“The Court will not strike down this otherwise reasonable guideline because it, unfortunately, disadvantages one provider of services.”
How later courts described this case
- “The Court will not strike down this otherwise reasonable guideline because it, unfortunately, disadvantages one provider of services.”
Written by the judges who cited it.
The opinion
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
TEMPLE UNIVERSITY HOSPITAL, INC.,
Plaintiff, Civil Action No. 20-4533-MSG
v.
ALEX M. AZAR II, SECRETARY, U.S.
DEPARTMENT OF HEALTH & HUMAN
SERVICES, et al.,
Defendants.
Goldberg, J. February 8, 2021
MEMORANDUM OPINION
This case involves a dispute over a regulatory decision made by Defendant, the Secretary
of Health and Human Services. That decision affects Plaintiff Temple University Hospital, Inc.’s
classification to a particular geographic area for purposes of certain Medicare reimbursement,
including designation of that area’s wage index. The parties have filed cross-motions for summary
judgment. For the following reasons, I will grant Defendant’s Motion, deny Plaintiff’s Motion,
and enter judgment in favor of Defendant.
I. FACTUAL AND REGULATORY BACKGROUND
A. Regulatory Background
The Medicare program is a system of health insurance for the aged and disabled. (DSUF
¶ 1; PR ¶ 1.) 1 Unless exempt, hospitals that participate in Medicare are reimbursed for inpatient
1 References to the parties’ pleadings will be made as follows: Plaintiff’s Statement of
Undisputed Facts (“PSUF”); Defendants’ Response (“DR”); Defendants’ Statement of Undisputed
Facts (“DSUF”); and Plaintiff’s Response (“PR”). To the extent a statement is undisputed by the
parties, I will cite only to the parties’ submissions. If a statement is disputed and can be resolved
services provided to Medicare beneficiaries under an inpatient prospective payment system.
(DSUF ¶ 2; PR ¶ 2.) A hospital’s reimbursement under the inpatient prospective payment system
varies in part based on the hospital’s location. (DSUF ¶ 3; PR ¶ 3.) A hospital’s reimbursement
rate for each patient with a particular diagnosis is computed by adjusting the appropriated
“standardized” amount by a “wage index”—a multiplier to account for area wage differences.
(DSUF ¶ 4; PR ¶ 4.)
The wage index is a factor reflecting the relative hospital wage level in the geographic area
of a hospital compared to the national average hospital wage level. (DSUF ¶ 5; PR ¶ 5); 42 U.S.C.
§ 1395ww(d)(3)(E). Wage indexes vary widely throughout a given region and have a direct impact
on the amount of a reimbursement a hospital receives—the higher the wage index for the area in
which the hospital is located, the more a hospital will be reimbursed per Medicare patient. (DSUF
¶ 6; PR ¶ 6.) In calculating wage indexes, the Secretary of Health and Human Services (“the
Secretary”) defines hospital labor markets according to the definitions of Core-Based Statistical
Areas (“Statistical Areas”)2 promulgated by the Office of Management and Budget (“OMB”).3
(DSUF ¶ 7; PR ¶ 7.)
by reference to the regulations or exhibits, I will cite the supporting regulation or exhibits. I will
also cite to the supporting regulation or exhibits in the event further clarification of a fact is
required.
2 A “Core Based Statistical Area” is defined as “a geographic entity associated with at least
one core of 10,000 or more population, plus adjacent territory that has a high degree of social
and economic integration with the core as measured by commuting ties. The standards designate
and define two categories of [Statistical Areas]: Metropolitan Statistical Areas and Micropolitan
Statistical Areas.” 65 Fed. Reg. 82,228, 82,235–36 (2000).
3 The Office of Management and Budget oversees the performance of federal agencies, and
administers the federal budget. https://www.usa.gov/federal-agencies/office-of-management-
and-budget (last visited 1/25/21).
Periodically, in response to data gathered during the decennial census, OMB updates the
definitions and geographical boundaries of Statistical Areas. (DSUF ¶ 8; PR ¶ 8.) After evaluating
the impact of those changes on the Medicare program, the Secretary typically adopts OMB’s
changes to Statistical Areas through the rulemaking process. (DSUF ¶ 9; PR ¶ 9); Medicare
Program; changes to the Hospital Inpatient Prospective Payment System, 69 Fed. Reg. 48,916-01,
49,027 (Aug. 11, 2004).
