Baystate Franklin Med. Ctr. v. Azar
Baystate Franklin Med. Ctr. v. Azar
Opinion of the Court
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 *517data 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
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 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
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 ,
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 *518Dignity Health v. Price ,
Using this data, CMS calculates the average hourly wage rate for hospitals in each geographic area. Anna Jacques Hosp. ,
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. ,
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.
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 ,
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,
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 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" 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 *520of 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.
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. ,
Both Baystate and the Secretary have moved for summary judgement and largely agree on the salient facts of this case.
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. ,
The APA requires that the reviewing court "set aside agency action, findings, and conclusions" that are "arbitrary, capricious, an abuse of discretion, or otherwise *521not in accordance with law."
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 of 42 U.S.C. § 1395oo, as that statute 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. ,
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 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 *522Secretary 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.
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."
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.
Next, Baystate argues that, even if the Secretary's decision was reasonable as applied *523to 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."
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.
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 ,
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.
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.
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. ,
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.
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).
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. ,
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).
Reference
- Full Case Name
- BAYSTATE FRANKLIN MEDICAL CENTER v. Alex M. AZAR II, in his official capacity as United States Secretary of Health and Human Services
- Cited By
- 2 cases
- Status
- Published