Citrus Hma, LLC v. Azar

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

CITRUS HMA, LLC, d/b/a SEVEN RIVERS
REGIONAL MEDICAL CENTER, et al.

Plaintiffs,
v. Civil Action No. 20-707 (CKK)

XAVIER BECERRA, Secretary of U.S.
Department of Health and Human Services, 1
Defendant.

MEMORANDUM OPINION
(April 8, 2022)

Thirty-four hospitals located in urban areas of Arizona, Connecticut, and Florida

(“Plaintiffs”) bring this action under the Administrative Procedure Act (“APA”) against Secretary

of Health and Human Services Xavier Becerra (“Defendant” or “the Secretary”). Plaintiffs

contend that they were reimbursed at lower rates than “rural” hospitals in their respective states in

FY 2020, in violation of the Medicare statute. Pending before this Court are Plaintiffs’ [23] Motion

for Summary Judgment and Defendant’s [26] Cross-Motion for Summary Judgment and

Opposition to Plaintiffs’ Motion for Summary Judgment. Upon consideration of the pleadings, 2

the relevant legal authorities, and for the reasons below, the Court finds that the Medicare statute

1
Pursuant to Federal Rule of Civil Procedure 25(d), the Court automatically substitutes Xavier Becerra, Secretary of
the U.S. Department of Health and Human Services.
2
The Court’s consideration has focused on the following documents:
• Plaintiffs’ Motion for Summary Judgment (“Pls.’ Mot.”), ECF No. 23;
• Defendant’s Cross-Motion for Summary Judgment and Opposition to Plaintiffs’ Motion for Summary
Judgment (“Def.’s Cross-Mot. & Opp’n”), ECF No. 26;
• Plaintiffs’ Reply in Support of Plaintiffs’ Motion for Summary Judgment and Opposition to Defendant’s
Cross-Motion for Summary Judgment (“Pls.’ Reply & Opp’n”), ECF No. 28; and
• Defendant’s Reply in Support of Defendant’s Cross-Motion for Summary Judgment (“Def.’s Reply), ECF
No. 30.
In an exercise of its discretion, the Court finds that holding oral argument in this action would not be of assistance in
rendering a decision. See LCvR 7(f).

1
unambiguously bars the methodology employed by the Secretary in FY 2020, which resulted in

Plaintiffs being reimbursed at lower rates than rural hospitals in their same states. Accordingly,

the Court shall grant in part Plaintiffs’ Motion for Summary Judgment, but shall remand this action

to the Secretary for further proceedings consistent with this Memorandum Opinion without

vacating the Secretary’s rule. The Court shall deny Defendant’s Cross-Motion for Summary

Judgment.

I. BACKGROUND

A. Statutory and Regulatory Background

The Medicare statute, Title XVII of the Social Security Act, provides healthcare coverage

and insurance for the elderly and disabled. 42 U.S.C. § 1395, et seq. The Center for Medicare &

Medicaid Services (“CMS”) administers the Medicare program on behalf of the Secretary.

Through the Medicare program, the federal government reimburses healthcare providers for

hospital inpatient services at predetermined rates, known as the inpatient prospective payment

system (“IPPS”). The methodology for calculating these rates is prescribed by 42 U.S.C.

§ 1395ww(d). Under IPPS, hospitals are paid a fixed, predetermined amount depending on a

patient’s category of illness—rather than for the actual costs incurred for a particular patient’s care.

See Anna Jacques Hosp. v. Burwell, 797 F.3d 1155, 1157–58 (D.C. Cir. 2015) (“[IPPS] reimburses

hospitals for medical care requiring at least one night’s stay on the basis of a preestablished

formula, regardless of the actual costs incurred by the hospital.”). These categories are referred to

as “diagnostic-related groups” (“DRGs”). See 42 U.S.C. § 1395ww(d)(2)(G); Methodist Hosp. of

Sacramento v. Shalala, 38 F.3d 1225, 1227 (D.C. Cir. 1994). CMS assigns a weight for each DRG

reflecting how the cost of treating such diagnosis compares to the costs of treating the average

inpatient. See 42 U.S.C. § 1395ww(d)(4)(B); Anna Jacques Hosp., 797 F.3d at 1158. The more

2
expensive the treatment for a DRG is relative to the average Medicare inpatient, the greater the

weight assigned to that DRG. Final payments under IPPS are calculated by multiplying the

patient’s DRG weight by a standardized amount equivalent to the cost of treating the average

patient. 42 U.S.C. § 1395ww(d)(3)(D)(iii).

