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Anna Jaques Hosp. v. Sebelius

United States District Court, D. Columbia.

March 31, 2014

ANNA JAQUES HOSPITAL, et al., Plaintiffs,
KATHLEEN SEBELIUS, Secretary of the U.S. Dept. of Health and Human Services, Defendant

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For Anna Jacques Hospital, Berkshire Medical Center, Beth Israel Deaconess Medical Center, Beth Israel Deaconess Hospital - Needham, Beth Israel Deaconess Hospital - Milton, Beverly Hospital, Boston Medical Center Corporation, Brigham And Women's Hospital, Brockton Hospital, Carney Hospital, Inc., Clinton Hospital, Faulkner Hospital, Fletcher Allen Health Care - Medical Center Campus, Good Samaritan Medical Center, Inc., Harrington Memorial Hospital, Healthalliance Hospital - Burbank Campus, Heywood Hospital, Holy Family Hospital, Inc., Hubbard Regional Hospital, Kent Hospital, Landmark Medical Center, Lawrence General Hospital, Massachusetts Eye And Ear Infirmary, Massachusetts General Hospital, Memorial Hospital of Rhode Island, Milford Regional Medical Center, Miriam Hospital, New England Baptist Hospital, Newport Hospital, North Shore Medical Center Union, Norwood Hospital, Quincy Medical Center, Rhode Island Hospital, Roger Williams Medical Center, South County Hospital, South Shore Hospital, St Elizabeth's Medical Center, St Joseph Health Services of Rhode Island, Tufts Medical Center, University of Massachusetts Memorial Medical Center, Westerly Hospital, Plaintiffs: Amy L. Brown, Rebecca A. Worthington, LEAD ATTORNEYS, SQUIRE SANDERS (U.S.) LLP, Washington, DC USA; Keith D. Barber, Nolan Kent Smith, PRO HAC VICE, HALL, RENDER, KILLIAN, HEATH & LYMAN, P.C., Indianapolis, IN USA.

For Kathleen Sebelius, Defendant: Peter C. Pfaffenroth, LEAD ATTORNEY, U.S. ATTORNEY'S OFFICE, Washington, DC USA.

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AMY BERMAN JACKSON, United States District Judge.

Forty-one hospitals have sued the Secretary of the United States Department of Health and Human Services (" HHS" ) challenging her calculation of the " wage index" for their geographic area under the Medicare Act. Specifically, they complain tat the Secretary improperly included two hospitals located outside their geographic area, the Boston-Quincy Core-Based Statistical Area (" CBSA" ), when calculating the wage index for that CBSA for fiscal years (" FY" ) 2006 and 2007. This resulted in lower Medicare payments to the plaintiffs for those years.

Because the Medicare Act does not unambiguously set forth how HHS must define " geographic area" or what data it must use in calculating a geographic area's wage index and the Secretary's calculation of the wage index for the Boston-Quincy CBSA for those two years is reasonable, the Court will uphold the agency's calculation of the index for FY 2006 and 2007.


The federal Medicare program provides healthcare coverage to individuals who are at least 65 years old and eligible for Social Security benefits, among others. 42 U.S.C. § 402 (2012). Under the program, the federal government reimburses healthcare providers for the services they provide

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to Medicare enrollees. See id. § 1395ww(d). HHS administers the program.[1] See id. § § 1395h, 1395u.

HHS pays hospitals for acute inpatient care they provide to Medicare enrollees under the Prospective Payment System (" PPS" ). Id. § 1395ww(d). Rather than pay hospitals for the actual costs they incur in providing care to particular Medicare enrollees, PPS pays hospitals a fixed, predetermined amount based on each patient's category of illness. Palisades Gen. Hosp. Inc. v. Leavitt, 426 F.3d 400, 401, 368 U.S.App.D.C. 129 (D.C. Cir. 2005). These categories are called Diagnostic Related Groups or DRGs. See generally 42 U.S.C. § 1395ww. Under PPS, HHS constructs a standard nationwide cost rate, the " federal rate," based on the average operating costs of inpatient hospital services, then assigns a weight to each DRG category of inpatient treatment. Methodist Hosp. of Sacramento v. Shalala, 38 F.3d 1225, 1227, 309 U.S.App.D.C. 37 (D.C. Cir. 1994). HHS determines a hospital's final reimbursement per patient by multiplying the patient's DRG by the federal rate, after that rate has been " standardized" by making adjustments based on a variety of factors. St. Michael's Med. Ctr. v. Sebelius, 648 F.Supp.2d 18, 20 (D.D.C. 2009), citing 42 U.S.C. § 1395ww(d)(2)(C).

A. The Wage Index

Because a significant component of hospitals' costs are attributable to wages and wage-related costs, Anna Jaques Hosp. v. Sebelius, 583 F.3d 1, 2, 388 U.S.App.D.C. 219 (D.C. Cir. 2009), and these costs vary widely across geographic areas, the Medicare statute provides adjustments to DRG payments to address these wage variations. Methodist Hosp. of Sacramento, 38 F.3d. at 1227, citing 42 U.S.C. § 1395ww(d)(2)(H). The statute requires the Secretary to

adjust the proportion, (as estimated by the Secretary from time to time) of hospitals' costs which are attributable to wages and wage-related costs, of the DRG prospective payment rates computed under subparagraph (D) 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.

42 U.S.C. § 1395ww(d)(3)(E)(i); see also Robert Wood Johnson Univ. Hosp. v. Thompson, 297 F.3d 273, 276 (3d Cir. 2002) (internal citation omitted) (" The wage index compares the average hourly wage for hospitals in a given geographic area with the national average hourly wage, which in turn determines the payment rate above or below the national average at which a hospital is reimbursed. The wage-index for an area generally applies to all hospitals physically located within that geographic area." ).

Congress requires the Secretary " at least every 12 months . . . [to] update the factor . . . on the basis of a survey conducted by the Secretary (and updated as appropriate) of the wages and wage-related costs" of the hospitals. 42 U.S.C. § 1395ww(d)(3)(E)(i). The Secretary conducts this survey by compiling wage data from cost reports submitted annually by hospitals. Anna Jaques Hosp., 583 F.3d at 3, citing Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2005 Rates, 69 Fed. Reg. 48,916, 49,049 (Aug. 11, 2004). The Secretary removes data from the survey that fail to meet certain criteria for reasonableness, including incomplete, inaccurate, or otherwise

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aberrant data, and calculates each area's wage index, which is then made available for public comment. Id. " Because of the time required to scrub the data, the Secretary calculates each year's wage index using data from ...

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