Palisades General Hospital Inc. v. Leavitt

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United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 12, 2005 Decided October 14, 2005

No. 04-5276

PALISADES GENERAL HOSPITAL INC.,
APPELLANT

v.

MICHAEL O. LEAVITT, SECRETARY OF HEALTH
AND HUMAN SERVICES,
APPELLEE

Appeal from the United States District Court
for the District of Columbia
(No. 99cv01230)

Robert L. Roth argued the cause for appellant. With him on
the briefs were Clifton S. Elgarten and Fredrick R. Keith.

Paul E. Soeffing, Attorney, U.S. Department of Health &
Human Services, argued the cause for appellee. With him on the
brief were Peter D. Keisler, Assistant Attorney General, U.S.
Department of Justice, Kenneth L. Wainstein, U.S. Attorney,
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Anthony J. Steinmeyer, Attorney, Alex M. Azar, II, General
Counsel, U.S. Department of Health & Human Services, and
Robert P. Jaye, Acting Associate General Counsel.

Before: GINSBURG, Chief Judge, and SENTELLE and
ROGERS, Circuit Judges.

Opinion for the Court filed by Circuit Judge ROGERS.

ROGERS, Circuit Judge: Palisades General Hospital appeals
the partial denial of summary judgment on its claim for make-
whole relief under the Medicare program. Because the Secretary
of the Department of Health and Human Services failed to make
timely requested corrections to wage data submitted by the
hospital, it received a substantially lower level of reimbursement
and sought to obtain the balance. The hospital contends that the
district court, having found that the Secretary acted arbitrarily
and capriciously in denying the wage data corrections, erred in
failing to exercise its equitable powers to award Palisades an
adjusted reimbursement reflecting reclassification of the hospital
to the New York City Metropolitan Statistical Area. Because the
hospital’s contention misconceives the jurisdiction of the district
court in reviewing the Secretary’s decision and is, in effect, an
attempt to circumvent the statutory bar on judicial review of the
Secretary’s reclassification decisions, we affirm.

I.
A.
The Medicare program was created to pay for certain
specified, or “covered,” medical services provided to eligible
elderly and disabled persons. See Title XVIII of the Social
Security Act, Pub. L. 89-97, 79 Stat. 291 (1965), as amended, 42
U.S.C. § 1395 et seq. (hereafter, “Act” or “Medicare statute”).
Health care providers are reimbursed for a portion of the costs
that they incur in treating Medicare beneficiaries under an
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extremely “complex statutory and regulatory regime.” Good
Samaritan Hosp. v. Shalala, 508 U.S. 402, 404 (1993). Under
the Prospective Payment System (“PPS”), hospitals are paid
predetermined, fixed amounts for the Medicare-covered services
they provide. See 42 U.S.C. § 1395ww(d). The calculation of
PPS payment rates is described in Methodist Hospital of
Sacramento v. Shalala, 38 F.3d 1225, 1227-28 (D.C. Cir. 1994).
Suffice it to say, PPS payment rates are directly correlated with
the so-called “wage index.” 42 U.S.C. § 1395ww(d)(2)(H),
(3)(E). The wage index allows the Secretary to adjust for
regional variations in wage costs by taking into account how the
average hospital wage in an area compares to the national
average hospital wage. 44 Fed. Reg. 11,612, 11,613 (1979); see
also Methodist Hosp., 38 F.3d at 1227.

