UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
BAYSTATE FRANKLIN MEDICAL
CENTER et al.,
Plaintiffs,
Case No. 1:17-cv-00819 (TNM)
v.
ALEX M. AZAR II, in his official capacity
as United States Secretary of Health and
Human Services,
Defendant.
MEMORANDUM OPINION
The 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).
Massachusetts-based 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.
Baystate 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.
Department Secretary Alex Azar 1 (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. Id.
Both 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
1
Mr. Azar was sworn in as the Secretary of Health and Human Services on January 29, 2018. He
therefore automatically became the named Defendant pursuant to Federal Rule of Civil Procedure 25(d).
2
obligate the Board to grant relief based on the inaccuracy of another hospital’s data. I will
therefore grant summary judgment for the Secretary.
I.
Medicare 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. 2015).
Wages 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. 2009).
CMS 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.
3
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.
Using 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. § 1395ww(d)(2)(D)(ii).
CMS 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.
Because 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, § 4410(b) (1997).
4
Once 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.
After 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
language about the index’s deadlines and limited exceptions). Because of the “extensive amount
of time” this process takes, the Department calculates each year’s index using data from hospital
cost reports collected several years earlier. Anna Jacques Hosp., 797 F.3d at 1159.
To determine the index applicable to Baystate in FY 2017, CMS used cost reports from
FY 2013. Baystate’s wage index was calculated to be 1.0177, which was necessarily above the
national average (1.0), but below Massachusetts’ rural floor of 1.1822 set by Nantucket. Pl.’s
5
MSJ Mem. 7. Nantucket’s FY 2013 cost report contained errors that caused its hourly wage rate
to be understated, and its index would have been 1.2659 if the Department had accepted the
hospital’s tardy corrections. Id. at 9. A little over seven months after the September 2015
deadline for data revision requests, Nantucket submitted a letter to CMS requesting corrections
to its original submission. Def.’s Cross-MSJ. Mem. 9. CMS denied Nantucket’s request and
indicated it would use the uncorrected data, noting that “those corrections fall outside the scope
of the FY 2017 Wage Index Development Timetable.” J.A. 22. Baystate alleges that use of the
uncorrected data cost Plaintiffs $19,907,000 in lost reimbursement. Pl.’s MSJ Mem. 9.
For 2017, the Massachusetts rural floor was imputed to 15 other hospitals. Id. at 7.
Following publication of the proposed index, some of these hospitals submitted comments to the
agency “urg[ing] CMS to exercise its discretion in this situation to grant [Nantucket’s untimely]
wage data correction requests,” stating that it would be “sound public policy” for the Department
to use the most accurate data available. J.A. 161. Conversely, other commentators urged the
Department not to allow the corrections. Some argued that “CMS would establish a troubling
precedent by disregarding CMS rules and regulations, which provide ample opportunity to
correct wage data through the agency’s normal review process and deadlines.” Id. Others
“noted that the redistributive effect of nationwide rural floor budget neutrality would further
lower wage index values for hospitals nationwide to pay for additional increases in
Massachusetts’s rural floor.” Id.
Responding to these comments and explaining its decision not to use Nantucket’s
corrected data, the Department stated that the wage index’s timetable “has been established
through rulemaking, and plays an important role in maintaining the integrity and fairness of the
wage index calculation.” Id. The Department further reasoned it has “consistently stated”
6
during the annual PPS process “that hospitals that do not meet the procedural deadlines . . . will
not be afforded a later opportunity to submit wage index data corrections.” Id.
A hospital that is “dissatisfied with a final determination of the Secretary” about its
reimbursement payments may obtain a hearing before the Department’s Provider Reimbursement
Review Board. 42 U.S.C. § 1395oo(a)(1)(A)(ii). Baystate filed a timely appeal before the
Board, which concluded that it “does not have the authority to grant the remedy” sought because
the 2017 wage index Final Rule (like the published wage indices from prior years) did not
“establish an administrative process for providers to challenge the calculation of another
hospital’s wage index.” J.A. 5. Anticipating this holding, Baystate requested, with the
Secretary’s consent, expedited review so that Plaintiffs could seek immediate judicial review of
the Board’s decision. Pl.’s MSJ Mem. 10. The Board granted that request, and Baystate filed
this action.