1. Wage Index Adjustment

Because a significant portion of a hospital’s costs are attributable to wages and labor

costs—which vary widely among geographic areas—the Secretary is required to adjust IPPS rates

to account for these differences through a “wage index adjustment.” 42 U.S.C. §

1395ww(d)(3)(E); see also Anna Jacques Hosp., 797 F.3d at 1157 (“To help compensate for those

disparities, the Medicare Act charges the Secretary of Health and Human Services with computing

annually a ‘wage index’ that compares hospital wages within defined geographic areas to a national

average, and adjusts Medicare reimbursements accordingly.”). Because, as a general matter, labor

costs tend to be higher in “urban” areas than in “rural” areas, see, e.g., Def.’s Cross-Mot. & Opp’n

at 6, the wage index adjustment ensures that “urban” hospitals are not undercompensated for their

services and that “rural” hospitals are not overcompensated. Specifically, the statute provides:

[T]he Secretary shall adjust the proportion, (as estimated by the
Secretary from time to time) of hospitals’ costs which are
attributable to wages and wage-related costs, of the DRG
prospective payment rates computed under subparagraph (D) for
area differences in hospital wage levels by a factor (established by
the Secretary) reflecting the relative hospital wage level in the
geographic area of the hospital compared to the national average
hospital wage level.

42 U.S.C. § 1395ww(d)(3)(E)(i). The “factor” is equivalent to the “wage index,” which is a

comparison of the average hospital wages in a particular geographic area to the national average

hospital wage. Anna Jacques Hosp., 797 F.3d at 1158.

3
 For the purposes of the wage index, there are two types of geographic locations: “urban”

and “rural.” 42 C.F.R. § 412.64(h). An “urban” area is a Metropolitan Statistical Area (“MSA”),

as defined by the Office of Management and Budget. 42 U.S.C. § 1395ww(d)(2)(D); see also 42

C.F.R. § 412.64(b)(1)(ii)(A). The Secretary calculates a distinct wage index adjustment for each

“urban” area in the country. See, e.g., 79 Fed. Reg. 49,854-01, 49,951 (Aug. 22, 2014). In this

Memorandum Opinion, the Court shall refer to hospitals located in “urban” areas as “urban

hospitals.” “Rural” areas are any areas outside of an urban area. 42 U.S.C. § 1395ww(d)(2)(D);

see also 42 C.F.R. § 412.64(b)(1)(ii)(C). Instead of calculating a distinct wage index adjustment

for each rural area (as is the case with urban areas), the Secretary calculates only one rural wage

index adjustment for each state. See, e.g., 69 Fed. Reg. 48,916-01, 49,026 (Aug. 11, 2004). The

Court shall refer to hospitals located in “rural” areas as “rural hospitals.” As an example, in a state

with two distinct “urban” areas, an “urban wage index” specific to each area would apply to “urban

hospitals,” whereas the “rural wage index” would apply to all remaining hospitals in the same

state—the “rural hospitals.”

The Secretary updates the area wage indexes annually by conducting a survey of wage and

hour data of all Medicare-participating IPPS hospitals nationally. 42 U.S.C.§ 1395ww(d)(3)(E)(i).

2. Rural Reclassification

In the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999

(“BBRA”), Congress created a mechanism through which urban hospitals can apply to be treated

as if they were located within a state’s “rural” area for purposes of IPPS payments. BBRA, Pub.

L. 106-113, § 401, 113 Stat. 1501, 1501A–321 (codified as 42 U.S.C. § 1395ww(d)(8)(E)). In

4
effect, this “rural reclassification” transforms an otherwise urban hospital into a rural one.

Specifically, the statute provides

For purposes of this subsection [IPPS], not later than 60 days after
the receipt of an application (in a form and manner determined by
the Secretary) from a subsection (d) hospital described in clause (ii),
the Secretary shall treat the hospital as being located in the rural
area (as defined in paragraph (2)(D)) of the State in which the
hospital is located.

42 U.S.C. § 1395ww(d)(8)(E)(i) (emphasis added). If an urban hospital satisfies the criteria

specified by clause (ii), 3 that hospital is treated as if it were “located within the rural area” of the

relevant state for purposes of IPPS payments. Id. For clarity, the Court shall refer to such eligible

“urban hospitals” that have elected to be treated as if they are “rural hospitals” as “reclassified

urban-to-rural hospitals.”

In calculating the rural wage index of a particular state, the Secretary includes wage data

from both rural hospitals and reclassified urban-to-rural hospitals. See, e.g., 42 C.F.R.

§ 412.103(b)(6) (addressing timing requirements for reclassified hospitals to be included in the

rural wage index calculations). Because reclassified urban-to-rural hospitals tend to have higher

labor costs than rural hospitals, including wage data from reclassified urban-to-rural hospitals in

calculating the rural wage index typically increases the rural wage index as compared to a rural

wage index based on rural hospitals alone.

