Temple Univ. Hosp., Inc. v. Sec'y U.S. Dep't of Health & Human Servs.

• Decision Date: 21 June 2021
• Docket Number: No. 21-1293,21-1293
• Citation: 2 F.4th 121
• Court: U.S. Court of Appeals — Third Circuit
• Parties: TEMPLE UNIVERSITY HOSPITAL, INC., Appellant v. SECRETARY UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES; Administrator Centers for Medicare & Medicaid Services; Chairman Medicare Geographic Classification Review Board

2 F.4th 121

TEMPLE UNIVERSITY HOSPITAL, INC., Appellant

v.SECRETARY UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES; Administrator Centers for Medicare & Medicaid Services; Chairman Medicare Geographic Classification Review Board

No. 21-1293

United States Court of Appeals, Third Circuit.

Argued: April 29, 2021

Filed: June 21, 2021

Joseph D. Glazer [Argued], The Law Office of Joseph D. Glazer, Suite 200, 116 Village Boulevard, Princeton, NJ 08540, Counsel for Temple University Hospital, Inc.

Thomas Pulham [Argued], United States Department of Justice Appellate Section, Room 7323, 950 Pennsylvania Avenue, N.W., Washington, DC 20530, Michael S. Raab, United States Department of Justice, Civil Division, Room 7237, 950 Pennsylvania Avenue, N.W. Washington, DC 20530, Counsel for Secretary United States Department of Health and Human Services; Administrator Centers for Medicare & Medicaid Services; Chairman Medicare Geographic Classification Review Board

Before: PHIPPS, NYGAARD, and ROTH, Circuit Judges.

OPINION OF THE COURT

PHIPPS, Circuit Judge.

This case involves a dispute between a hospital and a federal agency over Medicare reimbursements. The core controversy concerns the hospital's geographical-area assignment for purposes of the wage index, which is used to calculate those reimbursements. The hospital, located in the City of Philadelphia, received a reclassification into the New York City area, which would sizably increase the hospital's Medicare reimbursements due to that area's higher wage index. Although a statute makes such reclassifications effective for three fiscal years, the agency updated the geographical boundaries for the New York City area before the close of that period. After doing so, the agency reassigned the hospital to an area in New Jersey with an appreciably lower wage index.

As a result of that reassignment, the hospital sued three agency officials in the Eastern District of Pennsylvania. But the Medicare Act channels reimbursement disputes through administrative adjudication as a near-absolute prerequisite to judicial review. And here, the hospital did not pursue its claim through administrative adjudication before suing in federal court. By not following the statutory channeling requirement, the hospital has no valid basis for subject-matter jurisdiction. Accordingly, we will vacate the District Court's judgment in favor of the agency officials and remand with instructions to dismiss the complaint for lack of subject-matter jurisdiction.

I. BACKGROUND

A. Statutory and Regulatory Framework

Originally enacted in 1965 and later amended, the Medicare Act establishes a national health insurance program for persons 65 and older who are eligible for Social Security benefits, as well as for persons with certain disabilities. See 42 U.S.C. § 426(a), (b). See generally Social Security Amendments of 1965 (Medicare Act), tit. XVIII, Pub. L. No. 89-97, 79 Stat. 286. Through the Inpatient Prospective Payment System, the Medicare Part A Program reimburses hospitals for the operating costs of providing inpatient healthcare services to Medicare beneficiaries. See 42 U.S.C. § 1395ww(d)(2) ; see also id. § 1395ww(a)(4) (defining "operating costs of inpatient hospital services"). The amount of the operating-cost reimbursement is calculated on a per-patient basis using predetermined, fixed rates for each treatment category. See id. § 1395ww(d)(2), (4) ; 42 C.F.R. § 412.2(a) (detailing the basis of payment per discharge). Each year, the Secretary of Health and Human Services sets those fixed reimbursement rates. See 42 U.S.C. § 1395ww(b)(3)(B), (d)(3)(A)–(C) ; 42 C.F.R. § 412.64(d).

Although they are set in advance, Medicare reimbursement rates are not uniform throughout the nation. Instead, the Secretary annually adjusts the national reimbursement rate, see 42 U.S.C. § 1395ww(d)(3), based on a wage index for different geographic areas, see id. § 1395ww(d)(3)(E)(i) (requiring the Secretary to adjust the proportion of a hospital's costs "attributable to wages and wage-related costs" to reflect "the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level"); 42 C.F.R. § 412.64(h)(1) ("The wage index is updated annually.").