In 1989, Congress established the Medicare Geographic Classification Review Board
(“Review Board”) to provide a mechanism for hospitals to apply for reclassification from the area
in which they are located to another area for certain Medicare reimbursement purposes, including
receipt of the other area’s wage index. 42 U.S.C. § 1395ww(d)(10). To obtain reclassification, a
hospital must generally prove: (1) its wages are higher than other hospitals in the area in which it
is located; (2) its wages are comparable to other hospitals in the area to which it seeks to be
reclassified; and (3) it can demonstrate close proximity to the area to which it seeks redesignation
by meeting certain criteria. 42 C.F.R. § 412.230. Congress empowered the Review Board to
decide whether to grant any hospital’s application requesting to change its geographic
classification to a new geographic area. (DSUF ¶ 11; PR ¶ 11.) Review Board decisions on initial
reclassification applications may be appealed to Defendant Secretary of Health and Human
Services (“Secretary”), but the Secretary’s decision regarding appeals “shall be final and shall not
be subject to judicial review.” 42 U.S.C. § 1395ww(d)(10)(C)(iii)(II).
In 2000, Congress, enacted additional legislation regarding the duration of a decision to
reclassify a hospital for wage index purposes. This provision, the “Three-Year Reclassification
Decision Provision,” states:
Any decision of the Board to reclassify a subsection (d) hospital for
purposes of the adjustment factor described in subparagraph
(C)(i)(II) for fiscal year 2001 or any fiscal year thereafter shall be
effective for a period of 3 fiscal years, except that the Secretary shall
establish procedures under which a subsection (d) hospital may elect
to terminate such reclassification before the end of such period.
42 U.S.C. § 1395ww(d)(10)(D)(v).
B. Facts Relevant to this Case
For the most part, the following facts are undisputed.
On September 14, 2018, OMB updated definitions and geographic boundaries of certain
Statistical Areas. (DSUF ¶ 16; PR ¶ 16.) Among other changes, OMB altered the geographic area
designated as the New York-Jersey City-White Plains, NY-NJ Statistical Area 35614 by removing
three of its constituent counties (Middlesex County, NJ; Monmouth County, NJ; and Ocean
County, NJ), and combining them with a fourth county (Somerset County, NJ) to create a newly-
constituted New Brunswick-Lakewood Statistical Area 35154.2. (DSUF ¶ 17; PR ¶ 17.)
Plaintiff Temple University Hospital (“Temple”) is located in Philadelphia, Pennsylvania
and participates in the Medicare program. (DSUF ¶ 18; PR ¶ 18.) For purposes of the Medicare
wage index, Temple is treated as being geographically located in the Pennsylvania rural wage area.
(PSUF ¶ 5; DR ¶ 5.) On September 3, 2019, Temple applied to the Review Board to be reclassified
to the New York-Jersey City-White Plains, NY-NJ Statistical Area 35614 effective for Fiscal
Years 2021 through 2023 (October 1, 2020 through September 20, 2023). (PSUF ¶ 6; DR ¶ 6.)
To meet the reclassification proximity requirement, Temple was required to be thirty-five miles
from Monmouth County, which at the time was part of the New York-Jersey City-White Plains,
NY-NJ Statistical Area. (PSUF ¶ 8; DR ¶ 8.) Temple met those reclassification requirements and,
in a February 21, 2020 decision, the Review Board approved Temple’s reclassification application
to the New York-Jersey City-White Plains, NY-NJ Statistical Area beginning in Fiscal Year 2021.
(PSUF ¶¶ 7,9; DR ¶¶ 7,9.)
In the Fiscal Year 2021 Hospital Inpatient Proposed Rule—published in the May 29, 2020
Federal Register—the Centers for Medicare & Medicaid Services4 proposed adopting the newest
OMB geographic delineation changes. These changes included the redefinition of the New York-
Jersey City-White Plains NY-NJ Statistical Area 35614 and the creation of the New Brunswick-
Lakewood Statistical Area 35154. See FY 2021 IPPS Proposed Rule, 85 Fed. Reg. 32,460, 32,696-
97 (proposed May 29, 2020). OMB’s delineation changes were subsequently adopted in the Fiscal
Year 2021 Hospital Inpatient Final Rule (“Final Rule”). (PSUF ¶ 11; DR ¶ 11); Medicare Program,
Hospital IPPS for Acute Care Hospitals, 85 Fed. Reg. 58,432, 58,746 (Sept. 18, 2020). Although
the use of OMB delineations is not mandated by Congress, the Secretary’s voluntary adoption of
OMB’s geographic delineations has been approved by Congress. 85 Fed. Reg. at 58,745; 42
U.S.C. § 1395ww(d)(10)(D)(ii).