3
Clause (ii) of 42 U.S.C. § 1395ww(d)(8)(E) provides:
For purposes of clause (i), a subsection (d) hospital described in this clause is a subsection (d)
hospital that is located in an urban area (as defined in paragraph (2)(D)) and satisfies any of the
following criteria:
(I) The hospital is located in a rural census tract of a metropolitan statistical area (as determined
under the most recent modification of the Goldsmith Modification, originally published in the
Federal Register on February 27, 1992 (57 Fed. Reg. 6725)).
(II) The hospital is located in an area designated by any law or regulation of such State as a rural
area (or is designated by such State as a rural hospital).
(III) The hospital would qualify as a rural, regional, or national referral center under paragraph
(5)(C) or as a sole community hospital under paragraph (5)(D) if the hospital were located in a rural
area.
(IV) The hospital meets such other criteria as the Secretary may specify.

5
 3. Rural Floor Provision

As part of the Balanced Budget Act of 1997 (“BBA”), Congress enacted the so-called

“rural floor” provision in response to finding “[a]n anomaly” in area wage indexes where some

urban hospitals were being “paid less than the average rural hospital in their state[].” Balanced

Budget Act of 1997, Pub. L. 105-33, § 4410, 111 Stat. 251 (uncodified as 42 U.S.C. § 1395ww

NOTE); H.R. Rep. No. 105-149, at 1305 (1997). This provision was designed to correct this

anomaly by establishing what is known as the “rural floor”—which sets the rural wage index for

a particular state for which urban hospital wage indexes in that state cannot go below. Specifically,

the rural floor provision states:

For purposes of section 1886(d)(3)(E) of the Social Security Act (42
U.S.C. 1395ww(d)(3)(E)) . . . the area wage index applicable under
such section to any hospital which is not located in a rural area (as
defined in section 1886(d)(2)(D) of such Act (42 U.S.C.
1395ww(d)(2)(D)) may not be less than the area wage index
applicable under such section to hospitals located in rural areas in
the State in which the hospital is located.

BBA § 4410(a) (42 U.S.C. § 1395ww NOTE) (emphases added). In other words, no urban hospital

can receive a wage index below the rural wage index of the same state. For example, if a state’s

rural wage index is 0.9, the rural floor provision operates to ensure that no urban wage index can

fall below 0.9. Additionally, the Secretary is required to implement the rural floor in a budget-

neutral manner so that IPPS payments “are not greater or less than those which would have been

made” in that particular fiscal year had the rural floor provision not been applied. Id. § 4410(b).

B. Factual Background

The Secretary annually publishes in the Federal Register proposed changes to IPPS polices

and applicable rates for the upcoming fiscal year. See 42 U.S.C. § 1395ww(e)(5); 42 C.F.R. §

412.8. Typically, the Secretary issues a Proposed Rule “identifying all changes that he proposes

6
to make, based on statutory amendments as well as the Secretary’s ‘continuing experience’ with

the IPPS.” Def.’s Cross-Mot. & Opp’n at 10 (quoting 84 Fed. Reg. 19,158, 19,158 (May 3, 2019)).

Prior to the proposed FY 2020 rule, the Secretary had calculated the “rural floor” as

equivalent to the “rural wage index”—including data from both rural hospitals and reclassified

urban-to-rural hospitals in the determination of the rural wage index (and therefore the rural floor).

See Def.’s Cross-Mot. & Opp’n at 10; Pls.’ Mot. at 10. However, for FY 2020, the Secretary

proposed modifying the method for calculating the “rural floor” by omitting reclassified urban-to-

rural hospitals from the calculation of the rural floor. See 84 Fed. Reg. at 19,162–63. However,

these reclassified urban-to-rural hospitals would still be included in determining the rural wage

index. See id. at 19,397–98 (explaining that reclassified hospital data would be used for calculation

of the rural wage index but not the rural floor). In sum, the Secretary proposed to create two

separate rural wage indexes, one for purposes of determining the rural floor (excluding reclassified

urban-to-rural hospitals) and the other for general rural wage index IPPS reimbursement purposes

(including reclassified urban-to-rural hospitals). As urban-to-rural reclassified hospitals tend to

have higher wages than rural hospitals in a particular state, removing such reclassified hospitals

from the calculation of the rural floor has the effect of decreasing the rural floor and thereby

reducing the minimum reimbursement rate for urban hospitals.

