Lawrence & Mem'l Hosp. v. Sebelius

• Citation: 986 F.Supp.2d 124
• Decision Date: 06 December 2013
• Docket Number: Civil No. 3:13cv1495 (JBA).
• Court: U.S. District Court — District of Connecticut
• Parties: LAWRENCE & MEMORIAL HOSPITAL, Plaintiff, v. Kathleen SEBELIUS, Marilyn Tavenner, and Robert G. Eaton, Defendants.

986 F.Supp.2d 124

LAWRENCE & MEMORIAL HOSPITAL, Plaintiff,

v.Kathleen SEBELIUS, Marilyn Tavenner, and Robert G. Eaton, Defendants.

Civil No. 3:13cv1495 (JBA).

United States District Court, D. Connecticut.

Dec. 6, 2013.

Joseph D. Glazer, Law Office of Joseph D. Glazer, P.C., Princeton, NJ, Steven M. Basche, Law Offices of Steven M. Basche, Glastonbury, CT, for Plaintiff.

Carolyn Aiko Ikari, U.S. Attorney's Office, Hartford, CT, for Defendants.

RULING ON PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION

JANET BOND ARTERTON, District Judge.

On October 11, 2013, Plaintiff Lawrence & Memorial Hospital filed a Complaint [Doc. # 1] for declaratory and injunctive relief against Defendants Kathleen Sebelius, Secretary of the Department of Health and Human Services (“HHS”), Marilyn Tavenner, Administrator of the Centers for Medicare and Medicaid Services (“CMS”), and Robert G. Eaton, Chairman of the Medicare Geographic Classification Review Board (“MGCRB”), seeking a declaration that the regulatory scheme governing the MGCRB violates the Medicare Act and the Administrative Procedures Act, and a permanent injunction enjoying Defendants from applying that scheme to Plaintiff's current and future reclassification applications. That same day, Plaintiff filed a motion [Doc. # 4] for a preliminary injunction, enjoining Defendants from acting on Plaintiff's application for reclassification that is currently pending before the MGCRB until the Court can hold a hearing on the merits of this action. Defendants oppose Plaintiff's motion, arguing that the Court lacks subject matter jurisdiction to hear the case, and that Plaintiff has not shown that it is entitled to a preliminary injunction. Although the Court finds it has jurisdiction, for the following reasons, Plaintiff's motion for a preliminary injunction is denied.

I. BackgroundA. The Medicare Program and the Wage Index

The Medicare Program is a system of health insurance for the aged and disabled. ( See Compl. ¶ 17); see also42 C.F.R. § 400.200. Medicare Part A pertains to payment for “inpatient hospital services,” ( see Compl. ¶ 17); see also42 U.S.C. § 1395d(a)(1), and Medicare Part B provides for payment of various outpatient services ( see Compl. ¶ 17); see also42 U.S.C. § 1395k. Payments to hospitals are made pursuant to the inpatient prospective payment system (“IPPS”) for Medicare Part A and pursuant to the outpatient prospective payment system (“OPPS”) for Medicare Part B. ( See Compl. ¶¶ 18–19.) Under both systems, CMS sets a standardized payment rate, which is then adjusted to account for the fact that labor costs vary across the country. ( See Compl. ¶¶ 18–22.) To effectuate this adjustment, CMS uses a “wage index,” which represents the relation between the local average of hospital wages and the national average of hospital wages. ( See id.); see also 42.U.S.C. § 1395ww(d)(3)(E). Thus, hospitals in areas that incur labor costs above the national average receive a higher reimbursement rate than the standardized payment rate, while hospitals that incur labor costs below the national average receive a lower reimbursement rate than the standardized payment rate. ( See Compl. ¶ 22.)

In 1983, in order to effectuate the wage index adjustment, the Secretary of HHS established standardized hospital labor markets by grouping hospitals according to their location in Metropolitan Statistical Areas (“MSAs”). ( See id. ¶ 23.) These MSAs are based on census data and use counties as building blocks to roughly approximatethe local labor market. ( See id.) Every hospital in a designated MSA is considered to be a part of a single labor market for the purpose of determining the wage index applicable to that hospital. ( See id.) After the 2000 census, the MSAs were replaced with Core Based Statistical Areas (“CBSAs”) that are roughly equivalent to the previous groupings. ( See id. ¶ 24.) The Secretary of HHS sets one wage index for each CBSA and one wage index per state for rural areas not located in any CBSA. ( See id. ¶ 25.) Thus, urban and rural hospitals in the same state may have different wage indices, and therefore, different reimbursement rates under the IPPS and OPPS. ( See id.) Each hospital is reimbursed according to the wage index of the CBSA in which it is physically located. ( See id. ¶ 26.) Since the late 1980s, Congress has periodically amended the Medicare Act to permit hospitals to be reclassified from urban to rural, or to be reclassified to a CBSA other than the one in which they are physically located in order to adjust those hospitals' wage indices to reflect the fact that the CBSAs do not always accurately reflect labor market wage differences. ( See id. ¶¶ 28–36.) More than one-third of hospitals paid under the IPPS and OPPS receive a modified wage index based on these amendments. ( See id. ¶ 37.)

