United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 16, 2008 Decided May 12, 2009
No. 07-5345
HEARTLAND REGIONAL MEDICAL CENTER,
APPELLANT
v.
KATHLEEN SEBELIUS, SECRETARY OF HEALTH AND HUMAN
SERVICES,
APPELLEE
Appeal from the United States District Court
for the District of Columbia
(No. 00cv02802)
Michael B. DeSanctis argued the cause for appellant.
With him on the briefs were Donald B. Verrilli Jr., Michelle
A. Groman, and Christopher L. Crosswhite.
Thomas H. Dupree Jr., Deputy Assistant Attorney
General, U.S. Department of Justice, argued the cause for
appellee. With him on the brief were Jeffrey S. Bucholtz,
Acting Assistant Attorney General, Jeffrey A. Taylor, U.S.
Attorney, and Michael Jay Singer, Attorney. R. Craig
Lawrence, Assistant U.S. Attorney, entered an appearance.
2
Before: GINSBURG, TATEL and BROWN, Circuit Judges.
GINSBURG, Circuit Judge: In 2000 the Department of
Health and Human Services denied Heartland Regional
Medical Center status within the Medicare program as a sole
community hospital (SCH) for the years 1992 through 1999.
HHS based its decision upon a 1992 regulation that provided
a hospital located within 35 miles of a “like” hospital could
qualify as an SCH only if it was in a rural area. As a
consequence of the denial, Heartland received reimbursement
for less than the actual cost of the healthcare it provided to
Medicare beneficiaries during those years. Heartland
petitioned the district court for review under the
Administrative Procedure Act, arguing the district court had
vacated the rural location rule in 1998, wherefore HHS should
have held a hearing to consider the hospital’s fact-specific
claim to be an SCH. The district court granted summary
judgment to HHS without deciding whether the court’s 1998
decision had indeed vacated the rule. We conclude the 1998
decision did not vacate the rural location requirement and
therefore affirm the judgment of the district court on that
ground.
I. Background
Part A of the Medicare program “provides basic
protection against the costs of hospital ... care” for the elderly
and disabled. 42 U.S.C. § 1395c. A hospital that provides
inpatient services to a Medicare beneficiary receives
reimbursement under the Prospective Payment System (PPS),
which pays a fixed amount regardless of the actual cost of the
care. Id. § 1395ww. Because a hospital may incur a loss
whenever it treats a Medicare beneficiary, the Congress,
concerned not to overburden a hospital that is the only source
of care in its vicinity, exempted “sole community hospitals”
3
from the PPS: An SCH instead receives reimbursement for
the actual cost it incurs in providing care to each Medicare
beneficiary. See Clinton Mem’l Hosp. v. Shalala, 10 F.3d
854, 855–56 (D.C. Cir. 1993) (discussing both Congress’s
“[a]ware[ness] that some hospitals might not flourish” under
the PPS and its decision to codify HHS’s exemption for
SCHs). In 1992 the Medicare Statute defined an SCH as “any
hospital ... located more than 35 road miles from another
hospital ... [or one] that, by reason of [other] factors ... is the
sole source of inpatient hospital services reasonably available
to individuals in a geographic area.” 42 U.S.C. §
1395ww(d)(5)(D)(iii). An HHS regulation interpreted the
other “factors” in such a way that a hospital located within 35
miles of “other like hospitals” would be an SCH only if it was
“located in a rural area,” 42 C.F.R. § 412.92(a) (1992),
meaning “any area outside an urban area,” including any
“Metropolitan Statistical Area (MSA) ... as defined by the
Executive [sic] Office of Management and Budget,” id. §
412.62(f)(1)(ii)–(iii).
In order to apply for SCH status under the 1992
regulation, a provider would contact its “fiscal intermediary,”
which would make a recommendation to the Health Care
Financing Administration (HCFA),* id. § 412.92(b)(1)(i)–(v),
the unit within HHS that administered the Medicare program
pursuant to a delegation from the Secretary. The HCFA’s
decision to disapprove a hospital’s application for SCH status
was subject to review by the Provider Reimbursement Review
Board (PRRB). 42 U.S.C. § 1395oo(a) (1992); 42 C.F.R. §
405.1835(a) (1992).
*
The HCFA is now known as The Centers for Medicare and
Medicaid Services. See Centers for Medicare & Medicaid Services;
Statement of Organization, Functions and Delegations of Authority;
Reorganization Order, 66 Fed. Reg. 35,437 (2001).
