Heartland Regional Medical Center v. Leavitt

• Decision Date: 13 July 2005
• Docket Number: No. 04-5366.,04-5366.
• Citation: 415 F.3d 24
• Parties: HEARTLAND REGIONAL MEDICAL CENTER, f/k/a Heartland Hospital, Appellant v. Michael O. LEAVITT, in his official capacity as Secretary of Health and Human Services, Appellee.
• Court: U.S. Court of Appeals — District of Columbia Circuit

415 F.3d 24

HEARTLAND REGIONAL MEDICAL CENTER, f/k/a Heartland Hospital, Appellant v. Michael O. LEAVITT, in his official capacity as Secretary of Health and Human Services, Appellee.

No. 04-5366.

United States Court of Appeals, District of Columbia Circuit.

Argued May 16, 2005.

Decided July 13, 2005.

Appeal from the United States District Court for the District of Columbia (No. 95cv00951).

Donald B. Verrilli, Jr. argued the cause for appellant. With him on the briefs were Michael B. DeSanctis, Elizabeth G. Porter, Christopher L. Crosswhite, and David H. Robbins. Michael F. Ruggio entered an appearance.

Christine N. Kohl, Attorney, U.S. Department of Justice, argued the cause for appellee. With her on the brief were Peter D. Keisler, Assistant Attorney General, Kenneth L. Wainstein, U.S. Attorney, and Barbara C. Biddle, Assistant Director.

Before: SENTELLE, RANDOLPH, and GARLAND, Circuit Judges.

Opinion for the Court filed by Circuit Judge GARLAND.

GARLAND, Circuit Judge.

Heartland Hospital appeals from the district court's denial of its motion to enforce a judgment that it obtained in 1998. The district court rested its decision on the ground that the judgment did not require the remedy Heartland seeks — a direction that it is entitled to "sole community hospital" status under the Medicare statute and to reimbursement in accordance with such status. We agree with the district court and affirm the denial of the hospital's motion.

I

The federal Medicare program reimburses hospitals for the cost of medical care for older persons and other eligible individuals. Medicare operates according to a prospective payment system (PPS), under which hospitals are paid a fixed rate based on a patient's diagnosis. 42 U.S.C. § 1395ww(d). A hospital is exempt from PPS — and therefore eligible for higher payments based on its historic costs — if it qualifies as a "sole community hospital" (SCH). Id. § 1395ww(d)(5)(D)(i). At the relevant time, the Medicare statute defined an SCH as any hospital:

(I) that [the Department of Health and Human Services (HHS)] determines is located more than 35 road miles from another hospital, [or]

(II) that, by reason of factors such as the time required for an individual to travel to the nearest alternative source of appropriate inpatient care . . ., location, weather conditions, travel conditions, or absence of other like hospitals ..., is the sole source of inpatient hospital services reasonably available to individuals in a geographic area.

42 U.S.C. § 1395ww(d)(5)(D)(iii) (1992).¹

The Medicare statute directed HHS to "promulgate a standard for determining whether a hospital meets the criteria for classification as a sole community hospital under" clause (II) of the above definition. Id. § 1395ww(d)(5)(D)(iv). Under the regulations promulgated pursuant to that direction, and in effect during the relevant period, a hospital qualified as an SCH under clause (II) only if it was "located in a rural area" and met other listed criteria. 42 C.F.R. § 412.92(a) (1992). Thus, under the regulations, a hospital located fewer than 35 miles from another hospital — and thus ineligible under clause (I) — could not obtain SCH status unless it was located in a rural area. Id.² HHS justified this "rural location requirement" on the ground that "urban areas generally have better roads, faster snow-clearing, and the choice of more available hospitals." Medicare Geographic Classification Review Board, Procedures and Criteria, Final Rule, 56 Fed.Reg. 25,458, 25,483 (June 4, 1991). For purposes of SCH eligibility, a "rural area" was defined as "any area outside an urban area," and an "urban area" was defined as a "Metropolitan Statistical Area (MSA) . . . as defined by the Executive Office of Management and Budget." 42 C.F.R. § 412.62(f)(ii), (iii) (1992).³

Heartland Hospital, located in the city of St. Joseph, Missouri, is an acute-care facility situated fewer than 35 miles from other hospitals. In May 1992, Heartland submitted an application for SCH status to its Medicare fiscal intermediary, Mutual of Omaha, in accordance with HHS regulations.⁴ The intermediary recommended that the Health Care Financing Administration (HCFA),⁵ an HHS component, deny the application based on Heartland's location. HCFA did so on the ground that, because Heartland was "located in an urban area and the closest like hospital [was] fewer than 35 miles away," it was ineligible under the rural location requirement. Letter from Edward M. Brennan, HHS, to Richard G. Bath, Mutual of Omaha (Jan. 22, 1993).

