E. Tex. Med. Center-Athens v. Azar

Decision Date18 October 2018
Docket NumberCivil Action No. 17-543 (RBW)
Citation337 F.Supp.3d 1
Parties EAST TEXAS MEDICAL CENTER–ATHENS, Plaintiff, v. Alex M. AZAR II, in His Official Capacity as Secretary of the United States Department of Health and Human Services, Defendant.
CourtU.S. District Court — District of Columbia

Andrew David Ruskin, Morgan, Lewis & Bockius LLP, Washington, DC, for Plaintiff.

Melanie Dyani Hendry, U.S. Attorney's Office for the District of Columbia, Washington, DC, for Defendant.


REGGIE B. WALTON, United States District Judge

The plaintiff, East Texas Medical Center–Athens ("East Texas"), seeks judicial review under the Medicare Act, 42 U.S.C. § 1395oo (f) (2012), and the Administrative Procedure Act ("APA"), 5 U.S.C. §§ 701 – 06 (2012), of the decision by the defendant, Alex M. Azar II, in his official capacity as Secretary of the United States Department of Health and Human Services (the "Secretary"), to assign East Texas to the Tyler, Texas Core Based Statistical Area ("CBSA") rather than to the Dallas-Plano-Irving, Texas CBSA for purposes of adjusting East Texas's wage index under the Medicare Act for the 2015 fiscal year. See Complaint for Judicial Review of Final Adverse Agency Action and Declaratory Relief ("Compl.") ¶¶ 1–2, 6–7, 13, 27–28, 71–74. Currently pending before the Court are the Plaintiff's Motion for Summary Judgment ("Pl.'s Mot.") and the Defendant's Cross-Motion for Summary Judgment and Opposition to Plaintiff's Motion for Summary Judgment ("Def.'s Mot."). Upon careful consideration of the parties' submissions,1 the Court concludes that it must grant in part and deny without prejudice in part East Texas's motion, deny the Secretary's motion without prejudice, and remand this case to the Secretary for further proceedings consistent with this opinion.

A. Statutory Background

Title XVIII of the Social Security Act established the Medicare program, which provides federally funded healthcare for the elderly and people with disabilities. See 42 U.S.C. §§ 1395c, 1395j, 1395k ; see also Kaiser Found. Hosps. v. Sebelius, 708 F.3d 226, 227 (D.C. Cir. 2013). Medicare Part A provides health insurance coverage to eligible beneficiaries for inpatient hospital care, home health care, and hospice services. See 42 U.S.C. § 1395c. "The Centers for Medicare and Medicaid Services (CMS), a division of the Department of Health and Human Services (HHS), administers Medicare reimbursements to eligible hospitals that provide inpatient rehabilitation services." Mercy Hosp., Inc. v. Azar, 891 F.3d 1062, 1064 (D.C. Cir. 2018) ; see also 42 U.S.C. §§ 1395h, 1395u. CMS administers Medicare Part A "through contracts with [M]edicare administrative contractors" ("MACs"). 42 U.S.C. § 1395h(a).

1. The Prospective Payment System

CMS reimburses most hospitals participating in Medicare for inpatient services on a prospective payment system. See id. § 1395ww(d). The prospective "payment rates are tied to the national average cost of treating a patient in a particular ‘diagnosis-related group,’ " Se. Ala. Med. Ctr. v. Sebelius, 572 F.3d 912, 914 (D.C. Cir. 2009) (quoting 42 U.S.C. § 1395ww(d) ), which are then adjusted for, among other factors, "different area wage levels," see 42 U.S.C. § 1395ww(d)(3)(E). Specifically, the statute requires the Secretary to adjust the wage-related portion of the standardized prospective rate (the "wage index") "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." Id. § 1395ww(d)(3)(E)(i) ; see also Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 206, 109 S.Ct. 468, 102 L.Ed.2d 493 (1988) (describing the wage index as "a factor used to reflect the salary levels for hospital employees in different parts of the country"). "The wage index is updated annually," 42 C.F.R. § 412.64(h)(1) (2017), " ‘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) (quoting 42 U.S.C. § 1395ww(d)(3)(E)(i) ). Each year, "[t]he Secretary publishes the proposed wage indices and solicits comments from the public[,] ... [and] then promulgates the final wage indices as part of the Inpatient Prospective Payment System rules and policies for that year." Id. at 1159.