4
Heartland Regional Medical Center, which is located in
St. Joseph, Missouri, applied for status as an SCH in 1992.
The HCFA denied Heartland’s application because Heartland
is in an urban area, to wit, the St. Joseph MSA, and is fewer
than 35 miles from the nearest like hospital. Heartland
appealed to the PRRB, arguing HHS lacked authority to
promulgate the rural location requirement. The PRRB held it
lacked jurisdiction to resolve this legal question and therefore
granted the hospital’s request to seek direct judicial resolution
of its challenge.
Heartland repaired to the district court, where it argued
the rural location requirement was inconsistent with the
Medicare Statute and, in any event, HHS had not adequately
explained why the requirement was appropriate. The district
court disagreed on both those counts, Heartland Hosp. v.
Shalala, No. 95-951, slip op. at 15, 19 (D.D.C. June 15, 1998)
(Heartland I), but it accepted Heartland’s alternative
argument that HHS had defined “urban area” by reference to
the OMB’s definition of an MSA without adequately
considering other approaches raised in public comments upon
the proposed rule. The district court held that, because HHS
had “fail[ed] ... to respond to reasonable alternative”
definitions of an urban area, the rule was “invalid,” id. at 23–
24, wherefore the court “remanded [the rule] to [HHS] for
action consistent with the [court’s] opinion.”
On remand HHS issued a notice of proposed rulemaking
to reconsider its decision to define “urban area” as an MSA.
See Proposed Rule: Medicare Program; Changes to the
Hospital Inpatient Prospective Payment Systems and Fiscal
Year 2000 Rates, 64 Fed. Reg. 24,716, 24,732 (1999).
Meanwhile, the HCFA reopened its adjudication of
Heartland’s claim to status as an SCH. After receiving further
5
public comments in the rulemaking proceeding, HHS
considered the alternatives but decided to retain the rural
location requirement and its MSA-based definition. See Final
Rule: Medicare Program; Changes to the Hospital Inpatient
Prospective Payment Systems and Fiscal Year 2000 Rates, 64
Fed. Reg. 41,490, 41,513–15 (1999). Shortly thereafter,
however, the Congress amended the Medicare Statute to
preclude HHS from maintaining the rural location
requirement. Consolidated Appropriations Act, 2000, Pub. L.
No. 106-113, app. F, tit. IV.A, § 401, 113 Stat. 1501, 1501A-
369 (1999). On August 31, 2000 the HCFA designated
Heartland an SCH, effective as of January 1, 2000.
On September 6, 2000 the HCFA denied Heartland’s
request that it be deemed an SCH for the years 1992 through
1999, giving three reasons. First, the HCFA reasoned that the
court in Heartland I had not vacated the rural location
requirement but had merely remanded it to HHS to consider
alternatives to defining “urban area” as an MSA; once HHS
had duly considered and rejected the alternatives, the HCFA
could lawfully deny Heartland’s application based upon the
rural location requirement. The HCFA reasoned in the
alternative that, even if the court in Heartland I did vacate the
rule, the HCFA could, in adjudicating Heartland’s status,
adopt the same rural location requirement and apply it
retroactively to 1992 based upon HHS’s reasoning in the 1999
rulemaking. The HCFA’s third reason for denying SCH
status was new: Heartland’s 1992 application had not
adequately defined the hospital’s service area.
Heartland returned to the district court and filed both a
motion to enforce the judgment in Heartland I and a
challenge under the APA to the HCFA’s new decision. In the
motion to enforce, Heartland sought reimbursement of its
actual costs of care for Medicare beneficiaries, plus interest,
6
for the years 1992 through 1999. The district court denied
that motion, Heartland Hosp. v. Thompson, 328 F. Supp. 2d
8, 15 (D.D.C. 2004) (Heartland II), and we affirmed because
“even if Heartland I vacated the rural area requirement, the
only obligation it expressly imposed on the agency was to
consider the two alternatives suggested during the comment
period,” Heartland Reg’l Med. Ctr. v. Leavitt, 415 F.3d 24, 29
(2005) (Heartland III).