Heartland appealed HCFA's decision to HHS's Provider Reimbursement Review Board (PRRB), seeking expedited judicial review of the denial of SCH status pursuant to 42 U.S.C. § 1395oo (f)(1). Under that provision, a hospital is entitled to expedited judicial review of any determination that "involves a question of law or regulations relevant to the matters in controversy" that the Board "is without authority to decide." 42 U.S.C. § 1395oo (f)(1). Because Heartland's appeal challenged the validity of the regulatory requirement that a hospital situated within 35 miles of another hospital be located in a rural area, and thereby raised "a question of law or regulations" that the PRRB lacked authority to decide, the PRRB granted Heartland's request. Letter from Irvin Kues, HHS, to Christopher L. Cross-white, Vinson & Elkins (Mar. 29, 1995).

Heartland then filed suit in the United States District Court for the District of Columbia, challenging the validity of the rural location requirement on a number of grounds. The case was assigned to the late Judge Harold Greene, who held that the requirement was consistent with the Medicare statute and that HHS had established a rational basis for adopting it. Heartland Hospital v. Shalala (Heartland I), No. 95-951, slip op. at 15, 19 (D.D.C. June 15, 1998). But the court also found that HHS had failed to consider reasonable alternatives proposed by commenters when it chose an MSA-based definition of "urban area."⁶ "The failure of the Secretary to respond to reasonable alternative[s]" to MSAs "as the relevant measure of an urban area," the court held, "renders the adoption of the regulations arbitrary and capricious and, consequently, invalid." Id. at 23-24. The order accompanying the district court's 1998 opinion granted Heartland's motion for summary judgment and remanded the case to HHS "for action consistent with the foregoing opinion." Heartland I, order at 1 (June 15, 1998).

Following the district court's decision, things did not go as Heartland had hoped. In 1999, HHS conducted a rule-making regarding a number of Medicare reimbursement issues. In the course of that rulemaking, the agency considered — and rejected — the alternative definitions of "urban area" noted in Heartland I. The agency explained why it believed that the MSA-based definition was the better one, and announced that it would continue to use that definition. See Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2000 Rates, Final Rule, 64 Fed.Reg. 41,490, 41,513-15 (July 30, 1999); Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2000 Rates, Proposed Rule, 64 Fed.Reg. 24,716, 24,732 (May 7, 1999).

In 2000, HCFA took up the remand from Heartland I. Once again, the agency concluded that Heartland did not qualify for SCH status, giving three reasons. First, HCFA determined that Heartland I did not vacate the SCH regulation, but merely remanded the case to HHS to further explain its definition of "urban area." Decision of the Administrator, Heartland Hosp. v. Blue Cross & Blue Shield Ass'n, PRRB Case No. 93-0648E, at 21 (Sept. 6, 2000). Finding that, in the 1999 rulemaking, HHS had "articulated a reasonable basis for the use of an MSA-based definition of rural, as opposed to other alternatives," HCFA concluded that "the MSA-based rural criteri[on] is properly applied in adjudicating this case." Id. at 27. And because Heartland was "located in an urban area and [was] within 35 miles of other like hospitals," HCFA determined that it did "not meet the applicable criteria for designation as a sole community hospital." Id.

Second, HCFA found that, even if the court's order did vacate the regulation, the district court "did not order the payment of money to [Heartland] based on designation as a sole community hospital," and "did not comment on whether [Heartland] should be designated as a sole community hospital." Id. At most, HCFA said, "the Court's action affected that part of the regulation which defines `rural' within the context of MSAs," but "did not invalidate the rural requirement itself." Id. at 28. Concluding that "the establishment of a definition of rural, through adjudication, would not constitute retroactive rulemaking," id., HCFA determined that "the adoption of a MSA-based rural definition is appropriate and reasonable for the reasons" articulated in the 1999 rulemaking. Id. at 29.

Finally, HCFA reasoned that, even if the rural requirement were deleted from the regulation altogether, Heartland still would not qualify for SCH status because it had failed to demonstrate that it met the other regulatory criteria that HHS had established for qualification under clause (II). Id.⁷

Heartland then returned to the district court with a two-pronged attack on HCFA's decision. First, it filed a motion to enforce the Heartland I judgment, seeking a declaration of SCH status as well as reimbursement and interest. Second, Heartland filed a separate action challenging HCFA's decision on remand under the Administrative Procedure Act (APA), 5 U.S.C. §§ 701-706. In light of the death of Judge Greene, both matters were reassigned to another district judge. Heartland and HHS agreed to stay the APA action pending the disposition of Heartland's motion to enforce the judgment.⁸

In August 2004, the district court denied that motion. Heartland Hosp. v. Thompson (Heartland II...