Baystate alleges that the Secretary’s FY 2017 Final Rule concerning the wage index is
based on an impermissible interpretation of the Medicare Act and is arbitrary and capricious for
two reasons. First, Plaintiffs contend that the Final Rule does not “correctly reflect the relative
hospital wage level in [Baystate’s] geographical area compared to the national average, in
contravention of 42 U.S.C. § 1395ww(2)(H).” Id. at 11. Second, they challenge the Rule’s
failure to provide a process for one hospital to contest the calculations of another’s cost data. Id.
Both parties seek summary judgment on whether the Secretary’s decision to use Nantucket’s
uncorrected wage data and to limit the scope of the Board’s capacity to grant relief constituted
impermissible, unreasonable, and arbitrary and capricious actions.
7
II.
To prevail on a motion for summary judgment, a movant must show that “there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986);
Celotex Corp v. Catrett, 477 U.S. 317, 322 (1986). “[A] party seeking summary judgment
always bears the initial responsibility of informing the district court of the basis for its motion,
and identifying those portions of the [record] which it believes demonstrate the absence of a
genuine issue of material fact.” Celotex, 477 U.S. at 323. Once this showing has occurred, the
non-moving party must set forth “specific facts showing that there is a genuine issue for trial.”
Anderson, 477 U.S. at 250.
Both Baystate and the Secretary have moved for summary judgement and largely agree
on the salient facts of this case. 2 The parties disagree, however, on whether the Secretary’s
decisions were based on reasonable interpretations of 42 U.S.C. §1395ww. The parties also
contest whether these decisions were arbitrary and capricious in violation of the Administrative
Procedure Act (“APA”).
To evaluate the Secretary’s interpretation of a statute he administers, the reviewing court
must first determine whether Congress has “directly spoken to the precise question at issue.”
Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842 (1984). If
Congress’s intent is clear, “that is the end of the matter.” Id. If the statute is instead “silent or
2
The Secretary did not concede that Nantucket’s initial data submission did in fact contain reporting
errors leading to an understating of its wage rate. See, e.g., Def.’s Cross-MSJ. Mem. 14 (discussing the
“alleged error” in Nantucket’s data). For the purposes of this opinion, I assume the Plaintiffs’ allegations
are correct. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (“on
summary judgment the inferences to be drawn from the underlying facts must be viewed in the light most
favorable to the party opposing the motion”).
8
ambiguous with respect to the specific issue,” the court must defer to the Secretary’s “reasonable
interpretation” of that statute. Id. at 844. The court must also take “special note of the
tremendous complexity of the Medicare statute. That complexity adds to the deference due to
the Secretary’s decision.” Methodist Hosp., 38 F.3d at 1229. This heightened deference is “all
the more warranted when, as here, the regulation concerns a complex and highly technical
regulatory program.” Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994).
The APA requires that the reviewing court “set aside agency action, findings, and
conclusions” that are “arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law.” 5 U.S.C. § 706(2)(A). For the Secretary’s decisions to be upheld, he
must have “examined the relevant data and articulated a satisfactory explanation for [his] action
including a rational connection between the facts found and the choice made.” Murray Energy
Corp. v. F.E.R.C., 629 F.3d 231, 235 (D.C. Cir. 2011).
Applying this double dose of deference and for the reasons set forth below, I conclude
that the Secretary’s decisions were based on a permissible construction of the Medicare statute
and were neither arbitrary nor capricious.
III.
The Secretary’s decision to enforce longstanding PPS program deadlines and use
Nantucket’s uncorrected data was reasonable and based on a permissible reading of the Medicare
statute. Even without the proposed correction, Baystate received a higher wage index and thus
greater remuneration than it would have received had the Secretary relied on Plaintiffs’ labor
costs alone. Baystate thus received the benefit of a reimbursement “reflecting the relative
hospital wage level in the geographic area of the hospital” as 42 U.S.C. § 1395ww requires. The
appeals process accorded to Baystate by the Department was also based on a permissible reading
9
of 42 U.S.C. § 1395oo, as that statue does not require that one hospital be allowed to contest the
factual submissions of others.
A.