The Secretary explained that the purpose of this revised methodology was to mitigate wage

index disparities caused by the inclusion of rural reclassified hospitals raising a state’s rural wage

index and applicable rural floor. 84 Fed. Reg. 42,044-01, 42,333 (Aug. 16, 2019). The Secretary

further explained that “the rural floor policy was meant to address anomalies of some urban

hospitals being paid less than the average rural hospital in their States, not to raise the payments

of many hospitals in a State to the high wage level of a geographically urban hospital.” Id. at

7
42,332. Such “urban to rural reclassifications,” the Secretary opined, “have stretched the rural

floor provision beyond a policy designed to address such anomalies,” and “the inclusion of

reclassified hospitals in the rural floor calculation has had the unforeseen effect of exacerbating

the wage index disparities between low and high wage index hospitals.” Id. at 42,333. “[W]e

believe an adjustment is necessary to address the unanticipated effects of urban to rural

reclassifications on the rural floor and the resulting wage index disparities, including the

inappropriate wage index disparities caused by the manipulation of the rural floor policy by some

hospitals.” Id. In support of this change, the Secretary explained that “the rural floor statute does

not specify how the rural floor wage index is to be calculated or what data are to be included in

the calculation” nor does the rural reclassification statute “specify where the wage data of

reclassified hospitals must be included.” Id.

The Secretary employed this new methodology for calculating each state’s “rural floor” for

the first time in FY 2020. Id. In several states, the new formula resulted in a rural floor that was

lower than the rural wage index. See Pls.’ Mot. at 11. Consequently, some urban hospitals were

assigned wage indexes below the relevant rural wage index but either at or above the (lower) rural

floor. See id. Plaintiffs in this action are thirty-four urban hospitals located in Arizona,

Connecticut, and Florida that received lower wage indexes than the applicable rural wage index in

their particular state based on the Secretary’s methodology for FY 2020. See id. at 13.

In February 2020, Plaintiffs filed six separate appeals before the Provider Review

Reimbursement Board (“PRRB”), an administrative body located within the Department of Health

and Human Services with authority to hear Medicare reimbursements disputes, arguing that the

Secretary had assigned Plaintiffs lower wage indexes than allowed under the Medicare statute. See

id.; Def.’s Cross-Mot. & Opp’n at 13. Because the PRRB determined that it lacked “authority to

8
decide the legal question of whether the Uncodified Regulation of Rural Reclassification as

published in the FY 2020 IPPS final rule is valid,” it granted Plaintiff’s expedited judicial review

allowing Plaintiffs to bring suit in federal district court. Def.’s Cross-Mot. & Opp’n at 13.

Plaintiffs then commenced this action. The parties have now cross-moved for summary judgment.

II. LEGAL STANDARD

Under Rule 56(a) of the Federal Rules of Civil Procedure, “[t]he court shall grant summary

judgment if the movant shows that there is no genuine dispute as to any material fact and the

movant is entitled to judgment as a matter of law.” However, “when a party seeks review of

agency action under the APA [before a district court], the district judge sits as an appellate tribunal.

The ‘entire case’ on review is a question of law.” Am. Bioscience, Inc. v. Thompson, 269 F.3d

1077, 1083 (D.C. Cir. 2001). Accordingly, “the standard set forth in Rule 56[ ] does not apply

because of the limited role of a court in reviewing the administrative record . . . . Summary

judgment is [ ] the mechanism for deciding whether as a matter of law the agency action is

supported by the administrative record and is otherwise consistent with the APA standard of

review.” Southeast Conference v. Vilsack, 684 F. Supp. 2d 135, 142 (D.D.C. 2010).

The APA “sets forth the full extent of judicial authority to review executive agency action

for procedural correctness.” FCC v. Fox Television Stations, Inc., 556 U.S. 502, 513 (2009). It

requires courts to “hold unlawful and set aside agency action, findings, and conclusions” that are

either “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” or

“in excess of statutory jurisdiction, authority, or limitations, or short of statutory right.” 5 U.S.C.

§ 706(2)(A), (C). “This is a ‘narrow’ standard of review as courts defer to the agency’s expertise.”

Ctr. for Food Safety v. Salazar, 898 F. Supp. 2d 130, 138 (D.D.C. 2012) (quoting Motor Vehicle

Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)). However, an

9
agency is still required to “examine the relevant data and articulate a satisfactory explanation for

its action including a rational connection between the facts found and the choice made.” Motor

Vehicle Mfrs. Ass’n, 463 U.S. at 43 (internal quotation omitted). “Moreover, an agency cannot

‘fail[ ] to consider an important aspect of the problem’ or ‘offer[ ] an explanation for its decision

that runs counter to the evidence’ before it.” Dist. Hosp. Partners, L.P. v. Burwell, 786 F.3d 46,

57 (D.C. Cir. 2015) (quoting Motor Vehicle Mfrs. Ass’n, 463 U.S. at 43).

An agency’s construction of a statute it administers is reviewed under the familiar two-step

framework set forth in Chevron, U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S.