To group hospitals into geographic areas for calculating and applying the wage index, the Secretary has formally adopted regional designations from the Office of Management and Budget (OMB). See, e.g. , Fiscal Year 2021 Final Rule,¹ 85 Fed. Reg. 58,432, 58,742 (Sept. 18, 2020) ; see also Bellevue Hosp. Ctr. v. Leavitt , 443 F.3d 163, 169 (2d Cir. 2006). OMB calls those geographical regions Core Based Statistical Areas or CBSAs. See Standards for Defining Metropolitan and Micropolitan Statistical Areas, 65 Fed. Reg. 82,228, 82,235 –36 (Dec. 27, 2000). Each CBSA contains a county or counties with at least one population core of 10,000 persons, which may be joined with adjacent counties that are socially and economically integrated. See id. at 82,236 ; 2010 Standards for Delineating Metropolitan and Micropolitan Statistical Areas, 75 Fed. Reg. 37,246, 37,251 (June 28, 2010). The Secretary calculates the annual wage index for each CBSA using "a survey of wages and wage-related costs of short-term, acute care hospitals." Fiscal Year 2021 Final Rule, 85 Fed. Reg. at 58,742. Then, the Secretary adjusts Medicare reimbursement rates by the wage index applicable to each CBSA (or rural area outside any CBSA). See 42 U.S.C. § 1395ww(d)(2)(H), (d)(3)(E) ; 42 C.F.R. § 412.64(h).

1. Changes to a Hospital's Assigned CBSA

As relevant here, a hospital's assignment to a particular CBSA may change through either of two events: an order granting a hospital's application for geographic reclassification or reassignment by the Secretary, usually after adoption of OMB's revised CBSA geographical boundaries.²

A hospital may request reclassification into another CBSA through an application to the five-member Medicare Geographic Classification Review Board. See 42 U.S.C. § 1395ww(d)(10). A requirement for reclassification is that the destination CBSA be within "close proximity" to the hospital. 42 C.F.R. § 412.230(b). An "urban hospital" satisfies this proximity requirement by being within 15 miles of the target CBSA; a "rural hospital" must be within 35 miles of the target CBSA. Id. If the Board grants the reclassification application, then the hospital receives the wage index applicable to the target CBSA. See 42 U.S.C. § 1395ww(d)(10)(C)(i). By statute, a reclassification is "effective for a period of 3 fiscal years," unless the hospital elects to "terminate such reclassification before the end of such period." Id. § 1395ww(d)(10)(D)(v). But if the Board denies the reclassification application, then the hospital may administratively appeal to the Secretary. See id. § 1395ww(d)(10)(C)(iii)(II) (incorporating the administrative appeal process from the Administrative Procedure Act, 5 U.S.C. § 557(b) ). The Secretary's decision "shall be final and shall not be subject to judicial review." Id.

The Secretary may also reassign a hospital into a different CBSA after adopting revised CBSA boundaries. OMB typically revises CBSA boundaries every ten years based on the results of the decennial census, but OMB sometimes makes interim revisions. See Fiscal Year 2021 Final Rule, 85 Fed. Reg. at 58,743. When OMB updates the CBSA boundaries, the Secretary often adopts those new regional groupings and calculates new wage indexes for the redrawn CBSAs.³ By doing so, the Secretary resolves the wage index for non-reclassified hospitals: they receive the wage index for the CBSA in which they are located. But that does not resolve the fate of a hospital that was previously reclassified into a CBSA with later-redrawn boundaries. See Fiscal Year 2021 Final Rule, 85 Fed. Reg. at 58,771 (explaining that "if CBSAs are split apart, or if counties shift from one CBSA to another under the revised OMB delineations, [the agency] must determine which reclassified area to assign to the hospital for the remainder of a hospital's 3-year reclassification period if the area to which the hospital reclassified split or had counties shift to another new or modified urban CBSA"). To assign such a hospital after the redrawing of CBSAs, the Secretary has followed a most-proximate-county policy. See, e.g. , Fiscal Year 2021 Final Rule, 85 Fed. Reg. at 58,771 –72; Fiscal Year 2015 Final Rule, 79 Fed. Reg. 49,854, 49,974 –76 (Aug. 22, 2014); Fiscal Year 2005 Final Rule, 69 Fed. Reg. 48,916, 49,054 –55 (Aug. 11, 2004). Under that approach, the Secretary reassigns a previously reclassified hospital to the redrawn CBSA containing the county from the original CBSA that is closest to the hospital (as long as that county remains outside the CBSA in which the hospital is physically located). See Fiscal Year 2021 Final Rule, 85 Fed. Reg. at 58,771.

2. Challenges to Medicare Reimbursements

The Medicare Act also provides a mechanism for hospitals to dispute the amount of reimbursement that they receive for inpatient care. Subject to timing and amount-in-controversy requirements, see 42 U.S.C. § 1395oo (a)(2)–(3), a hospital that receives reimbursements for the operating costs of inpatient services may challenge "a final determination of the Secretary as to the amount of the payment" through an appeal to another five-member board, the Provider Reimbursement Review Board. Id. § 1395oo (a)(1)(A)(ii) (permitting a challenge to the amount of payment made under subsections (b) or (d) of 42 U.S.C. § 1395ww ), (h) (defining the composition of the Provider Reimbursement Review Board); see also id. § 1395ww(b) (providing for the computation and adjustment of payment for "the operating costs of inpatient hospital services"), (d) (providing the process for determining prospective rates for inpatient care reimbursements).

Through such an appeal, a hospital may dispute not only the amount of its reimbursement but also...