United States District Court, District of Columbia
N. MCFADDEN, U.S.D.J.
U.S. Department of Health and Human Services reimburses
hospitals for certain costs they incur in providing
healthcare to Medicare beneficiaries. To pay the hospitals,
the Department uses a Prospective Payment System
(“PPS”) to establish predetermined rates for each
treatment type. The PPS features a “wage index, ”
a multiplier that adjusts reimbursements to reflect regional
variations in labor costs. See 42 U.S.C. §
1395ww. Hospitals submit annual cost reports to the
Department, which are used to determine regional urban and
rural wage rates. For each state, the rural rate acts as a
“floor” ensuring that state hospitals receive at
least that rate for their labor costs. See Pub. L.
No. 105-33, § 4410 (1997).
Baystate Franklin Medical Center and its affiliates
(“Baystate” or “Plaintiffs”)
challenge the Department's calculation of the wage index.
The Department raised Baystate's 2017 index to the
state's rural floor, as Plaintiffs' own labor costs
were lower. Pl.'s Mem. in Supp. of Mot. for Summ. J.
(“Pl.'s MSJ Mem.”) 7, ECF No. 23-1.
Remarkably, Nantucket Cottage Hospital
(“Nantucket”) is Massachusetts' only
“rural” hospital as defined by 42 U.S.C. §
1395ww, and thus it sets the state's PPS reimbursement
floor. Compl. 6, ECF No. 1. Nantucket erroneously reported
some of its labor costs in 2015, causing its average hourly
wage to be understated. Id. It failed to seek
corrections to its data until more than seven months after a
nationwide deadline for such requests. Def.'s Mem. in
Supp. of Def.'s Cross Mot. for Summ. J.
(“Def.'s Cross-MSJ. Mem.”) 9, ECF No. 25-1.
The Department denied Nantucket's untimely request and
used the earlier submitted data to calculate the index.
Id. at 10. As a result, Baystate received $19, 907,
000 less in 2017 reimbursements than it would have if
Nantucket had timely submitted accurate data.
asserts that, as applied to Plaintiffs, the decision to use
Nantucket's uncorrected data was arbitrary, capricious,
and an abuse of discretion. Compl. 8. Baystate also
challenges the Department's interpretation of 42 U.S.C.
§ 1395oo, the statute that establishes the Provider
Reimbursement Review Board (“Board”). Plaintiffs
contend that the Board must have the authority to grant
relief when one hospital's claim is based on the
inaccuracy of another's data.
Secretary Alex Azar (the “Secretary”) disagrees.
He alleges that using the uncorrected data was a reasonable
exercise of the agency's discretion, as Nantucket missed
a clearly articulated deadline and because of the
Department's interests in finality and efficiency.
Def.'s Cross-MSJ. Mem. 9, 16. The Secretary further
argues that the Board's grant of expedited review and the
instant case validate the Department's interpretation.
parties seek summary judgment on the undisputed
administrative record. I find that the Department's
decision to require hospitals to correct their own wage data
within program deadlines was reasonable, that Baystate's
reimbursement was increased to reflect the region's labor
costs as contemplated by the wage index statute, and that 42
U.S.C. § 1395oo does not obligate the Board to grant
relief based on the inaccuracy of another hospital's
data. I will therefore grant summary judgment for the
is a federally funded program that provides health insurance
for the elderly, the disabled, and for people with end-stage
renal disease. See 42 U.S.C. § 1395 et
seq. A “complex statutory and regulatory regime
governs [the] reimbursement” of healthcare providers
who treat Medicare beneficiaries. Good Samaritan Hosp. v.
Shalala, 508 U.S. 402, 404 (1993). The Centers for
Medicare and Medicaid Services (CMS), a division within the
Department, administers the program and, through the PPS, the
reimbursement of participating hospitals. See Anna
Jacques Hosp. v. Burwell, 797 F.3d 1155, 1157 (D.C. Cir.
and related costs are a “significant component”
of these reimbursements, and these costs “vary widely
across the country.” Regents of the Univ. of Cal.
v. Burwell, 155 F.Supp.3d 31, 37 (D.D.C. 2016).