Under the Secretary’s new geographic delineations, many hospitals that had previously
been approved for reclassification to newly-redefined Statistical Areas were no longer eligible to
be assigned to those Statistical Areas. To accommodate both these individual reclassification
decisions and the new Statistical Areas definitions that removed and shifted counties, the Secretary
adopted the following regulation:
Consistent with the policy [the Centers for Medicare and Medicaid
Services] implemented in the FY 2005 IPPS final rule . . . and in the
FY 2015 IPPS final rule . . ., for FY 2021, if a [Statistical Area]
would be reconfigured due to adoption of the revised OMB
delineations and it would not be possible for the reclassification to
continue seamlessly to the reconfigured [Statistical Area], we
believe it would be appropriate for us to determine the best
alternative location to reassign current reclassifications for the
remaining 3 years. Therefore, to maintain the integrity of a
hospital’s 3-year reclassification period, we are proposing that
4 The Centers for Medicare & Medicaid Services is a component of HHS to which the
Secretary delegates responsibility for day-to-day administration of the Medicare program.
https://www.cms.gov/ (last visited 1/25/21).
current geographic reclassifications (applications approved
effective for FY 2019, FY 2020, or FY 2021) that would be affected
by [Statistical Areas] that are split apart or counties that shift to
another [Statistical Area] under the revised OMB delineations,
would ultimately be assigned to a [Statistical Area] under the revised
OMB delineations that contains at least one county from the
reclassified [Statistical Area] under the current FY 2020 definitions,
and would be generally consistent with rules that govern geographic
reclassification. That is, consistent with the policy finalized in FY
2015 . . ., we are proposing a policy that affected reclassified
hospitals be assigned to a [Statistical Area] that would contain the
most proximate county that—(1) is located outside of the hospital’s
proposed FY 2021 geographic labor market area, and (2) is part of
the original FY 2020 [Statistical Area] to which the hospital is
reclassified.
Medicare Program, Hospital IPPS for Acute Care Hospitals, 85 Fed. Reg. 32460–01, 32,717 (May
29, 2020). Under this proposed reclassification assignment policy, Temple—which had originally
received a reclassification decision based on its proximity to Monmouth County—would move to
the New Brunswick-Lakewood Statistical Area 35154. (DSUF ¶ 28; PR ¶ 28.)
Temple contacted the Centers for Medicare & Medicaid Services about the proposed Fiscal
Year 2021 rule and its impact on Temple. (PSUF ¶ 20; DR ¶ 20; Declaration of Michael Young
(“Young Decl.”) ¶ 7.) Temple also submitted comments about the Proposed Rule. (PSUF ¶ 21;
DR ¶ 21.) Neither the Secretary nor the Centers for Medicare & Medicaid Services would confirm
that Temple would be reclassified for three years to the New York-Jersey City-White Plains, NY-
NJ Statistical Area.5 (Young Decl. ¶ 7.)
5 For Fiscal Year 2021, the wage index in the New York-Jersey City-White Plains NY-NJ
Statistical Area is 1.3239. (Young Decl. ¶ 4.) The wage index in the newly-created New
Brunswick-Lakewood, NJ Statistical Area is 1.0754. (Id.) The wage index in the Vineland-
Bridgeton, NJ is 1.1224. (Id.) For each of the next three years, Temple’s total Medicare
reimbursement in the New York-Jersey City-White Plains, NY-NJ Statistical Area would be
approximately $45,000,000 more than Temple would receive in the newly created New
Brunswick-Lakewood, NJ, and approximately $30,000,000 more than Temple would receive in
the Vineland-Bridgeton, NJ Statistical Area. (Id. & Ex. 3.)
The Centers for Medicare & Medicaid Services proposed several “budget neutral transition
policies to help mitigate negative impacts on hospitals of certain wage index proposals.” (PSUF
¶ 23 (quoting 85 Fed. Reg. at 32,706); DR. 23.) For example, the Centers for Medicare & Medicaid
Services applied a five percent cap on the amount a hospital’s wage index could decrease from its
wage index for the prior year (Fiscal Year 2020). (PSUF ¶ 24; DR ¶ 24.) The cap, however, did
not alleviate any burden on Temple because Temple was not facing any decrease from the previous
year. Temple was simply not going to receive its approved and expected reclassification to the
higher wage index of New York-Jersey City-White Plains, NY-NJ Statistical Area. (PSUF ¶ 25;
DR ¶ 25.) Moreover, the Centers for Medicare & Medicaid Services proposed that affected
hospitals could submit a request to be reassigned to a different Statistical Area, but that Statistical
Area must contain a county that was part of the original Statistical Area to which the hospital was
reclassified. (PSUF ¶ 26; DR. ¶ 26.)