837 (1984). When deciding whether to apply Chevron deference, initially, the Court must ask

whether “Congress has directly spoken to the precise question at issue.” If so, “the court, as well

as the agency, must give effect to the unambiguously expressed intent of Congress.” Chevron,

467 U.S. at 842–43. However, if “the statute is silent or ambiguous with respect to the specific

issue, the question for the court is whether the agency’s answer is based on a permissible

construction of the statute.” Id. As long as the agency’s interpretation is “reasonable and

consistent with the statute’s purpose,” the Court must defer to the agency’s interpretation.

Chemical Mfrs. Ass’n v. EPA, 217 F.3d 861, 866 (D.C. Cir. 2000).

“[I]n framing the scope of review, the court takes special note of the tremendous

complexity of the Medicare statute. That complexity adds to the deference which is due to the

Secretary's decision.” Methodist Hosp. of Sacramento, 38 F.3d at 1229; see also Thomas Jefferson

Univ. v. Shalala, 512 U.S. 504, 512 (1994) (“The broad deference of Chevron is even more

appropriate in cases that involve a ‘complex and highly technical regulatory program,’ such as

Medicare, which ‘require[s] significant expertise and entail[s] the exercise of judgment grounded

in policy concerns.’”).

10
 III. DISCUSSION

A. The Secretary’s FY 2020 Methodology Is Inconsistent with the Rural Floor Provision of
the Medicare Statute.

Plaintiffs argue that the Secretary has violated the plain text of the Medicare Act by

calculating a rural floor that is different from the rural wage index. According to Plaintiffs, the

rural floor provision of the statute, 42 U.S.C. § 1395ww NOTE, unambiguously requires the

Secretary to calculate a rural wage index using wage data from both geographically rural and

reclassified urban-to-rural hospitals, and then to set the rural floor at that wage index level.

Plaintiffs contend that the methodology adopted by the Secretary for FY 2020 violates the statute

because the Secretary separately calculated a “rural floor” that excluded urban-to-rural reclassified

hospitals. In response, the Secretary argues that the relevant statutory language is ambiguous as

to how the Secretary should calculate the rural floor and how data from urban-to-rural reclassified

hospitals must be used. Further, the Secretary argues that his interpretation of the statutory

language—excluding reclassified urban-to-rural from the rural floor calculation—is reasonable

and therefore deserving of deference from this Court.

To evaluate Plaintiffs’ claim that the Secretary’s methodology for calculating the “rural

floor” for FY 2020 is inconsistent with the statute, the Court must first apply the “ordinary tools

of statutory construction” to determine “whether Congress has directly spoken to the precise

question at issue.” Chevron, 467 U.S. at 842. “If the intent of Congress is clear, that is the end of

the matter; for the court, as well as the agency, must give effect to the unambiguously expressed

intent of Congress.’” City of Arlington v. F.C.C., 569 U.S. 290, 296 (2013) (quoting Chevron, 467

U.S. at 842–43). But if “the statute is silent or ambiguous with respect to the specific issue . . .

[the Court] move[s] to the second step and defer[s] to the agency’s interpretation as long as it is

based on a permissible construction of the statute.” Noramco of Del., Inc. v. DEA, 375 F.3d 1148,

11
1152–53 (D.C. Cir. 2004) (internal citations and quotation marks omitted). “If a statute is

ambiguous, and if the implementing agency’s construction is reasonable, Chevron requires a

federal court to accept the agency’s construction of the statute, even if the agency’s reading differs

from what the court believes is the best statutory interpretation.” Nat’l Cable & Telecomms. Ass’n

v. Brand X Internet Servs., 545 U.S. 967, 980 (2005).

Here, Plaintiffs contend that the Court need only address the first step of Chevron, arguing

that the Medicare Act unambiguously forbids the Secretary from first calculating a wage index for

purposes of establishing the rural floor, excluding wage data from urban hospitals that have been

reclassified as rural, and then calculating a separate rural wage index for the purpose of

reimbursement of rural hospitals, inclusive of the data of reclassified urban-to-rural hospitals. 4 See

Pls.’ Mot. at 14–22. The Court agrees with Plaintiffs and therefore addresses only the first step of

Chevron.

The Court begins with the language of the relevant statutes. See Consumer Prod. Safety

Comm’n v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980) (“We begin with the familiar canon of

statutory construction that the starting point for interpreting a statute is the language of the statute

itself.”). As quoted above, the rural floor provision directs that for “purposes of” the wage index

provision, 42 U.S.C. § 1395ww(d)(3)(E), the “area wage index applicable under such section to

any hospital which is not located in a rural area . . . may not be less than the area wage index

applicable under such section to hospitals located in rural areas in the State in which the hospital

is located.” 42 U.S.C. § 1395ww NOTE. The plain language provides that the urban area wage

4
Defendant frames the issue slightly differently, suggesting instead that the central question is whether the statute
unambiguously requires the Secretary to include the data from reclassified urban-to-rural hospitals when calculating
the rural floor. But this framing assumes as true the very thing in dispute in this case: whether the statute provides for
a separate and independent calculation of the rural floor. Because the antecedent question of whether the Medicare
statute speaks to the calculation of a rural floor separate from that of the rural wage index must first be answered, the
Court declines to accept Defendant’s framing.

