The opinion of the court was delivered by: FLANNERY
THOMAS A. FLANNERY, UNITED STATES 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.
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).
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).
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 guidelines
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.
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.
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.
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.
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 with congressional intent in amending the Medicare Act. Id. at 5-9.
II. Judicial Review of the Secretary's Guidelines
The Secretary argues that the Court lacks jurisdiction to hear UHS' challenges to the guidelines because Congress intended to preclude judicial review of the Secretary's decisions and because UHS failed to exhaust its administrative remedies prior to bringing this action. The Secretary also argues that the guidelines are not subject to judicial review because promulgation of the guidelines is committed to agency discretion by law.
A. Preclusion of Judicial Review
UHS brings this action for declaratory and injunctive relief under the Administrative Procedure Act ("APA"), 5 U.S.C. § 551 et seq. The APA confers a general cause of action upon persons "adversely affected or aggrieved by agency action," id. § 702, but withdraws that cause of action to the extent that the relevant statute precludes judicial review. Id. § 701(a)(1); see Block v. Community Nutrition Inst., 467 U.S. 340, 345, 81 L. Ed. 2d 270, 104 S. Ct. 2450 (1984). "Whether and to what extent a particular statute precludes judicial review is determined not only from its express language, but also from the structure of the statutory scheme, its objectives, its legislative history, and the nature of the administrative action involved." Block, 467 U.S. at 345; accord Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667, 673 & n. 4, 90 L. Ed. 2d 623, 106 S. Ct. 2133 (1986).
The Court begins "with the strong presumption that Congress intends judicial review of administrative action." Michigan Academy, 476 U.S. at 670; see McNary v. Haitian Refugee Center, Inc., 498 U.S. 479, 112 L. Ed. 2d 1005, 111 S. Ct. 888, 898 (1991); Bartlett v. Bowen, 259 U.S. App. D.C. 391, 816 F.2d 695, 699 (D.C. Cir. 1987). "Only upon a showing of 'clear and convincing evidence' of a contrary legislative intent should the courts restrict access to judicial review." Abbott Laboratories v. Gardner, 387 U.S. 136, 141, 18 L. Ed. 2d 681, 87 S. Ct. 1507 (1967) (citations omitted); see Michigan Academy, 476 U.S. at 671. The party seeking to read a legislative scheme to preclude review bears the burden of demonstrating Congress' intent to do so. Block, 467 U.S. at 351; Bartlett, 816 F.2d at 699. "Where substantial doubt about the congressional intent exists, the general presumption favoring judicial review of administrative action is controlling." Block, 467 U.S. at 351; see Michigan Academy, 476 U.S. at 672 n. 3.
The Court finds no preclusion of judicial review in the express language of the Act. The Act provides that the Secretary's rulings on appeals from Board reclassification decisions "shall be final and shall not be subject to judicial review." 42 U.S.C. § 1395ww(d)(10)(C)(iii)(II). The Act does not, however, expressly preclude judicial review of the guidelines utilized by the Board and the Secretary in deciding upon reclassification requests. The Court does not find the Act's preclusion of review of individual reclassification determinations to imply a congressional intent to preclude review of the underlying guidelines. See McNary, 111 S. Ct. at 896 (statutory preclusion of judicial review of Immigration and Naturalization Service's immigration status "determinations" does not bar constitutional challenges to agency's practices and policies used in processing applications for adjustments to immigration status); Michigan Academy, 476 U.S. at 675-76 (statutory preclusion of judicial review of the Secretary's determination of the amount of Medicare benefit payments due to physicians does not bar physicians' challenges to the method by which benefit amounts are determined).
Likewise, the Court finds no express mention of an intention to preclude judicial review of the validity of the guidelines in the legislative history of the OBRA of 1989, Pub. L. No. 101-239, § 6003(h)(1), 103 Stat. 2106, 2154, which added § 1395ww(d)(10) to the Act. See H.R. No. 247, 101st Cong., 1st Sess., reprinted in 1989 U.S. Code Cong. & Admin. News 1906; H.R. Conf. Rep. No. 386, 101st Cong., 1st Sess., reprinted ...