As Baystate admits, Congress has not directly spoken to the precise question at issue
here. Pl.’s MSJ Mem. 13 n.8. In fact, the Medicare Act “expressly affords the Secretary
flexibility and discretion in compiling data and calculating the wage index.” Anna Jacques
Hosp., 797 F.3d at 1164. The statute notes that the Secretary “shall update the [wage index] . . .
on the basis of a survey conducted by the Secretary (and updated as appropriate) of the wages
and wage-related costs” borne by participating hospitals. 42 U.S.C. § 1395ww(d)(3)(E).
Analyzing this language, the D.C. Circuit has concluded that the statute “merely requires the
Secretary to develop a mechanism to remove the effects of local wage differences [and] does not
specify how the Secretary should construct the index.” Anna Jacques Hosp., 797 F.3d at 1164.
It is silent about how the survey must be conducted, the deadlines to be employed, and the extent
to which hospitals should be allowed to submit corrected data responses. And Baystate concedes
that the Secretary “undoubtedly enjoys broad discretion in developing the wage index calculation
process.” Pl.’s Mem. in Opp. to Def.’s Cross-Mot. 2, ECF No. 27. Thus, the only Chevron issue
is whether the Secretary’s exercise of his broad discretion was reasonable.
The Secretary’s explanations for rejecting Nantucket’s corrected data demonstrate the
reasonableness of his decision. The proposed corrections fell “outside the scope of the FY 2017
Wage Index Development Timetable.” J.A. 22. The Department has an interest in “maintaining
the integrity and fairness of the wage index calculation” and has “consistently” emphasized the
importance of meeting the deadlines in each year’s promulgation of the PPS program rules. J.A.
161. Because of the lengthy and complex index development process, and because each
10
hospital’s data impacts the calculations for both its regional index and the national index, it is not
unreasonable for CMS to place the burden on individual hospitals to correct their errors in a
timely manner. Needless to say, hospitals have a strong financial motivation to ensure they are
submitting timely, accurate data. Moreover, were the Secretary to allow Nantucket to correct its
data after the deadline, he would presumably need to allow other hospitals to make similar
corrections. Allowing untimely revisions from hospitals across the country without a firm
deadline could result in substantial delays to the Secretary’s administration of the PPS program.
Creating and strictly adhering to a timetable for the annual wage index thus represents a
permissible implementation of the statutory language.
The Secretary’s refusal to allow other hospitals, like Baystate, to correct Nantucket’s data
was also reasonable and fully in accord with controlling precedent. In Methodist Hospital, a
Sacramento-area hospital submitted inaccurate wage data eventually used to calculate the 1984
wage index. 38 F.3d. at 1228. The error caused the hospital’s actual labor costs to be
understated, and thus lowered the area’s index. Other Sacramento hospitals recognized the error
once the index was published, and appealed to the Board, concerned that the error would lower
their remuneration too. Id. However, the Department “refused to apply the recalculated wage
index retroactively.” Id.
The D.C. Circuit upheld the Department’s decision and granted summary judgment to the
Secretary. It noted that “a change in a single wage index could affect the payment rates
applicable for each hospital” and that under such circumstances “retroactive corrections would
cause a significant, if not debilitating disruption to the Secretary’s administration of the already-
complex Medicare program.” Id. at 1233. The court concluded that it was simply “not arbitrary
and capricious of the Secretary to decide that the administrative burden of recalculating the
11
reimbursement rate for every hospital in a metropolitan area every time any hospital in that area
makes an error in reporting wage data outweighs the increase in accuracy that would result.” Id.
So too here. Baystate’s attempts to distinguish its claims from those raised in Methodist
Hospital are unpersuasive. First, Plaintiffs argue that the wage index assigned to Baystate was
required to reflect a comparison of Massachusetts’ rural wage level to the national average and
that it “reflect[ed] nothing of the sort because it harbors a significant and uncorrected error.”
Pl.’s MSJ Mem. 12. However, Baystate did receive an index reflecting not their lower labor
costs, but the higher costs claimed by Nantucket.