Reimbursement of a service provider’s costs is made
through a “fiscal intermediary,” a private entity that acts as the
Secretary’s agent. 42 U.S.C. § 1395h(a). At the end of its fiscal
year, a hospital submits to its intermediaries a cost report setting
forth all costs for which it claims reimbursement. 42 C.F.R. §
405.1801(b)(1). Based on these costs and the hospital’s wage
index, the fiscal intermediary calculates the amount of
reimbursement due to the hospital. A hospital that is dissatisfied
with a final determination of the fiscal intermediary or Secretary
may appeal it. Upon compliance with the statutorily imposed
jurisdictional requirements, a hospital may request a hearing
before the Provider Reimbursement Review Board (“PRRB”).
42 U.S.C. § 1395oo(a), (b). The decision of the PRRB is
sometimes subject to further review by the Secretary’s delegate,
the Administrator of the Centers for Medicare & Medicaid
Services (“CMS”). See 42 C.F.R. § 405.1875. The Medicare
statute also authorizes the hospital to request judicial review of
the final decision of the PRRB in federal district court within 60
days of receipt of the final decision. 42 U.S.C. § 1395oo(f)(1).
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Although wage indices are generally set geographically,
Congress determined that this system occasionally produced
inequitable results. See Athens Cmty. Hosp., Inc. v. Shalala, 21
F.3d 1176, 1177 (D.C. Cir. 1994). It therefore created the
Medicare Geographic Classification Review Board (“MGCRB”),
which reviews applications from hospitals seeking geographic
redesignation to a nearby area in order to use that area’s (higher)
wage index. 42 U.S.C. § 1395ww(d)(10); 42 C.F.R. § 412.230-
412.235; Athens, 21 F.3d at 1177. A hospital requesting
reclassification for the purpose of using another area’s wage
index must submit data regarding its average hourly wage that
are drawn from the “hospital wage survey used to construct the
wage index in effect for [PPS] payment purposes during the
fiscal year prior to the fiscal year for which the hospital requests
reclassification.” 42 C.F.R. § 412.230(d)(2)(i)(A). For example,
reclassification decisions for FY 2000 were based on the wage
data used to construct the FY 1999 PPS payment rates. 63 Fed.
Reg. 25,576, 25,585 (May 8, 1998); id. at 25,589. Under the
Act, decisions on applications for geographic reclassification
must be issued under strict time frames. 42 U.S.C. §
1395ww(d)(10)(C)(ii)-(iii). Congress provided that decisions of
the MGCRB may be appealed to the Secretary, but that the
Secretary’s decision regarding appeals from the MGCRB “shall
be final and shall not be subject to judicial review.” 42 U.S.C.
§ 1395ww(d)(10)(C)(iii)(II).

B.
Palisades Hospital, located in North Bergen, New Jersey, is
a provider of services under the Medicare program. As of 1998,
the hospital was a part of the geographic region known as the
Jersey City, New Jersey Metropolitan Statistical Area (“MSA”).
On September 1, 1998, the hospital applied for geographical
reclassification to the New York City MSA for FY 2000. It also
participated in a group application submitted jointly by all of the
hospitals located in the Jersey City MSA seeking redesignation
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to the Bergen-Passaic, New Jersey MSA for FY 2000.

In order to qualify for reclassification to the New York City
MSA for FY 2000, the hospital had to submit wage data to the
MGCRB by September 1, 1998. The hospital therefore needed
to ensure that its wage data were accurate. After February 2,
1998, the start of the wage data correction process, the hospital
filed timely requests for revisions to its wage data, some of
which were denied by its fiscal intermediary. The hospital
unsuccessfully pursued various administrative and judicial
remedies in an effort to obtain all of its desired revisions. In a
letter dated June 10, 1998, the fiscal intermediary informed the
hospital that it would make no further corrections. On February
24, 1999, using the hospital’s unrevised data, the MGCRB
granted the group application for geographic reclassification to
the Bergen-Passaic MSA and dismissed the hospital’s separate
application for reclassification to the New York City MSA.