2. Urban and Rural Wage Indices

CMS sets different wage indices for urban and rural areas. See 42 C.F.R. § 412.64(b)(1)(ii). CMS has defined "urban area" by adopting the definition of "metropolitan statistical area" ("MSA") promulgated by the Executive Office of Management and Budget (the "OMB"), see id. § 412.64(b)(1)(ii)(A),2 and has defined "rural area" as "any area outside an urban area," id. § 412.64(b)(1)(ii)(C). The OMB, in turn, has defined a MSA as a

[CBSA] associated with at least one urbanized area that has a population of at least 50,000. The [MSA] comprises the central county or counties containing the core, plus adjacent outlying counties having a high degree of social and economic integration with the central county or counties as measured through commuting.

2010 Standards for Delineating Metropolitan and Micropolitan Statistical Areas, 75 Fed. Reg. 37,246, 37,252 (June 28, 2010) ; see also id. at 37,246 ("The general concept of a metropolitan statistical area is that of an area containing a large population nucleus and adjacent communities that have a high degree of integration with that nucleus."). "Metropolitan and Micropolitan Statistical Areas are the two categories of [CBSAs]." Id. at 37,251 ; see also Anna Jacques Hosp., 797 F.3d at 1160 ("After years of study, the Secretary determined that, beginning in fiscal year 2005, she would use th[e OMB's] Core-Based Statistical Areas to calculate the wage indices.").3

The OMB defines a CBSA as:

A statistical geographic entity consisting of the county or counties associated with at least one core (urbanized area or urban cluster) of at least 10,000 population, plus adjacent counties having a high degree of social and economic integration with the core as measured through commuting ties with the counties containing the core.

2010 Standards for Delineating Metropolitan and Micropolitan Statistical Areas, 75 Fed. Reg. at 37,251. Put differently, CBSAs are comprised of both central counties and adjacent counties. See id. at 37,251 –52. The OMB defines the term "central county" as "[t]he county or counties of a [CBSA] containing a substantial portion of an urbanized area or urban cluster or both, and to and from which commuting is measured to determine qualification of outlying counties," id. at 37,251, and defines the term "outlying county" as "[a] county that qualifies for inclusion in a [CBSA] on the basis of commuting ties with the [CBSA's] central county or counties," id. at 37,252. Specifically,

[t]he central county or counties of a CBSA are those counties that:
(a) Have at least 50 percent of their population in urban areas of at least 10,000 population; or
(b) Have within their boundaries a population of at least 5,000 located in a single urban area of at least 10,000 population.

Id. at 37,250. And

[a] county qualifies as an outlying county of a CBSA if it meets the following commuting requirements:
(a) At least 25 percent of the workers living in the county work in the central county or counties of the CBSA; or(b) At least 25 percent of the employment in the county is accounted for by workers who reside in the central county or counties of the CBSA.

Id. This Circuit has held that "HHS's longstanding policy of using [MSAs] ... to define [ ] ‘geographic areas’ is [ ] reasonable." Se. Ala. Med. Ctr., 572 F.3d at 923.

3. The Lugar Statute

A provision of the Medicare Act known as the "Lugar Statute" instructs the Secretary to assign certain rural hospitals to neighboring MSAs for the purpose of calculating their wage indices. See JA 8. Specifically, the Lugar Statute provides:

For purposes of [calculating prospective rates for inpatient hospital service payments], the Secretary shall treat a hospital located in a rural county adjacent to one or more urban areas as being located in the urban [MSA] to which the greatest number of workers in the county commute, if the rural county would otherwise be considered part of an urban area, under the standards for designating [MSAs] ... described in clause (ii), if the commuting rates used in determining outlying counties ... were determined on the basis of the aggregate number of resident workers who commute to (and, if applicable under the standards, from) the central county or counties of all contiguous [MSAs]....

42 U.S.C. § 1395ww(d)(8)(B)(i).

The Lugar Statute was first adopted as part of the Omnibus Budget Reconciliation Act of 1987, see Pub. L. No. 100-203, § 4005, 101 Stat. 1330, 1330–47 to –48 (1987). "Congress intended that [the Lugar Statute] apply to a limited number of hospitals that, arguably, merited payment at the ... urban rate because of their location in counties adjacent to at least one MSA and their commuting patterns." Interim Final Rule regarding the Medicare Geographical Classification Review Board Procedures and Criteria, 55 Fed. Reg. 36,754, 36,755 (Sept. 6, 1990). Regarding the "standards for designating [MSAs]," 42 U.S.C. § 1395ww(d)(8)(B)(i), the Lugar Statute provides that the Secretary must employ "the standards published in the Federal Register by the Director of [OMB] based on the most recent available decennial population data," id. § 1395ww(d)(8)(B)(ii).

The CMS regulation implementing the Lugar Statute largely parrots the statute itself, providing:

For discharges occurring on or after October 1, 2004, a hospital that is located in a rural county adjacent to one or more urban areas is deemed to be located in an urban area and receives the Federal payment amount for the urban area to which the greater number of workers in the county commute if the

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