In its APA challenge to the HCFA’s three reasons for
denying it status as an SCH, Heartland argued the district
court in Heartland I had vacated the rural requirement and
remanded the matter for HHS to develop the particular facts
relevant to Heartland’s claim to be an SCH. The district court
granted summary judgment to HHS without deciding whether
it had in Heartland I vacated the rural location requirement,
Heartland Reg’l Med. Ctr. v. Leavitt, 511 F. Supp. 2d 46, 52
(D.D.C. 2007) (Heartland IV), relying upon our statement in
Heartland III that “with or without vacatur, an agency that
cures a problem identified by a court is free to reinstate the
original result on remand,” 415 F.3d at 29–30. By
considering alternatives in its 1999 rulemaking, HHS had
cured the problem and thereby cleared the way for the HCFA
to apply the rural location requirement and deny Heartland’s
application. Heartland IV, 511 F. Supp. 2d at 52–56.
Heartland appeals that ruling, which we review de novo. See
Venetian Casino Resort, L.L.C. v. EEOC, 530 F.3d 925, 929
(D.C. Cir. 2008).
II. Analysis
Heartland contends that because Heartland I vacated the
rural location rule in force from 1992 to 1998 and HHS did
not promulgate a new rural location rule until 1999, the
HCFA retroactively applied a rural location requirement in
7
the 2000 adjudication when it denied the hospital’s
application for reimbursement as an SCH in 1992 through
1999. Although Heartland does not dispute that a principle
announced in adjudication is necessarily retroactive, see
Rivers v. Roadway Express, Inc., 511 U.S. 298, 311–12
(1994); Goodman v. FCC, 182 F.3d 987, 994 (D.C. Cir.
1999), the hospital points out that the agency could not have
applied HHS’s 1999 rule retroactively to deny Heartland’s
application “unless that power [had been] conveyed by
Congress in express terms,” Bowen v. Georgetown Univ.
Hosp., 488 U.S. 204, 208–09 (1988). Heartland asserts the
Congress gave the agency no such power and therefore the
HCFA had but two options on remand: It could have either
(a) adjudicated Heartland’s application by reference solely to
the statutory criteria in force from 1992 through 1999, which
did not include a rural location requirement, or (b) adopted a
rural location requirement, as a matter of statutory
interpretation, and applied it retroactively through
adjudication. In either event, Heartland argues, the HCFA
should have permitted Heartland to argue against the adoption
of a rural location requirement and to submit evidence related
to its eligibility under the statutory criteria. The HCFA’s
refusal to permit the introduction of such argument and
evidence was, according to the hospital, “arbitrary, capricious,
an abuse of discretion, or otherwise not in accordance with
law,” 5 U.S.C. § 706(2)(A). Heartland also raises procedural
and substantive challenges to the HCFA’s alternative ground
for denying its application, viz., that the hospital did not
properly define its service area.
HHS does not take issue with Heartland’s analysis of the
options open to the HCFA on remand — assuming, as
Heartland does, the district court in Heartland I vacated the
8
rural location requirement.* Instead, HHS disputes that
assumption. Citing Allied-Signal, Inc. v. United States
Nuclear Regulatory Commission, 988 F.2d 146 (D.C. Cir.
1993), HHS contends the district court did not vacate the rule
because vacatur of the regulation would have been contrary to
this circuit’s precedent and unwarranted in light of the
“prospect of the rule’s being readopted upon the basis of a
more adequate explanation of the agency’s reasoning,” Ill.
Pub. Telecomms. Ass’n v. FCC, 123 F.3d 693, 693 (D.C. Cir.
1997).
We agree with HHS that Heartland I did not vacate the
rural location requirement. The hospital’s argument to the
contrary is based upon the erroneous proposition that when a
district court declares a regulatory requirement “invalid,” it
thereby necessarily vacates the regulation in which that
requirement is expressed. See Heartland I, slip op. at 24.
To determine the effect of the judgment in Heartland I,
however, we must look not only to the district court’s having
declared the rural location rule “invalid,” but also to the
nature of the flaw in the agency decision there under review,
to circuit law governing the proper remedy for such a flaw,
and to the remanding court’s analysis of that flaw, viewed in
the context of “the decision as a whole.” See Select Specialty
Hosp. of Atlanta v. Thompson, 292 F. Supp. 2d 57, 68–69
(D.D.C. 2003). In Illinois Public Telecommunications Ass’n
v. FCC, for example, we granted the petition for review,
stating only that “we remand this issue to the agency for
further consideration.” 117 F.3d 555, 564 (1997). Upon
granting the petitioners’ motion for clarification, we looked to
*
HHS does not agree with Heartland, however, that any further
proceedings were required before the HCFA could rule against
Heartland’s application.
9
the law governing remedies and explained that our prior
judgment should be understood to have vacated the rule
because the accompanying opinion indicated the agency had
“little or no prospect” of curing the defect in the rule. See Ill.