B. The Medicare Geographic Classification Review Board

In 1989, Congress established the MGCRB to provide a mechanism by which a hospital could request to be relocated from the geographical area in which it was located to another proximate area for the purposes of determining its wage index and reimbursement rate. ( See id. ¶ 38); see also42 U.S.C. § 1395ww(d)(10). In order to have its application for reclassification approved by the MGCRB, a hospital must show that (1) its wages are higher than those of other hospitals in the area where it is physically located; (2) its wages are comparable to those of other hospitals in the area to which it seeks to be reclassified; and (3) it is proximate to the area to which it seeks to be reclassified. ( See Compl. ¶ 39.) To satisfy the first element, the hospital's three-year average hourly wage (“AHW”) must be at least 108% of the AHW of the area in which it is physically located if it is an urban hospital, and at least 106% of the AHW of the area in which it is physically located if it is a rural hospital. ( See id. ¶ 40); see also42 C.F.R. § 412.230(d)(1)(iii)(C). To satisfy the second element, the hospital's three-year AHW must be at least 84% of the AHW of the area to which it is applying to be reclassified if it is an urban hospital, and at least 82% of the AHW applicable to the area to which it is applying to be reclassified if it is a rural hospital. ( See Compl. ¶ 41); see also42 C.F.R. § 412.230(d)(1)(iv)(E). To satisfy the third element, the hospital must be within 35 miles of the area to which it is applying to be reclassified if it is a rural hospital, and within 15 miles of the area to which it is applying to be reclassified if it is an urban hospital. ( See Compl. ¶ 42); see also42 C.F.R. § 412.230(b)(1). If a hospital has been designated as a rural referral center (“RRC”), the first and third elements of this test are waived. ( See Compl. ¶ 44); see also42 C.F.R. §§ 412.230(a)(3) and 412.230(d)(1)(3)(C). If the MGCRB approves a hospital's application, its reclassification is valid for a period of three years. ( See Compl. ¶ 45.) A hospital may appeal an MGCRB decision to the Secretary of HHS's designate—the Administrator of CMS—but the ruling on the appeal “shall be final and shall not be subject to judicial review.” 42 U.S.C. § 1395ww(d)(10)(C)(iii)(II); ( see also Compl. ¶ 46.)C. Section 401

In 1999, Congress enacted Section 401, which provides a mechanism by which hospitals in urban areas may be reclassified as rural for reimbursement purposes. ( See Compl. ¶ 48.) Section 401 provides:

(i) For purposes of this subsection, 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)) ¹ of the State in which the hospital is located.

(ii) For purposes of clause (i), a subsection (d) hospital described in this clause is a subsection (d) hospital that is located in an urban area (as defined in paragraph (2)(D)) and satisfies any of the following criteria:

(I) The hospital is located in a rural census tract of a metropolitan statistical area (as determined under the most recent modification of the Goldsmith Modification, originally published in the Federal Register on February 27, 1992 (57 Fed.Reg. 6725)).

(II) The hospital is located in an area designated by any law or regulation of such State as a rural area (or is designated by such State as a rural hospital).

(III) The hospital would qualify as a rural, regional, or national referral center under paragraph (5)(C) or as a sole community hospital under paragraph (5)(D) if the hospital were located in a rural area.

(IV) The hospital meets such other criteria as the Secretary may specify.

42 U.S.C. § 1395ww(D)(8)(E). A conference report accompanying the legislation enacting Section 401 explains that pursuant to Section 401:

a hospital in an urban area may apply to the Secretary to be treated as if the hospital were located in a rural area of the State in which the hospital is located. Hospitals qualifying under this section shall be eligible to qualify for all categories and designations available to rural hospitals, including sole community, Medicare dependent, critical access, and referral centers. Additionally, qualifying hospitals shall be eligible to apply to the Medicare Geographic Reclassification [sic] Review Board for geographic reclassification to another area. The Board shall regard such hospitals as rural and as entitled to the exceptions extended to referral centers and sole community hospitals, if such hospitals are so designated.

H.R. Conf. Rep. No. 106–479, 512 (1999) (emphasis added).

In comments accompanying the adoption of regulations pursuant to Section 401, the Secretary expressed concern that Section 401 “might create an opportunity for some urban hospitals to take advantage of the MGCRB process by first seeking to be reclassified as rural under section 1886(d)(8)(E) (and receiving the benefits afforded to rural...