Switching from indices to dollars and cents shows what is at stake. Nantucket’s
uncorrected average hourly wage for 2017 was $43.78. Pl.’s MSJ Mem. 8. Even without the
correction Baystate seeks, this average reflects regional trends. Springfield, Massachusetts, had
an average hourly wage of $41.84, Pittsfield’s average was $44.58, and Worcester’s average was
$47.83. Wage Index Table by CBSA – FY 2016, CENTERS FOR MEDICARE & MEDICAID SERVICES
(“CMS Wage Index Table”) (last visited July 30, 2018),
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/
Downloads/FY2016-CMS-1632-FR-Table-2-3.zip. Baystate’s request to be compensated at
Nantucket’s proposed correction would result in a reimbursement rate of $60.50 per labor hour.
Pl.’s MSJ Mem. 8. This would be a substantial windfall, implying that Baystate’s average
hourly labor costs were greater than those in Boston ($54.88), New York City ($53.67), and Los
Angeles ($51.77). See CMS Wage Index Table. Thus, the assertion that Baystate’s actual
reimbursements failed to reflect regional wage rates is undermined by the region’s labor cost
data.
12
Next, Baystate argues that, even if the Secretary’s decision was reasonable as applied to
Nantucket, it was arbitrary and capricious with respect to Plaintiffs because “Baystate and other
hospitals had no control over or ability to identify errors in [Nantucket’s] cost report.” Pl.’s MSJ
Mem. 15. Moreover, the Secretary’s explanation, Plaintiffs argue, “contains no indication that
the Secretary even considered the impact that [Nantucket’s] errors would have on other hospitals
and whether fairness was served by subjecting them to [Nantucket’s] error.” Id. However, the
administrative record belies this claim.
While it is true enough that Baystate had no control over Nantucket’s cost reporting, the
Secretary weighed the potential unfairness of Baystate’s lack of control against the consequences
of allowing data corrections after the deadline. The Secretary considered the positions of
Baystate, the Massachusetts Health and Hospital Association, and hospitals and associations
from around the country. J.A. 161. He weighed the Massachusetts area hospitals’ interests in
allowing the correction and obtaining a higher reimbursement against the “further lower wage
index values for hospitals nationwide” that would result from raising the state’s rural floor. 3 Id.
He also considered the fairness of allowing untimely corrections given the program’s well-
documented and consequential deadlines. Id. Thus, the Secretary’s proffered explanations do
address the soundness of his decision with respect to third parties like Baystate.
3
Colorfully summarizing the opposition to Nantucket’s requested correction, the Alabama Hospital
Association decried the “Bay State Boondoggle,” noting that “manipulation” of the rural floor policy by
the Massachusetts Hospital Association and its partners has cost Alabama’s hospitals $56.7 million from
2012 – 2016. Similar sentiments were expressed by hospitals and associations from other states. See J.A.
at 52, 99, 119. While rural wage costs would typically be lower than urban costs, Nantucket, which is
situated on a remote holiday island of the rich and famous, has wage costs that exceed those of the priciest
cities in the country. See CMS Wage Index Table. And since Nantucket is fortuitously the only
Massachusetts hospital categorized as “rural,” its rates are imputed to the 15 other Massachusetts
hospitals, to the detriment of out-of-state hospitals. Thanks to the designation of Nantucket as
Massachusetts’ sole rural hospital, in 2012 alone, Massachusetts hospitals received an extra $275 million
in reimbursements, which is about $225 million more than the next highest beneficiary of the rural floor
system—New Jersey. See U.S. Gov't Accountability Off., GAO-13-334, Legislative Modifications Have
Resulted in Payment Adjustments for Most Hospitals 13 (2013).
13
Finally, Baystate contends that the Secretary must use “the most reliable evidence
available” to ensure calculations that are “reasonably accurate.” Pl.’s Mem. in Opp. to Def.’s
Cross-Mot. 5 (citing Baystate Med. Ctr. v. Leavitt, 545 F. Supp. 2d 20, 42-44 (D.D.C. 2008)).
But the Secretary did use the best data available to him within the timelines established by the
PPS program. Moreover, the cases Plaintiffs rely on indicate that the “agency’s duty” is to
“produce figures that can be considered sufficiently accurate.” Baystate Med. Ctr., 545 F. Supp.