12
index cannot be less than “the area wage index applicable under such section [42 U.S.C.

§ 1395ww(d)(3)(E)]” to rural hospitals. The statute’s use of the word “the” in the phrase “the area

wage index” indicates that Congress contemplated that there would be one wage index for rural

hospitals for each state. But under the Secretary’s proffered construction, there are effectively

now two rural wage indexes for each state, in contravention of the statute. Nothing in the statutory

texts supports Defendant’s argument that the Secretary may calculate a rural wage index solely for

purposes of determining the rural floor. Indeed, the statute does not speak to any rural wage index

calculation whatsoever. 5 At most, the statute constrains how the urban wage index must be

calculated by setting a minimum below which the urban wage index cannot fall. But it does not

follow that the statutory language independently allows for a novel calculation of the rural wage

index or affects the rural wage index in any way.

Moreover, the rural floor statute directly references the rural wage index calculated by the

Secretary: “the area wage index applicable under such section.” 42 U.S.C. § 1395ww NOTE

(emphasis added). For rural hospitals, there is only one “area wage index applicable under [42

U.S.C. § 1395ww(d)(3)(E)]”—the one calculated by the Secretary for purposes of that section. If

Congress had intended the Secretary to calculate anew the rural wage index for purposes of

establishing the rural floor, then the explicit language linking the wage index used for the rural

floor to the same rural wage index otherwise calculated for reimbursement purposes under

§ 1395ww(d)(3)(E) contradicts such a reading. The more natural reading is that a rural wage index

is calculated pursuant to § 1395ww(d)(3)(E) and the rural floor provision then takes that number

and sets that as the floor for which the urban wage index cannot go below. In simpler terms, as

5
A statute providing only that “A must be greater than or equal to B” certainly does not determine how to calculate B
or suggest that B may be calculated in a manner differently than that provided by a separate statute explaining how to
calculate B.

13
Plaintiffs put it: “Since the rural wage index is, by definition, the ‘wage index applicable to

hospitals located in rural areas [of the] State,’ it must also set the rural floor.” Pls.’ Mot. at 16. To

hold otherwise would be to say that the language does not mean what it plainly says.

Defendant maintains that the word “applicable” as used in the rural floor provision “has a

broader meaning . . . leaving open the possibility that the Secretary may calculate a wage index

value applicable to geographically rural hospitals . . . for setting the rural floor, but ultimately

decide to assign or award rural hospitals a higher wage index value that is calculated using the

wage data of both [geographically] rural hospitals and urban-to-rural reclassified hospitals.”

Def.’s Reply at 5. According to Defendant, “applicable,” means “capable of being applied” and

“does not necessarily mean actually applied” or “assigned” or “awarded.” Id. The Secretary

argues that this definition affords discretion to calculate separately the rural floor from the rural

wage index because there could be more than one wage index “applicable under [the statute].” Id.

Such a construction of the statutory language is in tension with the plain meaning of the

language as a whole. The phrase “applicable under such section [42 U.S.C. § 1395ww(d)(3)(E)]”

modifies the phrase “the area wage index.” Without the phrase “applicable under such section,”

the reader is left guessing as to what the “area wage index” is and where to find it. That clause

connects the rural floor provision to the rural wage index. It, therefore, makes little sense to believe

that Congress, despite referencing the wage index, meant for the Secretary to disregard the wage

index as calculated under § 1395ww(d)(3)(E), and instead calculate a different index using

different criteria.

As to the word “applicable,” the text indicates that term is being used in the sense of

relevant, pertinent, or germane. That is, to determine the rural floor, the Secretary must use the

14
“applicable” or relevant area wage index as determined in 42 U.S.C. § 1395ww(d)(3)(E). 6 There

is no room in the statutory language for a free-floating area wage index that is calculated for rural

floor purposes without regard for the area wage index calculated pursuant to § 1395ww(d)(3)(E).

To construe the language otherwise would be to render a whole phrase of the statutory text without

meaning. See Mertens v. Hewitt Assocs., 508 U.S. 248, 258 (1993) (“We will not read the statute

to render the modifier superfluous”); Dole Food Co. v. Patrickson, 538 U.S. 468, 476–77 (2003)

(“[W]e should not construe the statute in a manner that . . . would render a statutory term

superfluous.”).

