United States District Court, District of Columbia
RANDOLPH D. MOSS United States District Judge.
case is before the Court on plaintiff Dignity Health's
motion for summary judgment, Dkt. 13, and the
government's cross-motion for summary judgment, Dkt. 15.
Dignity challenges the Secretary of Health and Human
Services's calculation of the Medicare “wage index,
” which is used to adjust Medicare payment rates to
reflect differences in wage costs between different
geographic areas, for the Santa Cruz area in 2004. Another
hospital in the area failed to provide documentation to
support its wage rates for the time period in question,
leading to lower Medicare reimbursement rates for all
hospitals in the area, including Dignity. Dignity's
complaint asserts a single count, challenging the accuracy of
the wage data the Secretary relied on in formulating the wage
index. Dkt. 1 at 8-10 (Compl. ¶¶ 35-45). For the
reasons explained below, the Court concludes that Dignity
lacks Article III standing. The Court will, accordingly,
dismiss the complaint for lack of subject matter jurisdiction
and will deny both Dignity's motion for summary judgment,
Dkt. 13, and the Secretary's cross-motion for summary
judgment, Dkt. 15, as moot.
Statutory and Regulatory Background
is a federally funded nationwide health insurance program for
people aged sixty-five or older, those with disabilities, and
those with end-stage renal disease. See 42 U.S.C.
§§ 1395 et seq. For acute-care inpatient
services, Medicare reimbursement operates under the
Prospective Payment System (“PPS”). Id.
§ 1395ww(d); see also Shands Jacksonville Med. Ctr.
v. Burwell, 139 F.Supp.3d 240, 244-45 (D.D.C. 2015).
That system compensates hospitals on the basis of a
pre-established formula tied to the national average cost of
treating a given ailment or condition, rather than on the
basis of the actual costs incurred in treating patients.
See 42 U.S.C. § 1395ww(d). Congress intended
for this system to “reform the financial incentives
hospitals face and [to] promote efficiency in the provision
of services.” Anna Jacques Hosp. v. Burwell,
797 F.3d 1155');">797 F.3d 1155, 1158 (D.C. Cir. 2015) (alterations and
citation omitted). The system thus aims to avoid rewarding
hospitals for operating at higher-than-average cost.
same time, however, the system was not intended to penalize
hospitals for operating in high-cost areas. Wages and
wage-related costs, in particular, “are a significant
component of the Medicare payment that qualifying hospitals
receive, ” and those costs “vary widely across
the country.” Regents of the Univ. of Cal. v.
Burwell, 155 F.Supp.3d 31, 37 (D.D.C. 2016) (citation
omitted), aff'd mem., No. 16-5098 (D.C. Cir.
March 2, 2017). In recognition of this reality, Congress
directed the Secretary of Health and Human Services to adjust
the “proportion” of PPS payments attributable to
“wages and wage-related costs” for “area
differences in hospital wage levels[.]” 42 U.S.C.
§ 1395ww(d)(3)(E)(i). To do so, the Secretary must
compute a “factor” that “reflect[s] the
relative hospital wage level in the geographic area of the
hospital compared to the national average, ”
id., which is commonly referred to as the
“wage index, ” Se. Ala. Med. Ctr. v.
Sebelius, 572 F.3d 912, 914-15 (D.C. Cir. 2009). In most
cases, the geographic area for which a wage index is
calculated corresponds to one of the “metropolitan
statistical areas” (“MSAs”) defined by the
Office of Management and Budget. 42 C.F.R. §§
412.63(b), 412.64(b). The wage index is a ratio of costs in a
geographic area to national average costs. A wage index of
1.0 means a given area is average; an index above 1.0
indicates higher than average wage costs, and thus a
correspondingly higher payment level through the PPS, and an
index below 1.0 means a lower than average cost area, with
lower PPS payments. See Anna Jacques Hosp., 797 F.3d
at 1159. Because there are typically multiple hospitals in
any MSA, each hospital's wage data affects the ultimate
wage index for all hospitals in the area, and thus data
errors or omissions by one hospital can lower (or increase)
PPS rates for other hospitals in its area.
