the QRDF data file used by Lewin/ICF in recalculating the rates did not allow for any other method of determining "claims paid." Second Atkins Aff. P2. The Court believes that defendant's use of "claims processed to completion" as a proxy for "claims paid" was reasonable, and consistent with the concept of an interpretive rule.
4. Weighting of Average Daily Charge
Defendant also concedes that the recalculated cap was based upon an average daily charge for high-volume hospitals weighted for days of care rather than for discharges, in violation of 32 C.F.R. § 199.14(a)(2)(ii)(B). Defendant challenges plaintiffs' standing with regard to this violation, arguing that plaintiffs have failed to make the requisite showing of a particularized injury as a result of the challenged action. Standing, of course, requires just such a showing, whether considered under the constitutional standard or section 702 of the APA. See Alan v. Wright, 468 U.S. 737, 751 (1984); Lujan v. National Wildlife Federation, 110 S. Ct. 3177, 3186, 111 L. Ed. 2d 695 (1991); Albuquerque Indian Rights v. Lujan, 289 App. D.C. 164, 930 F.2d 49, 55 (D.C. Cir. 1991). Review of agency action under section 702 requires the party seeking review to show that he is "suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute." 5 U.S.C. § 702.
When standing is challenged on a motion for summary judgment, "the burden is on the party seeking review under § 702 to set forth specific facts (even though they may be controverted by the Government) showing that he has satisfied its terms." Lujan, 110 S. Ct. at 3187. This burden must be discharged in accordance with Rule 56(e), which requires that "the adverse party's response, by affidavits or as otherwise provided by this rule, must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e). Plaintiffs have failed to carry this burden. They rely instead on the following assertion: "If the calculation of the base period rates was incorrect, plaintiffs may have been harmed by being underpayed [sic], and will continue to be injured because all future payments are derived from the base period calculation." Pls.' Op. to Def.'s Mot. for Summ. J. at 8. Under the Supreme Court's standing jurisprudence and the law of this circuit, plaintiffs cannot rest a claim of injury from agency action on such a speculative assertion, especially when that claim is challenged in a motion for summary judgment. See Lujan, 110 S. Ct. 3186 at 3186-87 ; United Presbyterian Church in the U.S.A. v. Reagan, 238 App. D.C. 229, 738 F.2d 1375, 1383 (D.C. Cir. 1984) (citing Warth v. Seldin, 422 U.S. 490, 501-02, 45 L. Ed. 2d 343 , 95 S. Ct. 2197 (1975)).
5. Recalculating versus Updating the Cap
The CHAMPUS regulations provide that, once the hospital-specific base period per diems and cap have been established, the reimbursement rates will be "updated" each year "by the Medicare update factor for hospitals and units exempt from the Medicare prospective payment system." 32 C.F.R. § 199.14(a)(2)(iv)(C). The regulations further provide that "hospitals and units with hospital-specific rates will be notified of their respective rates prior to the beginning of each Federal fiscal year." Id. This provision also states that, once the base period per diems and cap were established, there would be no additional updates for federal fiscal year 1989. Id. Plaintiffs' contend that defendant violated this regulation in retrospectively recalculating the $ 629 cap to $ 614 for fiscal year 1989. See Pls.' Mem. in Supp. of Mot. for Summ. J. at 15.
The Court declines to view the reach of this rule as rigidly as do plaintiffs. While defendant did alter the base period cap after January 1, 1989, which had the effect of revising the fiscal year 1989 cap downward to $ 614 (including the Medicare update factor), the Court does not believe that this revision is precluded by section 199.14(a)(2)(iv)(C) of the CHAMPUS rules. That regulation concerns the prospective application of the Medicare update factor to the base period per diems and cap on an annual basis: that is the updating to which the provision is addressed. The Court does not read "update" to mean that, once OCHAMPUS initially calculated the base period cap, it could only ever change that figure by the Medicare update factor. Such a reading of this provision would have the effect, as defendant points out, of rendering the base period cap of $ 629 "writ-in-stone," even though -- as plaintiffs concede -- this figure was derived from faulty data.