As part of its response to the Proposed Rule, and in an effort to mitigate its potential losses,
Temple requested that it be reclassified to the Atlantic City-Hammonton, NJ Statistical Area
12100, rather than the newly-created New Brunswick-Lakewood, NJ Statistical Area. That request
was not approved. (PSUF ¶ 27; DR ¶ 27.)
Thereafter, on September 14, 2020, Temple submitted an application to the Review Board
to be reclassified to the Vineland-Bridgeton, NJ Statistical Area for Fiscal Years 2022 through
2024. (PSUF ¶ 28; DR ¶ 28.) Although the wage index and Medicare Reimbursement for the
Vineland-Bridgeton, NJ Statistical Area is less than that of the New York-Jersey City-White
Plains, NY-NJ Statistical Area, it is higher than the New Brunswick-Lakewood, NJ Statistical Area
to which Temple is currently assigned.
On September 16, 2020, Temple filed the current suit alleging that the Secretary’s
regulatory scheme is unlawful. The parties agreed to proceed directly to summary judgment
briefing.
II. STANDARD OF REVIEW
Summary judgment is appropriate when the pleadings and evidence show that “there is no
genuine dispute as to any material fact and [that] the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(a). However, in cases involving review of agency action under the
Administrative Procedure Act, the usual Rule 56 summary judgment standard does not apply due
to the limited role of a court in reviewing the administrative record. Dorley v. Cardinale, 119 F.
Supp. 3d 345, 351 (E.D. Pa. 2015).
Under the Administrative Procedure Act, a court must “hold unlawful and 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), in excess of statutory authority, id. §
706(2)(C), or “without observance of procedures required by law,” id. § 706(2)(D); see also 42
U.S.C. § 1395oo(f)(1). The scope of review is narrow, and a court must not “substitute its
judgment for that of the agency.” See Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut.
Auto. Ins. Co., 463 U.S. 29, 43 (1983). Nonetheless, the reviewing court must be satisfied that the
agency has examined the relevant data and articulated a satisfactory explanation for its action,
“including a ‘rational connection between the facts found and the choice made.’” CBS Corp. v.
Fed. Commc’ns Comm’n, 663 F.3d 122, 137 (3d Cir. 2011) (quoting State Farm, 463 U.S. at 43).
Reversal of an agency’s action “is appropriate only where the administrative action is
irrational or not based on relevant factors.” NVE, Inc. v. Dep’t of Health & Human Servs., 436
F.3d 182, 190 (3d Cir.2006) In determining whether an agency acted arbitrarily and capriciously,
a district court examines “whether the agency relied on factors outside those Congress intended
for consideration, completely failed to consider an important aspect of the problem, or provided
an explanation that is contrary to, or implausible in light of, the evidence.” Id. Additionally,
a reviewing court must look at the reasons articulated by the agency itself at the time of the
decision rather than post-hoc rationalizations. State Farm, 463 U.S. at 50.
III. DISCUSSION
Temple challenges the Secretary’s regulatory scheme and the policy of the Secretary to
geographically reassign a hospital to a new Statistical Area even if the hospital has obtained a
reclassification decision that is valid for three years.
In Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 842–44, the
Supreme Court of the United States articulated a two-step inquiry for determining the level of
deference a court should give an agency’s interpretation of its enabling statute. First, the court
must ask “whether Congress has directly spoken to the precise question at issue.” Id. at 842. If
congressional intent is clear, the inquiry ends and both the court and the agency “must give effect
to the unambiguously expressed intent of Congress.” Id. at 842–43. At the first step, the Supreme
Court has instructed that courts must consider not only the plain language of the statute, but also,
through “traditional tools of statutory construction,” whether “Congress had an intention on the
precise question at issue.” Chevron, 467 U.S. at 843 n.9; see Louisiana Forestry Ass’n Inc. v.
Sec’y U.S. Dep’t of Labor, 745 F.3d 653, 670 (3d Cir. 2014).
Second, if the statute is ambiguous, the court must decide whether the agency’s
interpretation of the statute is “a permissible construction.” Id. at 843. Chevron deference extends
only to “agency action promulgated in the exercise of congressionally-delegated authority to make
rules carrying the force of law.” De Leon–Ochoa v. Att’y Gen. of U.S., 622 F.3d 341, 348 (3d
Cir. 2010) (citing U.S. v. Mead Corp., 533 U.S. 218, 226–227 (2001)). As such, policies, manuals,
and guidelines that set forth agency interpretations are not entitled to Chevron
deference. Christensen v. Harris Cty., 529 U.S. 576, 587 (2000). The same holds true for
interpretive guidelines and statements of policy. Madison v. Res. for Hum. Dev., Inc., 233 F.3d
175, 186 (3d Cir. 2000); Chao v. Rothermel, 327 F.3d 223, 227 (3d Cir. 2003).