Centers for Medicare and Medicaid Services
(“CMS”), the component of the Department of
Health and Human Services responsible for administering
Medicare, calculates the wage index each year “on the
basis of a survey.” 42 U.S.C. §
1395ww(d)(3)(E)(i). To gather the necessary information, CMS
requires hospitals to submit their cost data to their
“fiscal intermediaries, ”-third party
organizations, usually insurance companies, under contract
with CMS to handle much of the direct administration of
Medicare. See Regents of the Univ. of Cal.,
155 F.Supp.3d at 38. Because it takes time for hospitals to
complete and submit their cost reports, the wage index for
any given year typically reflects costs actually incurred a
few years before. See, e.g., 2005 IPPS Final
Rule, 69 Fed. Reg. 48916, 49049 (Aug. 11, 2004)
(calculating fiscal year 2005 wage index based on fiscal year
2001 data); Regents of the Univ. of Cal., 155
F.Supp.3d at 38.
process of calculating the annual wage index begins with the
cost data-including total salaries and total paid hours-that
hospitals must file annually with their fiscal intermediaries
on Worksheet S-3. See Regents of the Univ. of Cal.,
155 F.Supp.3d at 38; Parkview Med. Assocs. L.P. v.
Shalala, 94-cv-1941, 1997 WL 470107, at *2 (D.D.C. Aug.
13, 1997). The fiscal intermediaries conduct a “desk
review” of that data to determine, among other things,
whether the percentage cost increase reported by a hospital
exceeds certain predetermined (but confidential) “edit
thresholds.” CMS, Program Memorandum: Intermediaries,
Annual Desk Review Program for Hospital Wage Data: Cost
Reporting Periods Beginning on or after October 1, 1999,
through September 30, 2000 (For FY 2004 Wage Index) (Oct. 4,
2002), Dkt. 21-1 at 352-54. If any items “fall outside
the established  threshold, ” the fiscal
intermediary must “address” those items and,
where “necessary, ” make
“adjustments.” Id. at 353. “If
adjustments are necessary, ” the fiscal intermediary
“must communicate them to the affected hospitals”
and must provide them with “an opportunity to
respond.” Id. The fiscal intermediary is also
required to inform the relevant state hospital association if
any hospital fails to respond to issues raised in the desk
review process and to alert the association that “a
hospital's failure to respond to matters raised by the
[fiscal intermediary] can result in lowering an area's
wage index value.” Id. The fiscal intermediary
must complete its review and transmit the relevant data-
including any adjustments-to CMS by mid-November.
Id. at 352.
then compiles and publishes a “preliminary public
use” file containing the cost data from all hospitals
in a given area, and it instructs the fiscal intermediaries
to inform their hospitals that the file is available and
about the procedures and deadlines for requesting revisions
to the data. See, e.g., Proposed Changes to the
Hospital Inpatient Prospective Payment System and Fiscal Year
2004 Rates, 68 Fed. Reg. 27, 154, 27, 193 (May 19, 2003)
(“Proposed 2004 Rule”). CMS publishes
the “preliminary public use” file on its website,
and hospitals have a period of time to propose corrections to
the data by submitting “complete, detailed supporting
documentation” to their fiscal intermediaries.
Id. The fiscal intermediaries then (1) revise the
data, (2) notify hospitals whether they have accepted the
proposed revisions and (3) explain why, before sending the
revised data to CMS. Id. If a hospital continues to
disagree with its fiscal intermediary's determination, it
may raise the issue with CMS by the specified deadline.
Id. 27, 193-94. In conducting its review, however,
CMS does “not consider issues such as the adequacy of a
hospital's supporting documentation, ” because CMS
“believe[s] that fiscal intermediaries are generally in
the best position to make evaluations regarding the
appropriateness of these types of issues (which should have
been resolved earlier in the process).” Id. at
receiving the revised data from the fiscal intermediaries,
the Secretary publishes a proposed wage index in the federal
register as part of the proposed annual PPS rule.