Not only is such an interpretation of section 199.14(a)(2)(iv)(C) unsupported by the language of that provision, it flies in the face of the "Congressional policy of limiting the ever-increasing prices which psychiatric hospitals charge to the government" upon which the CHAMPUS regulations are predicated. Healthcare San Antonio, 750 F. Supp. at 14.
6. Bad Faith
Plaintiffs next claim that the CHAMPUS recalculations were so grossly erroneous as to have been made in bad faith. This claim rests on three contentions. First, plaintiffs argue that the use of fiscal intermediaries to recalculate approximately 44% of the hospital-specific per diems was improper because the FI's relied on their "claims history files," which "often contain inaccurate data," rather than the QRDF data file, and because neither OCHAMPUS and Lewin/ICF reviewed these revised per diems before using them to recalculate the cap. Pls.' Mem. in Supp. of Mot. for Summ. J. at 20-21.
Second, the "edit" performed by Lewin/ICF on the QRDF extract data file preliminary to calculation of the "regional" rates for lower-volume CHAMPUS providers was "grossly inconsistent" with 32 C.F.R. § 199.14(a)(2)(iii)(A), which requires that the regional per diems be determined on all covered charges and all covered days. Id. at 23. Third, plaintiffs assert that the recalculation process was generally marred because "no one individual coordinated and verified the various steps in the 'recalculation.'" Id.
There is no dispute that there were discrepancies between some FI-calculated per diems and per diems based on the QRDF file. See Pls.' Ex. 19. Nor is there a dispute that CHAMPUS officials found some variations in some FI processing on some occasions, requiring FI records to be edited before they were "in synch" with data in the master file. See Barnett Dep. at 25-27. Rather, the dispute is over how these discrepancies and variations are to be characterized. Did they so plague the FI calculations as to amount to gross errors? "An agency's data selection and choice of statistical methods are entitled to great deference, and its conclusions with respect to data and analysis need only fall within a 'zone of reasonableness.'" Reynolds Metal Co. v. United States Environmental Protection Agency, 760 F.2d 549, 559 (4th Cir. 1985) (quoting Hercules, Inc. v. Environmental Protection Agency, 194 App. D.C. 172, 598 F.2d 91, 107 (D.C. Cir. 1987), other citations omitted). In explaining the "zone of reasonableness" concept, our court of appeals has stated that one of its principal rationales is that "it frees the court from the minutiae of particular calculations, and correspondingly, it allows an agency discretion to adapt a general formula or methodology to the aspects of a particular case." Hercules, 598 F.2d at 107.
The Court has carefully examined every reference in the record cited by the parties pertaining to alleged errors in FI-calculated per diems. On the basis of this review, the Court is satisfied that the use of FI-calculated per diems was reasonable, not the least because these calculations were not based upon the deficient UB-82 file. Moreover, the Court finds no evidence in the record to support plaintiffs' contention that "the FI's 'claims history files' often contained inaccurate data." Pls.' Mem. in Supp. of Mot. for Summ. J. at 21 (emphasis added). The deposition testimony cited by plaintiffs in support of that proposition shows instead that, if there were "errors" or discrepancies in calculating the per diems, these were infrequent, and their accuracy improved by OCHAMPUS during the administrative review process. See Barnett Dep. at 26, 105; Regensberg Dep. at 24; Pls.' Ex. 19. The Court is satisfied, therefore, that these alleged "errors" fall well within the zone of reasonableness as defined in Hercules, Inc. v. EPA. See 598 F.2d at 107.