Accordingly, Congress mandates that the PPS rates
attributable to labor costs be adjusted for “area
differences in hospital wage levels.” 42 U.S.C. §
1395ww(d)(3)(E)(i). The Department must compute a factor
“reflecting the relative hospital wage level in the
geographic area of the hospital compared to the national
average hospital wage level.” Id. This factor
is known as the “wage index.” Se. Ala. Med.
Ctr. v. Sebelius, 572 F.3d 912, 914-915 (D.C. Cir.
calculates the wage index annually. Hospitals first submit
their cost data to third party “fiscal
intermediaries” (typically insurance companies), that
then review the data for accuracy and to ensure that cost
increases do not exceed predetermined “edit
thresholds.” See Dignity Health v. Price, 243
F.Supp.3d 43, 46 (D.D.C. 2017). If the fiscal intermediary
believes corrections are necessary, it must provide the
hospital with an opportunity to respond. Id. If a
hospital fails to respond to the issues the intermediary
raises in the review process, the intermediary must notify
the relevant state hospital association, warning members that
“a hospital's failure to respond to matters raised
by [the intermediary] can result in [the] lowering of an
area's wage index value.” Id. After the
review and corrections process is complete, the
intermediaries transmit the data to CMS.
this data, CMS calculates the average hourly wage rate for
hospitals in each geographic area. Anna Jacques
Hosp., 797 F.3d at 1159. Geographic areas typically
correspond to the “metropolitan statistical
areas” defined by the Office of Management and Budget.
Any hospital not located in a metropolitan statistical area
(or in a similarly defined urban area) is deemed to be in a
“rural area.” 42 U.S.C. §
then determines the national average wage rate and divides
the regional rate by the national rate for each geographic
area to arrive at the wage index. Anna Jacques
Hosp., 797 F.3d at 1159. The index is thus a ratio of
each geography's labor cost to the national average: an
“index of 1.0 means a given area is average [while] an
index above 1.0 indicates higher than average wage costs, and
thus a correspondingly higher” PPS reimbursement.
Dignity Health, 243 F.Supp.3d at 46. Recall that CMS
adjusts each hospital's reimbursement for labor-related
costs using the relevant regional index, unless that
hospital's state rural floor is higher.
each hospital's wage data impacts the national average
and that hospital's regional average, “errors or
omissions by one hospital can lower (or increase) PPS rates
for other hospitals in its area” and indeed, for each
hospital in the country. Id.; Methodist Hosp. of
Sacramento v. Shalala, 38 F.3d 1225, 1228 (D.C. Cir.
1994). All wage index adjustments must be budget-neutral,
meaning that an increase in payment to one hospital requires
offsetting decreases to others. Pub. L. No. 105-33, §
CMS has completed these calculations, it publishes a
preliminary wage index and establishes a deadline for
hospitals to request revisions to their data. Dignity
Health, 243 F.Supp.3d at 46-47. For the 2017 Wage Index,
this preliminary data was published in May 2015, and the
deadline to request revisions was that September. J.A. 17,
ECF No. 32. The fiscal intermediaries notified hospitals that
this data was available and “inform[ed] hospitals of
their opportunity to request revisions.” Id.
this deadline passed, the Department published a proposed
wage index for the year in the federal register, allowing
hospitals to request changes only in “those very
limited circumstances involving an error by the [fiscal
intermediaries] or CMS that the hospital could not have known
about before its review of the final wage index data
files.” FY 2017 PPS Proposed Rule, 81 Fed. Reg. 24,
946, 25, 073 (Apr. 27, 2016). The Department then published
the final wage index in a Final Rule. It allowed hospitals to
seek corrections to the final index (“midyear
corrections”) only if a fiscal intermediary made a
tabulating error and the hospital could not have known about
the error before publication of the final rule. Id.
Midyear corrections are “not available to a hospital
seeking to revise another hospital's data that may be
affecting the requesting hospital's wage index for the
labor market area.” Id.; see also Dignity
Health, 243 F.Supp.3d at 47 (summarizing the
Department's FY 2004 process, which contained identical