2d at 41. See also Methodist Hosp., 38 F.3d at 1230 (holding that when the Department used the
most reliable data available at the time, it was not required to recalculate reimbursements based
on subsequently corrected data); Mt. Diablo Hosp. v. Shalala, 3 F.3d 1226, 1233 (9th Cir. 1993)
(finding that the Department had used the most reliable data available and that it was not
required to recalculate the wage index because the data initially used did not account for part-
time workers). In fact, courts have seemingly required the Department to retroactively include or
exclude certain data only when the Department has, on its own, done so in the past. See, e.g.,
Centra Health, Inc. v. Shalala, 102 F. Supp. 2d 654, 659 (W.D.Va. 2000) (finding that it was
feasible for the Secretary to exclude certain hospital cost data from wage index calculations and
that it was arbitrary not to do so because the Secretary had excluded that data for 1986 and
1996). The Secretary was therefore justified in relying on the reports provided by Nantucket and
other hospitals within the window for submitting and correcting labor cost data.
In summary, the Secretary reasonably exercised his considerable discretion in enforcing
the wage index’s annual deadlines against Nantucket. Moreover, the resulting reimbursement
Baystate received was reasonable given regional labor costs and the Secretary’s interests in
efficiently and fairly administering the PPS program.
14
B.
Baystate contends that the Secretary “flouted the statutory right conferred on providers to
obtain wage index relief from the [Board]” because of his position that a hospital “is entitled to
no relief where [a challenge before the Board] is based on inaccuracies in another hospital’s
data.” Pl.’s MSJ Mem. 18-19. However, nothing in the Medicare statute obligates the Board to
provide such relief, and the Secretary’s interpretation of the statute is reasonable. Section
1395oo(a) of the Medicare Act states that:
Any provider of services which has filed a required cost report within the time
specified in regulations may obtain a hearing with respect to such cost report by a
Provider Reimbursement Review Board (hereinafter referred to as the “Board”)
which shall be established by the Secretary in accordance with subsection (h) and
(except as provided in subsection (g)(2)) any hospital which receives payments in
amounts computed under subsection (b) or (d) of section 1395ww of this title and
which has submitted such reports within such time as the Secretary may require in
order to make payment under such section may obtain a hearing with respect to
such payment by the Board, if such provider . . . is dissatisfied with a final
determination of the Secretary as to the amount of the payment . . . .
42 U.S.C. § 1395oo(a) (emphasis added).
The statute does not mention a hospital’s right to seek relief from the Board based
on erroneous cost reports submitted by another hospital. To the contrary, the statute
appears to allow a hospital to obtain a hearing before the Board only to challenge the cost
reports that it filed. Id. See also Dignity Health, 243 F. Supp. 3d at 53 (noting that the
Department’s 2004 Final Rule “described the process for hospitals to review and revise
their . . . wage data” and the Board’s “focus on a hospital’s ability to challenge its own
wage data”) (emphasis in original). The Secretary’s determination that the Board cannot
grant relief where providers challenge other hospitals’ data is at least permissible under,
if not required by, the plain language of § 1395oo(a).
15
The Secretary’s decision was also reasonable. As discussed above, a change in
one hospital’s data impacts the wage index for every other hospital in its region and,
indeed, for every hospital nationwide. Additionally, the structure of the reimbursement
program means that hospitals have significant financial incentives to ensure that their
own data submissions are accurate. See Methodist Hosp., 38 F.3d at 1233 (discussing the
“serious fiscal repercussions at stake” for hospitals submitting their cost reports). Finally,
because the Board lacked the authority to grant Plaintiffs the relief they seek, it granted
expedited judicial review, allowing Baystate to bring the matter before this Court. Def.’s
Cross-MSJ. Mem. 16. Plaintiffs have therefore not been deprived of a meaningful
opportunity to challenge the use of Nantucket’s uncorrected cost data.
IV.
For the foregoing reasons, the Plaintiffs’ Motion for Summary Judgment will be denied,
and the Secretary’s Cross-Motion for Summary Judgment will be granted. A separate order will
issue.
2018.07.31
15:45:35 -04'00'
Dated: July 31, 2018 TREVOR N. MCFADDEN, U.S.D.J.
16
Baystate Franklin Medical Center v. Price
Combined Opinion