Pub., 123 F.3d at 693–94; see also Ill. Pub., 117 F.3d at 564
(doubting agency had basis for factual conclusion it had
adopted “cavalierly,” without acknowledging contrary
empirical evidence, and defended on reconsideration by
stating only that it “disagree[d]” with contrary proposition).
When the district court decided Heartland I in 1998, the
law of this circuit was (as it had been since 1993) that in
deciding whether to vacate a flawed agency action, the district
court should be guided by two principal factors: (1) “‘the
seriousness of the ... deficiencies’” of the action, that is, how
likely it is “the [agency] will be able to justify” its decision on
remand; and (2) “the disruptive consequences of vacatur.”
Fox Television Stations, Inc. v. FCC, 280 F.3d 1027, 1048–
49, modified on reh’g on other ground, 293 F.3d 537 (2002)
(quoting Allied-Signal, 988 F.2d at 150–51); Ill. Pub., 123
F.3d at 693–94 (applying Allied-Signal factors but also citing
ABA House of Delegates Rec. No. 107B (ABA Report)
(1997), which lists additional “factors to guide the court’s ...
discretion”). Heartland maintains that, because the district
court did not apply the Allied-Signal factors in Heartland I, it
must have intended to vacate the rural location rule. The
Allied-Signal factors were well understood, however, when
the district court decided Heartland I. Because both factors
unambiguously pointed to remand without vacatur, and that is
what the opinion, on its face, suggests, that is how the
judgment should be understood.
The district court in Heartland I declared the rural
requirement “invalid” solely because of “[t]he failure of
[HHS] to respond to reasonable alternative” ways of defining
10
“urban areas,” slip op. at 23–24, and remanded the matter to
HHS “for action consistent with the foregoing opinion,”
which could only mean responding to those alternatives.
When an agency may be able readily to cure a defect in its
explanation of a decision, the first factor in Allied-Signal
counsels remand without vacatur. See La. Fed. Land Bank
Ass’n v. Farm Credit Admin., 336 F.3d 1075, 1085 (D.C. Cir.
2003); Ronald M. Levin, “Vacation” at Sea: Judicial
Remedies and Equitable Discretion in Administrative Law, 53
DUKE L.J. 291, 379 (2003) (citing ABA Report and endorsing
cases in which the “perception [that agency may be able to
cure defect] tends to militate towards leaving the action in
place while the agency addresses the deficiency”); ABA
Report (“special circumstances” justifying remand without
vacatur include “substantial likelihood that the agency, after
further consideration, will be able to remedy its error and
reach a similar overall result on a valid basis”).
The second factor — the disruptive effect of vacatur —
pointed in the same direction. Under the rule in effect from
1992 through 1998, Heartland and similarly situated hospitals
were not eligible for reimbursement as SCHs. See 42 C.F.R.
§ 412.92(a) (1992). Vacating the rural location requirement
for eligibility likely would have required HHS to make
payments to those hospitals for those years and for any
subsequent years until the agency repromulgated the same
rule and gave an adequate reason for rejecting the alternatives.
Reinstating the same rule, however, likely would not have
enabled HHS to recover payments made for 1992 through the
time of reinstatement, as is implied by the HCFA’s position in
the order under review, viz., that if the court in Heartland I
had vacated the 1992 rule, then the presumption against
retroactive rulemaking outlined in Georgetown would have
prevented the HCFA from applying the 1999 rule in order to
deny Heartland’s application. Without deciding whether the
11
agency correctly understood the statute (as it then was) to
preclude retroactive application of a rural location rule, we
think it sufficient for the purpose of the second Allied-Signal
factor that vacatur of the rural location requirement would
have raised substantial doubt about HHS’s ability to recoup
payments it made for years prior to reinstatement of that
requirement. See Georgetown, 488 U.S. at 207, 215 (rejecting
HHS’s attempt, through promulgation of a retroactive rule, to
recoup payments made in response to vacatur of rule). In
sum, both factors counseled remand without vacatur, and we
conclude that is what the district court did in Heartland I.
Heartland nonetheless insists the court must have vacated
the rule because it declared the rule “invalid,” but the terms
“invalid” and “vacated” are not synonyms. That is why we
may label an agency’s action “invalid” even when we have
remanded it for further proceedings without having vacated it.
See In re Core Commc’ns, Inc., 531 F.3d 849, 856 (D.C. Cir.