When evaluating an agency decision that does not carry the force of law, courts apply a
lesser degree of deference pursuant to Skidmore v. Swift & Co., 323 U.S. 134 (1944). See Hagans
v. Comm’r of Soc. Sec., 694 F.3d 287, 294–95 (3d Cir. 2012). Skidmore provides
that agency interpretations are “entitled to respect” based on their “power to persuade.” Madison,
233 F.3d at 186 (quoting Christensen, 529 U.S. at 587). In order to gauge the persuasiveness of a
particular agency decision, a court must examine “the thoroughness evident in [the agency’s]
consideration [and] the validity of its reasoning.” Skidmore, 323 U.S. at 140. Above all, a court
must consider whether the agency’s interpretation is consistent with other agency action, and
reasonable, based on the “language and purpose” of the statute in question. See Del. Dep’t of Nat’l
Res. & Env’t Control v. U.S. Army Corps of Eng’rs, 685 F.3d 259, 284 (3d Cir. 2012)
(quoting Cleary ex rel. Cleary v. Waldman, 167 F.3d 801, 808 (3d Cir. 1999)).
Temple now contends that the Secretary’s regulations and policies are invalid under both
step one and step two of the Chevron analysis. I will analyze each prong individually.
A. Step One of the Chevron Analysis
Temple’s primary argument presses that the Three-Year Reclassification Decision
Provision contains Congress’ clear and unambiguous mandate as to where and for how long a
hospital with an approved wage index reclassification is to be reclassified:
Any decision of the Board to reclassify a subsection (d) hospital for
purposes of the adjustment factor described in subparagraph
(C)(i)(II) for fiscal year 2001 or any fiscal year thereafter shall be
effective for a period for 3 fiscal years, except that the Secretary
shall establish procedures under which a subsection (d) hospital may
elect to terminate such reclassification before the end of such period.
42 U.S.C. § 1395ww(d)(10)(D)(v) (emphasis added). Relying on this statute, Temple posits that
once it was approved by the Review Board to be reclassified to the New York-Jersey City-White
Plains, NY-NJ Statistical Area 35614, the reclassification decision had to be honored for three
years. Temple avers that the mandatory nature of this provision is evidenced by use of the phrase
“shall be effective for a period of 3 fiscal years.” Id. (emphasis added). Temple contends that the
clear and unambiguous meaning of the statute is that once a reclassification application is
approved, the Secretary does not have discretion to change that reclassification for a three-year
period. In turn, Temple concludes that any current effort by the Secretary to eliminate that
Statistical Area and reclassify Temple to a new geographic location is improper. (See Temple’s
Mot. Summ. J. 17 (arguing that the Three-Year Reclassification Decision Statute “protects
hospitals for three years from subsequent action by the Secretary to undermine or change an
approved reclassification.”).)
The Secretary rejects any notion that its redefinition of the New York-Jersey City-White
Plains, NY-NJ Statistical Area 35614 and creation of the New Brunswick-Lakewood Statistical
Area 35154—to which Temple was subsequently assigned—constituted either a termination of
Temple’s approved reclassification or a new “reclassification decision” under the statute. Rather,
the Secretary asserts that the Review Board’s decision reclassifying Temple to Statistical Area
35614 was based on the geographic limits of that Statistical Area as it existed at the time of the
decision, with the inclusion of fourteen counties in New York and New Jersey. The Secretary
reasons that (a) following the Fiscal Year 2021 rulemaking, that particularly-defined New York-
Jersey City-White Plains, NY-NJ Statistical Area no longer exists, (b) Monmouth County (on
which Temple premised its qualification for reclassification) is now part of the newly-created New
Brunswick-Lakewood, NJ Statistical Area 35154, and (c) Temple does not meet the regulatory
criteria in 42 C.F.R. § 412.230(b) to be included in the newly–redrawn New York-Jersey City-
White Plains, NY-NJ Statistical Area 35614. Given these facts, the Secretary concludes that the
Three-Year Reclassification Decision Provision, 42 U.S.C. § 1395ww(d)(10)(D)(v), does not
protect hospitals for three years from any subsequent action by the Secretary to render inoperative
a geographic reclassification decision arrived at through the Review Board process.