Defendant correctly notes that certain provisions of the Medicare Act relevant here do

contain ambiguities and allow the Secretary discretion in certain regards. For example, this Circuit

has held as ambiguous the language in 42 U.S.C. § 1395ww(d)(3)(E) concerning the exact method

of calculating the area wage indexes, allowing the Secretary wide latitude in determining how to

calculate the applicable indexes. See Anna Jacques Hosp., 797 F.3d at 1164–65 (citing Bellevue

Hosp. Ctr. v. Leavitt, 443 F.3d 163, 175 (2d Cir. 2006)). But cf. Bellevue Hosp. Ctr., 443 F.3d at

174 (“[The Secretary’s] task is unambiguous: to calculate a factor that reflects geographic-area

wage-level differences, and nothing else.”). But, even accepting the Secretary’s authority to

determine the precise manner by which the area wage indexes are calculated does not answer the

question posed here: whether the Secretary may separately calculate an index for the rural floor

that is methodologically distinct from the rural wage index. Merely relying, as the Secretary does,

on the observation that the Medicare statute is large and complex and has a number of ambiguous

6
To further illustrate this point, imagine a linguistically similar statute that specifies that a court is to give to a winning
plaintiff a “fee applicable under such section [referring to a statutory provision setting out the calculation of such
fee].” In such a case, the court, to decide the fee to give to plaintiff, would have to resort to reference to the other
statute to calculate the fee, i.e., find the fee “applicable” under the statute. It would make little sense for a court to
interpret such language as authorizing it to create two separate fee calculations.

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provisions to conclude that the provisions relevant here are ambiguous and capable of being

interpreted by the Secretary is insufficient. See, e.g., Def.’s Cross-Mot. & Opp’n at 17–18, 23; cf.

Bates Cty. Mem’l Hosp. v. Azar, 464 F. Supp. 3d 43, 50–51 (D.D.C. 2020) (describing several

cases where the Secretary’s argument as to the ambiguity of provisions of the Medicare statute has

been rejected).

Because the Court finds that the rural floor provision unambiguously provides that the level

of the rural floor for a state is set at the applicable rural wage index of that same state—i.e., the

rural floor and the rural wage index are one and the same—Defendant’s decision to calculate

separately those indexes using differing methodology violated the statute. Put plainly, the statute

provides no room for the Secretary to “fix” whatever anomalies he may think exists in the operation

of the statute. 7 A court cannot “set aside a statute’s plain language simply because the agency

thinks it leads to undesirable consequences in some applications.” Friends of Earth, 446 F.3d at

145. After all, “[o]ur task is to apply the text, not to improve upon it.” Pavelic & LeFlore v.

Marvel Entm’t Grp., 493 U.S. 120, 126 (1989). In sum, the Court agrees that Defendant’s method

of separately calculating the “rural floor” and the “rural wage index” for FY 2020 violated the

unambiguous language of the “rural floor” provision of the Medicare statute.

Before addressing the appropriate remedy, the Court notes that Plaintiffs have additionally

argued that the Secretary’s FY 2020 rural floor calculation independently violates the rural

reclassification provision, 42 U.S.C. § 1395ww(d)(8)(E)(i), because the Secretary is not, in

7
This is not to impugn the motives of the Secretary, who seemed plainly concerned with reducing potential
manipulation of area wage indexes and improving the operation of the IPPS program. But no amount of good intention
can override the clear commands that Congress has expressed in enacting a statute. The Secretary is bound to follow
the plain text of the law regardless of whether he believes it to be wise or the best course of action. The Secretary
may not “avoid the Congressional intent clearly expressed in the text simply by asserting that [his] preferred approach
would be better policy.” Friends of Earth, Inc. v. E.P.A., 446 F.3d 140, 145 (D.C. Cir. 2006) (quoting Engine Mfrs.
Ass’n v. EPA, 88 F.3d 1075, 1089 (D.C. Cir. 1996)). Just as this Court is required to defer to the Secretary’s considered
judgment in cases of genuine textual ambiguity, so too is the Secretary required to “give effect to the unambiguously
expressed intent of Congress.” Chevron, 467 U.S. at 842–43.