Plaintiffs' next example of gross error pertains to the per diems for hospitals with lower numbers of CHAMPUS patients. In contrast to the hospital-specific per diems paid to high-volume hospitals, low-volume hospitals are reimbursed on the basis of a regional per diem. See 32 C.F.R. § 199.14(a)(2)(iii). In calculating regional per diems, according to its regulations, OCHAMPUS must make adjustments for the effects of area wages, and for indirect medical costs. See 32 C.F.R. § 199.14(a)(2)(iii)(C). OCHAMPUS must also reimburse low volume hospitals "for actual direct medical education costs associated with services to CHAMPUS beneficiaries." 32 C.F.R. § 199.14(a)(2)(iii)(D). Once these adjustments are made, the regional per diem amount is to be calculated according the following formula: "each regional per diem amount shall be the quotient of all covered charges divided by all covered days of care, reported on all CHAMPUS claims from lower volume hospitals in the region paid during the base period." 32 C.F.R. § 199.14(a)(2)(iii)(A) (emphasis added). Plaintiffs' point out that, in making these "adjustments" or "edits" on the QRDF data file, Lewin/ICF removed some 3,975 records from the regional records. See Pls.' Mem. in Supp. of Mot. for Summ. J. at 23. It is plaintiffs' contention that the removal of these records is "grossly inconsistent" with the regulations' command that regional per diems be based on all covered charges and all covered days. Id.
Plaintiffs simply misread the regulation. The regulation expressly and unambiguously states that the calculation of regional per diem amounts is to occur "after having standardized for indirect medical education costs and area wage indexes and subtracted direct medical education costs." 32 C.F.R. § 199.14(a)(2)(iii)(A) (emphasis added). In other words, the adjustment for these factors is to be undertaken before the regional per diems are finally calculated. The use of the term "standardized" implies the elimination of records for which such adjustments are impossible. That is what occurred here. The 3,975 records edited out of the regional database were "unmatched" records, "where there was no information available in [the CHAMPUS] provider file to do the direct medical education and indirect medical education adjustments." McCanna Dep. at 158. Indeed, as one deponent testified, "it's not clear from our analysis what those records really are, whether they still are appropriately regional, whether they would have been caught through other edits or not." Id. at 87. Plaintiffs do not dispute these statements; rather, they conclude, from their misreading of the regulation, that the edits amounted to a violation of the governing regulations. Having reviewed the depositions and exhibits, the Court is satisfied that, on the contrary, plaintiffs have failed to identify a violation of the regulations in the calculation of regional per diems.
Plaintiffs' final example of gross error may be disposed of quickly. They contend that OCHAMPUS's recalculation efforts were marred by a "general lack of coordination and verification." Pls.' Mem. in Supp. of Mot. for Summ. J. at 23. Specifically, plaintiffs assert that the CHAMPUS project officer in charge of the recalculation effort "had no contact with the FI's nor did he give them specific instructions," and object to the asserted absence of "adequate or contemporaneous documentation" of the work of the FIs or Lewin/ICF, which might facilitate the duplication of results. Pls.' Mem. in Supp. of Mot. for Summ. J. at 24. Yet plaintiffs point to no standard, in the governing statute or in the regulations, against which the coordination and verification of OCHAMPUS's efforts is to be measured, and their assertions about the absence of contact between OCHAMPUS officials and private contractors is flatly contradicted by the record. See, e.g., Def.'s Ex. F; Pls.' Ex. 5; Def.'s Ex. VI. As the underlying principles of the APA indicate in the rulemaking context, agencies "retain latitude in organizing their internal organizations." Batterton, 648 F.2d at 707 & n.68. Absent evidence in the record of arbitrary, capricious, and unreasonable conduct on the part of the agency, the court in review is not empowered to second-guess internal agency practices and procedures or impose its own procedures on the agency. See id. at 708-09 (discussing Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc., 435 U.S. 519, 55 L. Ed. 2d 460 , 98 S. Ct. 1197 (1978)). On review of the record, the Court is satisfied that OCHAMPUS's recalculation of the per diem reimbursement rates was "rational and based on consideration of the relevant factors." Ethyl Corp., 541 F.2d at 36 (citing Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 416, 28 L. Ed. 2d 136 , 91 S. Ct. 814 (1971)).
