reclassified urban-to-rural hospitals. See, e.g. , 42 C.F.R. § 412.103(b)(6) (addressing timing requirements for reclassified hospitals to be included in the rural wage index calculations). Because reclassified urban-to-rural hospitals tend to have higher labor costs than rural hospitals, including wage data from reclassified urban-to-rural hospitals in calculating the rural wage index typically increases the rural wage index as compared to a rural wage index based on rural hospitals alone.

3. Rural Floor Provision

As part of the Balanced Budget Act of 1997 ("BBA"), Congress enacted the so-called "rural floor" provision in response to finding "[a]n anomaly" in area wage indexes where some urban hospitals were being "paid less than the average rural hospital in their state[ ]." Balanced Budget Act of 1997, Pub. L. 105-33, § 4410, 111 Stat. 251 (uncodified as 42 U.S.C. § 1395ww NOTE); H.R. Rep. No. 105-149, at 1305 (1997). This provision was designed to correct this anomaly by establishing what is known as the "rural floor"—which sets the rural wage index for a particular state for which urban hospital wage indexes in that state cannot go below. Specifically, the rural floor provision states:

For purposes of section 1886(d)(3)(E) of the Social Security Act ( 42 U.S.C. 1395ww(d)(3)(E) ) ... the area wage index applicable under such section to any hospital which is not located in a rural area (as defined in section 1886(d)(2)(D) of such Act ( 42 U.S.C. 1395ww(d)(2)(D) ) may not be less than the area wage index applicable under such section to hospitals located in rural areas in the State in which the hospital is located.

BBA § 4410(a) ( 42 U.S.C. § 1395ww NOTE) (emphases added). In other words, no urban hospital can receive a wage index below the...