The hospital sued the Secretary and the MGCRB,
challenging the partial denial of its requests for corrections to the
wage data that were used in the fiscal year 1999 wage index.
The district court found that the hospital had failed to comply
with deadlines set by the Secretary, and the hospital appealed.
Following a remand for consideration of the merits, see
Palisades Gen. Hosp., Inc. v. Thompson, No. 03-5139, 2004 U.S.
App. LEXIS 5 (D.C. Cir. Jan. 2, 2004), the district court partially
granted and partially denied the parties’ cross-motions for
summary judgment. The district court found that the Secretary
acted arbitrarily and capriciously in denying the hospital’s
disputed wage data correction requests, and that its wage data
index should be revised and its Medicare reimbursement
recalculated in light of the change. The district court also
determined that its decision did not entitle the Hospital to have
its individual geographic reclassification application
reconsidered, regarding review as precluded by the Secretary’s
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“no adjustment” policy, under which the Secretary will not
consider revised wage data for purposes of revisiting past
adjudications of requests for geographic reclassification. See 60
Fed. Reg. 45,778, 45,795-96 (Sept. 1, 1995).

The hospital again appeals. Our review of the district
court’s denial of summary judgment is de novo, Transitional
Hosps. Corp. of La. v. Shalala, 222 F.3d 1019, 1023 (D.C. Cir.
2000), while our review under 42 U.S.C. § 1395oo(f)(l) of the
Secretary’s decision denying relief based on corrected wage data
is limited to determining whether it is “arbitrary, capricious, an
abuse of discretion, or otherwise not in accordance with law.” 5
U.S.C. § 706(2)(A). See Methodist Hosp., 38 F.3d at 1229; see
also Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512
(1994).

II.
The hospital contends that the district court erred by
declining to grant it full relief by restoring it to the position it
would have occupied had the Secretary corrected its wage data
before the MGCRB issued its reclassification decisions. The
hospital maintains that the scope of relief is a judicial
determination and that “the natural and ordinary relief” to be
ordered in setting aside an agency action is to direct the agency
to ensure that the claimant is afforded the same outcome that
would have followed if the agency had acted correctly.
Specifically, the hospital contends it is entitled to make-whole
relief including an adjusted reimbursement reflecting the sum it
would have received had it been reclassified to the New York
City MSA.

At the outset, the hospital’s contention is based on a flawed
premise. The district court had no jurisdiction to order specific
relief. Unlike a district court managing a “garden variety civil
suit,” a district court reviewing a final agency action “‘does not
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perform its normal role’ but instead ‘sits as an appellate
tribunal.’” County of Los Angeles v. Shalala, 192 F.3d 1005,
1011 (D.C. Cir. 1999) (quoting PPG Indus., Inc. v. United States,
52 F.3d 363, 365 (D.C. Cir. 1995)). Thus, “‘under settled
principles of administrative law, when a court reviewing agency
action determines that an agency made an error of law, the
court’s inquiry is at an end: the case must be remanded to the
agency for further action consistent with the correct legal
standards.’” Id. Accordingly, the district court had jurisdiction
only to vacate the Secretary’s decision rejecting the hospital’s
revised wage data and to remand for further action consistent
with its opinion. It did not, as the hospital contends, have
jurisdiction to order either reclassification based upon those
adjusted wage data or an adjusted reimbursement payment that
would reflect such a reclassification. See id.

