UNIVERSAL HEALTH SERV. OF McALLEN v. Sullivan, Civ. A. No. 90-3046.

• Decision Date: 21 August 1991
• Docket Number: Civ. A. No. 90-3046.
• Citation: 770 F. Supp. 704
• Parties: UNIVERSAL HEALTH SERVICES OF McALLEN, INC., a Hospital and Wholly-owned SUBSIDIARY OF UNIVERSAL HEALTH SERVICES, INC., Plaintiff, v. Louis W. SULLIVAN, M.D., Secretary of the Department of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Columbia

770 F. Supp. 704

UNIVERSAL HEALTH SERVICES OF McALLEN, INC., a Hospital and Wholly-owned SUBSIDIARY OF UNIVERSAL HEALTH SERVICES, INC., Plaintiff, v. Louis W. SULLIVAN, M.D., Secretary of the Department of Health and Human Services, Defendant.

Civ. A. No. 90-3046.

United States District Court, District of Columbia.

August 21, 1991.

COPYRIGHT MATERIAL OMITTED

Lloyd A. Bookman, Hooper, Lundy & Bookman, Inc., Los Angeles, Cal., David T. Smorodin, Washington, D.C., for plaintiff.

Stuart M. Gerson, Asst. Atty. Gen., Jay B. Stephens, U.S. Atty., Sheila M. Lieber, Stephen G. Harvey, Dept. of Justice, Washington, D.C., for defendant.

MEMORANDUM OPINION

FLANNERY, District Judge.

Plaintiff Universal Health Services of McAllen ("UHS") brings this action challenging certain regulations promulgated by defendant the Secretary of the Department of Health and Human Services ("the Secretary"). The Secretary responds by arguing that the Court lacks subject matter jurisdiction to review the regulations. As discussed below, the Court finds that it has jurisdiction to review the Secretary's promulgation of the regulations and that the challenged regulations are not substantively or procedurally invalid.

I. Background

The Medicare Act ("the Act"), codified as Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395 et seq., establishes a system of health insurance for the aged and disabled. The Medicare program consists of Part A, which covers inpatient hospital services and certain other institutional services, and Part B, which covers physician services and certain outpatient services. Only Part A is at issue in this lawsuit.

The Secretary is the federal official responsible for administering the Medicare program. UHS, a hospital located in McAllen, Texas, has been duly certified as a "provider of services" under the Medicare Act. See 42 U.S.C. § 1395x(u).

Under the Act, Part A services are furnished to beneficiaries by providers of services who have entered into written agreements with the Secretary. Id. § 1395cc. The providers are reimbursed by the Secretary under a prospective payment system. Id. The amount of reimbursement to a provider hospital for a given service is dependent upon the hospital's "average standardized amount" per discharge, see 42 U.S.C. § 1395ww(d)(2)(C), (D), and the area wage index applicable to the hospital. See id. § 1395ww(d)(3)(E).

The average standardized amount and the area wage index are based upon the hospital's geographic location. All hospitals participating in the Medicare program are classified as located in "large urban areas," "other urban areas," or "rural areas." 42 U.S.C. § 1395ww(d)(2)(D).¹ The average standardized amount per discharge is determined by reference to the hospital's geographic classification. Id. The area wage index is determined by comparing the relative hospital wage level in the hospital's geographic classification to the national average hospital wage level. Id. §§ 1395ww(d)(2)(H), (3)(E).

Effective October 1, 1988, Congress amended § 1395ww(d)(8)(B) of the Act to allow the Secretary to treat certain rural hospitals as urban hospitals for purposes of determining average standardized amounts and area wage indices. Omnibus Budget Reconciliation Act ("OBRA") of 1987, Pub.L. No. 100-203, § 4005(a), 101 Stat. 1330, 1330-47 and -48, as amended by Medicare Catastrophic Coverage Act of 1988, Pub.L. No. 100-360, § 411(b)(4), 102 Stat. 683, 770. "Congress intended that § 1395ww(d)(8)(B) apply to a limited number of rural hospitals that, arguably, merited payment at the other urban rate because of their location in counties adjacent to at least one urban area and their commuting patterns." 55 Fed.Reg. 36,753, 36,755 (Sept. 6, 1990). Many rural hospitals sought reclassification under this provision, but their requests were denied because they did not meet the criteria of § 1395ww(d)(8)(B). Id.

In response, Congress enacted § 6003(h)(1) of the 1989 OBRA, Pub.L. No. 101-239, § 6003(h)(1), 103 Stat. 2106, 2154-56 (1989), codified as amended at 42 U.S.C. § 1395ww(d)(10). See 55 Fed.Reg. at 36,755. This provision establishes the procedure by which a hospital can request that the Secretary change the hospital's geographic classification for purposes of determining the hospital's average standardized amount and area wage index. 42 U.S.C. § 1395ww(d)(10)(C)(i). Under this procedure, all requests for geographic reclassification are decided by a newly-created Medicare Geographic Classification Review Board ("the Board"), which is composed of five members appointed by the Secretary. Id. §§ 1395ww(d)(10)(A-C). Of the five members, two must be representative of rural area hospitals and at least one must "be knowledgeable in the field of analyzing costs with respect to the provision of inpatient hospital services." Id. § 1395ww(d)(10)(B)(i).