2008) (noting prior decision held agency rules were “invalid”
but “remand without vacatur left ... rules in place”). Nor are
the concepts those terms denote inseparable. Thus, in
Rodway v. United States Department of Agriculture, 514 F.2d
809, 813–14 (D.C. Cir. 1975), the agency failed to provide
public notice and an opportunity for comment before it
adopted regulations establishing an allotment system for the
federal food stamp program and then issued the regulations
without the “concise general statement of their basis and
purpose” required by APA § 4(c), 5 U.S.C. § 553(c). We held
the regulation “invalid as promulgated.” Rodway, 514 F.2d at
817. In light of the “critical importance of the allotment
regulations,” however, “we [did] not order the regulations
vacated pending” a curative rulemaking on remand. Id. As
Core Communications and Rodway illustrate, therefore,
vacatur need not be the remedy for an invalidly adopted rule.
Bearing in mind the difference between invalidity and
12
vacatur, we do not believe the district court in Heartland I
used “invalid” to mean “vacated” when it reasoned that
HHS’s procedural “failure ... to respond to [comments] ...
render[ed] the adoption of the regulations arbitrary and
capricious and, consequently, invalid.” Heartland I, slip op.
at 23–24.
Heartland points out that in the Georgetown case the
Supreme Court used “invalidated” as a synonym for
“vacated,” 488 U.S. at 206–07, and cites Action on Smoking
& Health v. Civil Aeronautics Board, 713 F.2d 795 (1983)
(ASH), because there we stated, “To ‘vacate’ ... means ‘... to
make of no authority or validity,’” id. at 797. Neither case,
however, tells us that when a court declares a rule “invalid”
because the agency’s explanation is inadequate, as the district
court did in Heartland I, it necessarily vacates the rule.
Allied-Signal, which came after both cases but before
Heartland I, clearly indicates it does not.
In Georgetown the Court equated “invalidated” and
“vacated” in discussing a district court’s decision setting aside
a rule for which the agency had not gone through the notice
and comment procedure required by the APA. 488 U.S. at
206–07. Similarly, in ASH we were interpreting an
eponymous earlier decision, see 699 F.2d 1209 (1983), in
which we had “clearly and unequivocally vacated” a rule, 713
F.2d at 797, because the agency had published a “palpably
inadequate” explanation devoid of “reasoning to support its
conclusion” and therefore failed to comply with the
requirement that it provide a statement of basis and purpose
when promulgating a rule, see 699 F.2d at 1217; see also 713
F.2d at 797–99 & n.2 (when “required explanation of the
agency’s action is totally absent,” vacatur is indicated lest
remand invite “wholly post hoc rationalization”). Failure to
provide the required notice and to invite public comment —
13
in contrast to the agency’s failure here adequately to explain
why it chose one approach rather than another for one aspect
of an otherwise permissible rule — is a fundamental flaw that
“normally” requires vacatur of the rule. See Sugar Cane
Growers Coop. of Fla. v. Veneman, 289 F.3d 89, 97–98 (D.C.
Cir. 2002). So too, when an agency’s explanation of the basis
and purpose of its rule is so inadequate that the reviewing
court cannot evaluate it, the regulation is subject to vacatur
under the first Allied-Signal factor. See Ill. Pub., 123 F.3d at
693–94. Therefore, neither Georgetown, which involved a
rule vacated for want of an essential procedural safeguard, nor
ASH, which involved an agency’s failure to offer any
reasoned statement of the basis and purpose of its action,
suggests a court declaring “invalid” and remanding a rule
with a defect that is likely curable necessarily vacates that
rule.
In sum, because all indications in Heartland I point
toward remand without vacatur, we believe the district court
left the “invalid” rural location rule in place pending a
curative rulemaking. Because Heartland does not argue HHS
failed in 1999 to cure the deficiencies identified in Heartland
I, it follows that in the 2000 adjudication the HCFA was “free
to reinstate the original result” based upon that rule. See
Heartland III, 415 F.3d at 29–30; see also Fertilizer Inst. v.
EPA, 935 F.2d 1303, 1312 (D.C. Cir. 1991) (describing
remand without vacatur as “allow[ing] the [rule] to remain in
place until” agency cures defect). Therefore, we do not reach
Heartland’s various challenges to the HCFA’s adjudication of
the hospital’s application for SCH status from 1992 through
1999, which challenges proceed from the premise that the
court in Heartland I vacated the 1992 rule.
14
III. Conclusion
For the foregoing reasons the judgment of the district
court is
Affirmed.