Furthermore, the Medicare statute bars the specific relief
requested. The Act provides that the decision of the Secretary on
reclassification decisions “shall be final,” and “shall not be
subject to review.” 42 U.S.C. § 1395ww(d)(10)(C)(iii)(II). The
plain text of the Act alone is enough to affirm the district court’s
decision because a hospital is not entitled to seek review to
overturn a reclassification decision of the Secretary once that
decision becomes final. Robert Wood Johnson Univ. Hosp. v.
Thompson, 297 F.3d 273, 286 n.6 (3d Cir. 2002); Jordan Hosp.,
Inc. v. Shalala, 276 F.3d 72, 77 (1st Cir. 2002); ParkView Med.
Assocs. v. Shalala, 158 F.3d 146, 148 (D.C. Cir. 1998); Skagit
County Pub. Hosp. Dist. No. 2 v. Shalala, 80 F.3d 379, 385 (9th
Cir. 1996). The hospital has not pointed to anything in the
statute or legislative history to demonstrate otherwise. There is
no jurisdiction, therefore, either to order the Secretary to
reconsider his reclassification decision or to direct a
reimbursement payment that would reflect such a
reclassification.
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As the hospital would have it, its appeal involves review of
a wage data correction request rather than a geographic
reclassification decision. Pointing to 42 C.F.R. §§ 412.266 &
412.274, the hospital maintains that the MGCRB does not have
authority to recalculate the wage index but must accept the wage
index determinations provided to it, and concludes that therefore
court-ordered corrections to the wage index logically should
result in corrections to the reclassification decision. Its
contention that Congress’s provision for judicial review of wage
data indicates that Congress could not have intended to prevent
courts from correcting injustices arising from the use of incorrect
wage data neglects to consider the rationale for finality noted by
the court in Methodist Hospital, 38 F.3d at 1233. There the court
concluded that “it was not arbitrary and capricious of the
Secretary to decide that the administrative burden of
recalculating the 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. (quotations omitted).
The court observed that because, under the PPS payment
system, “each wage index is used to develop the base national
rate as well as to adjust that rate by region, a change in any
single wage index can affect the reimbursement rate of each
hospital in the country.” Id. at 1228. So too here, the Secretary
has weighed competing interests in finality and accuracy and has
arrived at a policy that is substantially buttressed by Congress’s
decision to mandate the finality of reclassification decisions.
The Ninth Circuit held in a similar case that “although [the
hospital] focuses on an intermediate process [the wage correction
process] and the fringe benefit determinations, what [the
hospital] really wants is for the court to overturn the final
reclassification decision. Such judicial action is not permissible
under the Medicare statutory scheme.” Skagit County Pub.
Hosp., 80 F.3d at 386.
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Furthermore, the hospital’s view of legislative intent is
inconsistent with the statutory structure. The hospital views it as
impossible that Congress would render a reclassification decision
non-reviewable when it is made on the basis of erroneous wage
data, especially when the blame for the errors lies at the
Secretary’s doorstep. Again, that determinations related to wage
index are subject to judicial review pursuant to 42 U.S.C. §
1395oo(f)(1) does not mean that Congress intended for
geographic reclassification also to be judicially reviewable on the
basis of court-corrected data. This distinction between
“ordinary” reimbursement and reclassification is supported by
the fact that Congress provided separately for applications
seeking geographic reclassification through the MGCRB, 42
U.S.C. § 1395ww(d)(10)(C)(ii), (D)(i). As the Secretary
explains, before Congress’s creation of the MGCRB, the hospital
wage data were important only for purposes of figuring the area
wage indices used in calculating the amount of a hospital’s per-
discharge reimbursement. After the creation of the MGCRB,
however, the data used to construct the wage index also became
important for purposes of determining whether a hospital could
obtain geographic reclassification for wage index purposes. The
fact that two different determinations share a common input - the
wage data - does not imply that the judicial review and remedial
authority available for one determination must carry over to the
other.

The hospital’s reliance on ParkView, 158 F.3d 146, is
misplaced. The court stated in that case that “[j]udicial review
of the denial [of a reclassification decision] itself is barred...
[b]ut this bar leaves hospitals free to challenge the general rules
leading to denial.” 158 F.3d at 148 (emphasis added). As the
Ninth Circuit has recognized, however, when a procedure is
challenged solely in order to reverse an individual
reclassification decision, judicial review is not permitted. Skagit,
80 F.3d at 386. The proposition that hospitals may challenge the
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general rules leading to denial is therefore inapplicable here,
where the hospital’s challenge is no more than an attempt to
undo an individual denial of reclassification.

Accordingly, we affirm the order denying in part the
hospital’s motion for summary judgment. We therefore need not
and do not reach the hospital’s contention that the district court
erred in its alternative ruling that the Secretary properly could
decline make-whole relief relying on its unpublished practice to
act on group applications for reclassification prior to individual
applications.