Id. At that point, a hospital may request changes to
data only “in those very limited situations involving
an error by the intermediary or CMS that the hospital could
not have known about before its review of the final wage data
file.” Id. The Secretary then publishes the
final wage index. Id. After the final index has been
published, it is still possible for a hospital to seek a
mid-year correction, but only “if [the] hospital can
show that the intermediary or CMS made an error in tabulating
its data.” Id. A hospital may not seek a
mid-year correction “to revise another hospital's
data that may be affecting the requesting hospital's wage
The 2004 Santa Cruz Wage Index
case concerns the wage index for the Santa Cruz MSA for
fiscal year 2004. Three hospitals operated in the Santa Cruz
MSA at the relevant time: Dominican Hospital, operated by
Dignity Health, the plaintiff in this action; Watsonville
Community Hospital; and Sutter Maternity & Surgery
Center. Dkt. 21-1 at 5. The 2004 wage index was based on data
compiled for fiscal year 2000. Id. The hospitals
submitted their initial data in the fall of 2002, and on
October 4, 2002, CMS issued a memorandum to the fiscal
intermediaries outlining the process and timeline for
processing that year's data and ultimately publishing the
final wage index. Dkt. 21-1 at 403. The memorandum gave
fiscal intermediaries until November 15, 2002, to complete
and submit their desk reviews, and until early to
mid-December to notify state hospital associations about any
area hospitals that failed to respond to issues raised in the
desk review process; it gave CMS until January 10, 2003, to
publish the “preliminary public use” file on its
website, and gave hospitals one month, until February 10,
2003, to request revisions to that data “and to provide
documentation to support the request;” it gave fiscal
intermediaries until April 4, 2003, to submit revised
Worksheet S-3 wage data to CMS, gave hospitals until that
same date to request CMS's intervention where they
disagreed with the intermediaries' conclusions, and
provided that the proposed rule would be published around
early April; it provided that the final wage data
“public use” file was to be released on May 9,
2003, and gave hospitals until June 6, 2003, to submit final
correction requests to CMS and the fiscal intermediaries; and
it set August 1, 2003, as the publication date and October 1,
2003, as the effective date for the final 2004 wage index.
Id. at 413-15.
cost report for fiscal year ending July 31, 2001 reported
average hourly wages of $26.78. Dkt. 21-1 at 107. That figure
exceeded its as-reported hourly average of $24.87
for fiscal year ending July 31, 2000, id. at 106, by
7.68%. But Watsonville's as-adjusted hourly wage
costs for fiscal year 2000 was $23.02. Id. at 126.
Watsonville's as-reported 2001 figure thus exceeded its
as-adjusted 2000 figure by 16.33%. Although the precise edit
threshold remains confidential, there is no dispute that the
16.33% variance exceeded the threshold. Dkt. 21-1 at 205.
Watsonville's fiscal intermediary, United Government
Services (“UGS”), accordingly, reduced
Watsonville's average hourly wage from $26.78 (the
as-reported average) to $23.02 (the as-adjusted rate from the
most recent year for which a final adjusted figure was
available) “pending an explanation from”
Watsonville. Dkt. 21-1 at 6; see also Id. at 204-05.
notified Watsonville of the proposed adjustment in a letter
dated November 11, 2002 (and received by Watsonville on
November 14, 2002). Dkt. 21-1 at 356. That letter gave
Watsonville ten days to dispute the adjustment and to provide
“explanations and documentation for any disagreed
items.” Id. Watsonville did not respond. Dkt.
13-1 at 11; Dkt. 15-1 at 14. A month later, on December 13,
2002, CMS wrote to the California Healthcare Association
(“CHA” or the “Association”), the
state hospital association that represents Santa Cruz-area
hospitals, to alert the Association that Watsonville had not
responded to the request for more information stemming from
the desk review and to “advise the hospital association
to inform its member hospitals that a hospital's failure
to respond to matters raised by the intermediary can result
in the data being disallowed, thereby, possibly lowering an
area's wage index ...