Step one of the Chevron analysis requires that I weigh these competing interpretations and
decide whether the statutory scheme unambiguously addresses the resolution of the situation. As
noted above, the goal when interpreting a statute is to effectuate Congress’ intent. Hagans v.
Comm’r of Soc. Sec., 694 F.3d 287, 295 (3d Cir. 2012). “Because we presume that Congress’
intent is most clearly expressed in the text of the statute, we began our analysis with an examination
of the plain language of the relevant provision.” Id. (quoting Reese Bros, Inc. v. U.S., 447 F.3d
229, 235 (3d Cir. 2006)). The entire scope of the relevant statute must be considered when
attempting to divine congressional intent. Id. When a statute is “‘complex and contains many
interrelated provisions,’ it may be ‘impossible to attach a plain meaning to provisions in
isolation.’” Id. at 296 (quoting Clearly ex rel. Cleary v. Waldman, 167 F.3d 801, 807 (3d Cir.
1999). The United States Court of Appeals for the Third Circuit has explicitly recognized that the
Medicare statute constitutes such a complex statute, often rendering it “ambiguous.” Cleary, 167
F.3d at 807.
A closer look at the statutory language here bears out the complexity—and, in turn, the
ambiguity—of the particular Medicare provision at issue here. The Medicare statute requires the
Secretary to adjust payments to hospitals to account 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). Because the geographic classification procedures can impose a
burden on some hospitals, such as those in rural areas that compete for employees with hospitals in
nearby urban areas, the statute permits a hospital to seek reclassification from its geographically-
based wage area to a nearby wage area for payment purposes if it meets certain criteria. St.
Michael’s Med. Ctr. v. Sebelius, 648 F Supp. 2d 18, 20 n.3, 21 (D.D.C. 2009) (citing 42 U.S.C. §
1395ww(d)(8)(B)(i) and Robert Wood Johnson Hosp. v. Thompson, 297 F.3d 273, 276 (3d Cir.
2002)).
The statute further directs the Secretary to publish guidelines to be used by the Review
Board in rendering decisions on applications for reclassification, including guidelines “for
determining whether the county in which the hospital is located should be treated as being part of
a particular Metropolitan Statistical Area.” 42 U.S.C. § 1395ww(d)(10)(D)(i)(II). A hospital
seeking a change in geographic classification must submit its application to the Review Board “not
later than the first day of the 13-month period ending on September 30 of the preceding fiscal
year.” Id. § 1395ww(d)(10)(C)(ii). The Review Board must then render a decision on the
application no later than 180 days after the deadline. Id. § 1395ww(d)(10)(C)(iii). Once the
Review Board renders a decision to reclassify a hospital based upon its application for such
reclassification, that “decision of the Board to reclassify” the hospital “shall be effective for a
period of 3 fiscal years.” Id. § 1395ww(d)(10)(D)(v).
Notably, the mandatory language of “shall” in this last provision—the Three-Year
Reclassification Decision Provision—speaks only to the “decision of the Board to reclassify a
subsection (d) hospital” to a new geographic classification. That language protects hospitals from
a subsequent reclassification action by the Review Board or the Secretary within a three-year
period. Under a plain reading of the Provision’s language, it does not apply to any decision by the
Secretary to redefine what those geographic areas encompass and, in turn, does not address the
resulting impact on a hospital’s eligibility to remain within a particular geographic area.
Indeed, the Three-Year Reclassification Decision Provision, enacted after §
1395ww(d)(3)(E), is silent on any limitation on the Secretary’s authority to redefine geographic
areas. Section 1395ww(d)(3)(E)(i) provides that the Secretary “shall adjust the proportion . . . of
hospitals’ costs which are attributable to wages and wage-related costs, of the [diagnosis-related
group] prospective payments rate . . . for area differences in hospital wages 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.” Id. Under this provision, the Secretary’s
task “is unambiguous: to calculate a factor that reflects geographic-area wage-level differences,
and nothing else.” Bellevue Hosp. Ctr. v. Leavitt, 443 F.3d 163, 174 (2d Cir. 2006). However,
the statute “leaves considerable ambiguity as to the term ‘geographic area.’” Id. The agency has
broad discretion in defining those geographic areas when balancing the need to make geographic
areas small enough to actually reflect differences in wage levels against the need to include enough
hospitals to meaningfully average costs. Id. Although the use of OMB delineations is not
mandated by Congress, the voluntary adoption of OMB’s geographic delineations has been
approved by Congress and has been deemed reasonable as a means for the Secretary to fulfill its
statutory duties to adjust Medicare reimbursements to reflect differences in wage levels. Id; 85
Fed. Reg. 58,745; 42 U.S.C. § 1395ww(d)(10)(D)(ii). Had the subsequently-enacted Three-Year
Reclassification Decision Provision intended to limit the use of such broad authority in a manner
that would not affect individualized reclassification decisions, it could have done so.