A hospital seeking reclassification must submit its request to the Board no later than the first day of the preceding fiscal year. 42 U.S.C. § 1395ww(d)(10)(C)(ii). The Board then must issue its decision on the hospital's request within 180 days. Id. § 1395ww(d)(10)(C)(iii)(I). All decisions of the Board are appealable to Secretary, who must render a decision within ninety days of the appeal. Id. § 1395ww(d)(10)(C)(iii)(II). Decisions of the Secretary are "final and shall not be subject to judicial review." Id.

In addition to setting forth the procedure for geographic reclassification, the 1989 amendment to the Act directs the Secretary to promulgate guidelines to be used by the Board in reaching reclassification decisions. Section 1395ww(d)(10)(D) of the Act provides that:

(i) The Secretary shall publish guidelines to be utilized by the Board in rendering decisions on applications submitted under this paragraph, and shall include in such guidelines the following:

(I) Guidelines for comparing wages, taking into account occupational mix, in the area in which the hospital is classified and the area in which the hospital is applying to be classified.

(II) Guidelines for determining whether the county in which the hospital is located should be treated as being part of a particular Metropolitan Statistical Area.

(III) Guidelines for considering information provided by an applicant with respect to the effects of the hospital's geographic classification on access to inpatient services by medicare beneficiaries.

(IV) Guidelines for considering the appropriateness of the criteria used to define New England County Metropolitan Areas.

(ii) The Secretary shall publish the guidelines described in clause (i) by July 1, 1990.

42 U.S.C. § 1395ww(d)(10)(D); see OBRA of 1989, Pub.L. No. 101-239, § 6003(h)(1), 103 Stat. 2106, 2154, as amended by OBRA of 1990, Pub.L. No. 101-508, § 4002(h), 104 Stat. 1388, 1388-37 to -38. On September 6, 1990, the Secretary published his guidelines² as interim final rules, which became effective immediately without notice and the opportunity for public comment. 55 Fed.Reg. 36,753, 36,754 (Sept. 6, 1990). The Secretary did, however, provide for a sixty-day comment period following publication of the guidelines. Id. at 36,754, 36,766.

The Secretary's guidelines set forth certain criteria that must be met by a hospital seeking reclassification to another geographic area for purposes of using that area's average standardized amount, wage index value, or both. At issue in this litigation is the requirement that "to be redesignated to a different rural or urban area, a hospital must demonstrate a close proximity to the adjacent area to which it seeks redesignation ..." 42 C.F.R. § 412.230(a)(3). This "proximity requirement" is defined as follows:

(b) Proximity criteria. A hospital demonstrates a close proximity with the adjacent area to which it seeks redesignation if one of the following conditions applies:

(1) The distance from the hospital to the adjacent area is no more than 15 miles for an urban hospital and no more than 35 miles for a rural hospital.

(2) At least 50 percent of the hospital's employees reside in the adjacent area.

Id. § 412.230(b).

The deadline for reclassification requests for the fiscal year beginning October 1, 1991 was October 1, 1990, with additional information needed to complete the application considered timely if received by the Board before 5:00 p.m. on November 6, 1990. 55 Fed.Reg. at 36,574. By letter to the Board dated September 27, 1990, UHS, an urban area hospital located in the McAllen-Edinburg-Mission Metropolitan Statistical Area ("MSA"), requested reclassification to the adjacent Brownsville-Harlington MSA. On November 5, 1990, UHS supplemented its original application and requested reclassification for wage index purposes only. UHS also acknowledged in the November 5 letter that, although it satisfied the other criteria for use of the Brownsville-Harlington MSA wage index, it did not meet the Secretary's proximity requirement.³ It is estimated that UHS will lose approximately $2.7 million in additional Medicare reimbursement in fiscal year 1992 as a result of its failure to meet the reclassification guidelines.

On December 14, 1990, without waiting for the Board to rule upon its reclassification request, UHS filed this lawsuit challenging the validity of 42 C.F.R. § 412.230(b). On April 5, 1991, UHS served its first amended complaint on the Secretary. On April 25, 1991, the Board denied UHS' request for reclassification on the ground that UHS is an urban hospital that is not within fifteen miles of the area to which it seeks reclassification.⁴ UHS appealed the Board's denial to the Secretary on May 10, 1991. On August 8, 1991, the Secretary issued his ruling affirming the Board's denial of UHS' request for reclassification.⁵ The Secretary's decision was based upon UHS' failure to satisfy the proximity criteria of 42 C.F.R. § 412.230(b). Decision at 3-4. In reaching his decision, the Secretary considered and rejected UHS' argument that the proximity requirement was inconsistent...