7. Calculation of the Deflator for Hospitals that Subsequently Become High Volume Hospitals
The CHAMPUS regulations provide that a hospital not previously classified as a high-volume hospital, which obtained 25 or more CHAMPUS discharges during a federal fiscal year after the base period, is to be reclassified as a higher volume hospital during the next federal fiscal year and all subsequent fiscal years. See 32 C.F.R. § 199.14(a)(2)(v)(B). Once reclassified, such a hospital is to receive a hospital-specific per diem in reimbursement, and is subject to the per diem cap, except that
the base period average daily charge shall be deemed to be the hospital's average daily charge in the year in which the hospital had 25 or more discharges, adjusted by the percentage change in average daily charges for all higher volume hospitals and units between the year in which the hospital had 25 or more CHAMPUS discharges and the base period.
32 C.F.R. § 199.14(a)(2)(v)(B). This adjustment is referred to as the "deflator." Plaintiffs contend that defendant's calculation of the deflator was arbitrary and capricious, in that "it appears that the 'deflator' was calculated on the basis of total charges, then applied only to covered charges," which has the effect of artificially depressing a new high volume hospital's per diem rate. Pls.' Mem. in Supp. of Mot. for Summ. J. at 26. In making this assertion, plaintiffs point to two memoranda prepared by Martin Marietta Corporation at the request of OCHAMPUS, which are attached to defendant's Response to Plaintiff's Interrogatory No. 2, at Tab B. These memoranda describe the system design for the calculation of the deflator. See Hogue Decl. P4. The Court has reviewed these two documents and can find nothing therein to support plaintiffs' assertion. Rather, the memoranda dated February 12, 1990, clearly states, at p. 4, that "the average billed charge per day is calculated by dividing the total billed charges allowed by the total hospital days allowed." Ex. B to Def.'s Resp. to Pls.' Interrogs. Plaintiffs do not dispute that this passage means what it says: that the deflator was calculated on the basis of allowed charges, not total charges. Accordingly, the Court is not persuaded that defendant's calculation of the deflator was arbitrary and capricious.
This case presents an example of an administrative agency that made a mistake in interpreting and applying its own recently promulgated regulations, acknowledged its mistake, and undertook corrective measures. These corrective measures were undertaken to ensure that the base period per diems and rate cap, upon which the hospital-specific reimbursement system set forth in 32 C.F.R. § 199.14(a)(2) depends, were calculated as accurately as reasonably possible, so that the system can continue to function in compliance with CHAMPUS regulations and Congress's policy of limiting increases in health care expenditures under the CHAMPUS program. See 10 U.S.C. § 1079(j)(2)(A); Healthcare San Antonio, 750 F. Supp. at 14. Plaintiffs have sought to show that the agency's attempts to correct its own mistakes were themselves fatally flawed. In reviewing plaintiffs' numerous claims of violations of the APA, it has at times seemed to this Court that plaintiffs insist upon perfection in all respects, and at all stages, of an agency's administrative processes. But perfection is not the standard of review prescribed by Congress in section 706 of the Administrative Procedure Act. Instead, upon review of the record and consideration of the arguments of the parties, this Court is satisfied that defendant's recalculated reimbursement rates constituted a reasonable interpretive rule, that the recalculation process was not arbitrary and capricious in any way causally related to plaintiffs' claims of injury-in-fact, and that in other challenged respects defendant's actions were consistent with the relevant CHAMPUS regulations.
Accordingly, this Court will issue an Order denying plaintiffs' motion for summary judgment, granting defendant's motion for summary judgment, and dismissing the case.
GEORGE H. REVERCOMB
UNITED STATES DISTRICT JUDGE
ORDER - April 9, 1992, Filed
For the reasons stated in the Court's Memorandum and Opinion issued today, plaintiffs' Motion for Summary Judgment is DENIED, defendant's Renewed Motion to Dismiss the Case, Or in the Alternative for Summary Judgment is GRANTED, and the case is DISMISSED.
GEORGE H. REVERCOMB
UNITED STATES DISTRICT JUDGE