Moreover, reading the Three-Year Reclassification Decision Provision to encompass a
limitation on the Secretary’s power to establish and define geographic areas would make little
sense. Under § 1395ww(d)(3)(E), the Secretary defines or redefines geographic areas that are
applicable for wage index purposes for all hospitals. Reclassification decisions under §
1395ww(d)(10)(C), however, are individualized decisions that apply to the specific hospital or
group of hospitals seeking reclassification. It would be illogical for Congress to suggest that the
Secretary has the authority to define geographic areas, yet mandate that certain individual hospitals
are excepted from those generally-applicable definitions due to the existence of a reclassification
decision made within a three-year period of that definition.
Applying this interpretation, I find that Congress did not convey any express intention on
the issue before me. When Temple applied for reclassification to the New York-Jersey City-White
Plains, NY-NJ Statistical Area 35614, on September 3, 2019, OMB had already, in 2018, updated
definitions and geographic boundaries of certain Statistical Areas including altering the New York-
Jersey City-White Plains, NY-NJ Statistical Area 35614 by removing three of its constituent
counties (Middlesex County, NJ; Monmouth County, NJ; and Ocean County, NJ), and combining
them with a fourth county (Somerset County, NJ) to create a newly-constituted New Brunswick-
Lakewood Statistical Area 35154. After Temple’s requested reclassification was approved, the
Secretary adopted the 2018 OMB changes, including the elimination of the precise Statistical Area
to which Temple was reclassified and the creation of the New Brunswick-Lakewood Statistical
Area 35154. Thus, although the reclassification decision remained in place, the Secretary’s
adoption of the OMB changes rendered the basis for and the effectuation of that decision
impossible. Temple had to be reclassified somewhere. Nothing in Congress’ drafting of the
Medicare statute—and more specifically, in the Three-Year Reclassification Decision Provision—
clearly and unambiguously addressed this scenario.
Temple attempts to satisfy step one of the Chevron analysis by relying on Geisinger
Community Medical Center v. Secretary United States Department of Health & Human Services,
794 F.3d 383 (3d Cir. 2015). Temple cites Geisinger for the proposition that the Secretary cannot
override the specific statutory mandate of the Three-Year Reclassification Decision Provision.
That case, however, involved an entirely separate provision of the Medicare statute, Section 401,
which allows hospitals located in urban areas to be treated as hospitals located in rural areas for
the purposes of determining, among other things, inpatient reimbursement. Id. at 387–88. Section
401 provided that a hospital in an urban area that satisfies certain criteria and submits an
appropriate application “shall” be treated as located in the rural area of the State in which the
hospital is located. Id. at 388. The Secretary was concerned that the statute would allow some
hospitals, claiming to be disadvantaged by their urban status, to be reclassified as rural under
Section 401 and thereby receive the benefits afforded to rural hospitals, and then subsequently
claim disadvantage from that rural status and seek reclassification through the Review Board back
to the urban area for purposes of their standardized amount and wage index. Id. at 388–89. As
such, the Secretary issued the Reclassification Rule, which precluded a hospital with Section 401
status from being reclassified to a different wage index area for any year the hospital maintains
that Section 401 status, unless the hospital cancelled its Section 401 designation. Id. at 389.
On a challenge to the legality of the Reclassification Rule, the Third Circuit defined the
issue as “whether the Secretary is required to treat hospitals with Section 401 status like hospitals
physically located in rural areas for purposes of Board reclassification.” Id. at 391. The Court
found that, based on the plain language of the statute, Congress had “unambiguously expressed its
intent that the Secretary shall do so.” Id. It reasoned that Section 401 began with the phrase “[f]or
purposes of this subsection,” meaning that Section 401 governed everywhere a hospital’s rural
status is relevant, i.e. all of subsection (d) including section (d)(10) involving reclassification. Id.
at 392–93. In turn, the Third Circuit read Section 401 as mandating that “for purposes of Board
reclassification, which is inextricably intertwined with a hospital’s rural or urban designation, the
Board shall treat the hospital as rural.” Id. at 393. The Court concluded that the Reclassification
Rule—prohibiting section 401 hospitals from seeking reclassification under subsection (d)(10)—
was contrary to Congress’ express intent. Id. at 395.