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contradiction of the statute, treating reclassified urban-to-rural hospitals as if they were located in

the rural area of a state. See, e.g., Pls.’ Mot. at 22–26. By excluding reclassified urban-to-rural

hospitals from the calculation of the rural floor, Plaintiffs contend, the Secretary is not following

the unambiguous dictates of the rural reclassification statute. Because the rural floor provision

unambiguously requires the Secretary to set the rural floor equivalent to the rural wage index and

forbids the Secretary from developing an alternative calculation for rural floor purposes, the Court

does not address whether the Secretary was required to include data from reclassified urban-to-

rural hospital wage data in the calculation of the rural floor, a calculation which does not actually

exist independently under the statute. 8

B. Remand Without Vacatur is Appropriate.

Having concluded that the Secretary erred in calculating separately the rural wage index

and the rural floor for FY 2020, the Court next considers the appropriate remedy. “When a district

court reverses agency action and determines that the agency acted unlawfully, ordinarily the

appropriate course is simply to identify a legal error and then remand to the agency.” N. Air Cargo

v. USPS, 674 F.3d 852, 861 (D.C. Cir. 2012); see also Am. Hosp. Ass’n v. Azar, 385 F. Supp. 3d

1, 11 (D.D.C. 2019) (“[W]hen a plaintiff brings an APA claim ‘to set aside an unlawful agency

action . . . it is the prerogative of the agency to decide in the first instance how to best provide

relief.’” (quoting Bennett v. Donovan, 703 F.3d 582, 589 (D.C. Cir. 2013)).

Both parties agree that remand to the Secretary is appropriate. See Pls.’ Reply & Opp’n at

13; Defs.’ Cross-Mot. & Opp’n at 27. Plaintiffs, however, seek remand “with instructions that

8
The Court notes that several courts, including one in this Circuit, have held that the rural reclassification provision,
42 U.S.C. § 1395ww(d)(8)(E)(i), unambiguously requires the Secretary to treat reclassified urban-to-rural hospitals
as though they are geographically rural and not located in an urban area. See Bates Cty. Mem’l Hosp., 464 F. Supp.
3d at 50–52; Geisinger Cmty. Med. Ctr. v. Sec’y U.S. Dep’t of Health & Hum. Servs., 794 F.3d 383, 395 (3d Cir.
2015).

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[the Secretary] assign an area wage index to each hospital that is no lower than the wage index . . .

assigned to rural hospitals in the [Plaintiffs’] home states of Arizona, Colorado, or Florida.” Pls.’

Reply & Opp’n at 13; see also Pls.’ Mot. at 27–28 (seeking an order “vacating the Secretary’s

challenged policy,” and directing the Secretary to “treat the 2020 rural wage index as the rural

floor” and to “recalculate each [Plaintiff’s] FY 2020 wage index adjustments and payments

accordingly”). Defendant counters that the appropriate relief is “remand (without vacatur)” to the

Secretary for “further action” consistent with the Court’s opinion. Defs.’ Cross-Mot. & Opp’n at

27 (citing Palisades Gen. Hosp. Inc. v. Leavitt, 426 F.3d 400, 403 (D.C. Cir. 2005)).

The Court shall remand the case to the Secretary for further proceedings but shall not vacate

the FY 2020 rule. In deciding whether to remand without vacatur, courts consider “the seriousness

of the [agency decision’s] deficiencies . . . and the disruptive consequences of an interim change

that may itself be changed.” Allied-Signal, Inc. v. U.S. Nuclear Regul. Comm’n, 988 F.2d 146,

150–51 (D.C. Cir. 1993). The Secretary here rests his argument in support of remand without

vacatur on Allied-Signal’s second prong, arguing that vacating the FY 2020 rule would “greatly

disrupt the complex Medicare [IPPS] system,” with “potential consequences for payments to

hospitals that are not parties to this case.” Id. Defendant further notes that the IPPS system must

operate on a “budget-neutral” basis, and that a court order vacating the FY 2020 rule “could require

unscrambling and revising interdependent budget-neutral reimbursement decisions already made,

since any amount of gain to Plaintiffs’ hospitals that might result from the Court’s order might

have to be offset by recoupments from other hospitals nationwide.” Id. at 28. Although Plaintiffs

contend that the “budget-neutrality requirements” do not bar the Court from ordering a

recalculation of their payments, Pls.’ Reply & Opp’n at 14, the Court agrees that the Secretary

should address the appropriate adjustment of Plaintiffs’ reimbursement rates in the first instance,

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see Defs.’ Reply at 16–17; Allina Health Servs. v. Sebelius, 746 F.3d 1102, 1111 (D.C. Cir. 2014).

Accordingly, the Court shall remand this action to the Secretary for further proceedings consistent

with this Memorandum Opinion.

IV. CONCLUSION

For the foregoing reasons, Plaintiffs’ Motion for Summary Judgment is granted in part, and

Defendants’ Cross-Motion for Summary Judgment is denied. This case shall be remanded to the

Secretary for further proceedings consistent with this Memorandum Opinion. A separate order

accompanies this Memorandum Opinion.

/s/
COLLEEN KOLLAR-KOTELLY
United States District Judge

Date: April 8, 2022

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