Notably, Geisinger focused on the Rural Reclassification Provision of 42 U.S.C. §
1395ww(d)(8)(E), a provision not at issue in this case. Geisinger did not address the Secretary’s
exercise of authority under § 1395ww(d)(3)(E) to adopt OMB’s modified geographic delineations.
That fact, standing alone, renders Geisinger irrelevant to my inquiry here. Moreover, unlike
Section 401, which included language making it applicable “for purposes of this subsection,” and
therefore all of § 1395ww(d), the Three-Year Reclassification Decision Provision contains no such
broad language making it applicable beyond its specified purpose. Accordingly, I find Geisinger
inapposite to the present case.
In sum, I disagree that, under a plain interpretation of the statute, Congress had the precise
intention to use the Three-Year Reclassification Decision Provision to limit the Secretary’s
authority to redefine the geographical boundaries of Statistical Areas for purposes of Medicare
reimbursement. In turn, I deem 42 U.S.C. § 1395ww(d)(10)(D)(v) ambiguous and will proceed to
the second step of the Chevron analysis.
B. Step Two of the Chevron Analysis
Temple argues that even proceeding under step two of Chevron, the Secretary’s regulations
and policies are invalid because they are “arbitrary, capricious, or manifestly contrary to the 3-
Year Reclassification Decision Statute.” (Temple’s Mot. Summ. J. 18.)
At step two, a court considers whether the agency’s regulation that fills a statutory gap is
“based on a permissible construction of the statute.” Chevron, 467 U.S. at 843. “We must still at
this stage consider the plain language of the statute, along with its origin and purpose, in reviewing
the reasonableness of the regulation, . . . but if the regulation reflects a reasonable statutory
interpretation, we will defer to that construction, even if we may have interpreted the statute
otherwise.” Helen Mining Co. v. Elliott, 859 F.3d 226, 237 (3d Cir. 2017) (internal citation
omitted). Notably, the court does “not ask whether it is the best possible interpretation of
Congress’s ambiguous language. Instead, [the court] extend[s] considerable deference to the
agency and inquire[s] only whether it made ‘a reasonable policy choice’ in reaching its
interpretation.” Am. Farm Bureau Fed. v. U.S. E.P.A., 792 F.3d 281, 295 (3d Cir. 2015) (quotation
omitted), cert. denied, 136 S. Ct. 1246 (2016).
Temple asserts that the Secretary was not required to adopt revised OMB delineations now
and is not obligated to use OMB delineations at all. Yet, Temple points out that the Secretary
chose to implement new OMB delineations outside the decennial census process, resulting in great
detriment to hospitals who were approved for reclassifications to areas affected by the new
delineations and who believed those reclassifications were good for three years. Temple contends
that the Secretary needs compelling reasons to deviate from that outcome, and no compelling
reasons exist here. It concludes that “the question is one of the timing of implementing changes,
not whether changes can ever be implemented.” (Temple’s Resp. Opp’n Summ. J. 11.)
For several reasons, I disagree with Temple’s argument and find that the Secretary’s
rulemaking was not arbitrary and capricious. First, Temple’s challenge to the timing of the
Secretary’s implementation of the geographic changes is misplaced. Within any given Fiscal Year,
a hospital may seek reclassification to a new Statistical Area. As such, regardless of when the
Secretary adopts geographic redefinitions, some hospital’s reclassification decision will likely be
affected. Under Temple’s logic, Statistical Areas could never be redefined if any hospital’s
reclassification would be inconsistent with the newly-defined geographical limitations within three
years of that reclassification decision. However, in establishing the Review Board and
empowering it to decide whether to grant a hospital’s request to change its geographic
classification, Congress explicitly instructed the Secretary to ensure that the geographic
reclassifications are budget neutral to assure that any reclassifications “do not result in aggregate
payments . . . that are greater or less than those that would otherwise be made” across the inpatient
prospective payment system. 42 U.S.C. § 1395ww(d)(8)(D). Thus, the Secretary’s adoption of
OMB geographical delineations without regard for the timing of any individual hospital’s
circumstances or reclassification is a reasonable application of Congress’ goals in enacting the
statutory scheme at issue.
Second, I conclude that the Secretary’s actions were consistent with the entirety of the
scheme defined by Congress. Once the Secretary adopted the new geographic classifications, the
Secretary had to balance the existing reclassification decisions for individual hospitals against the
mandate that, for a hospital to be redesignated to another area, it must demonstrate a close
proximity to the area to which it sought redesignation. 42 C.F.R. § 412.230(a)(2). To disregard
the latter mandate in the interest of maintaining certain reclassification decisions for a period of
three years would mean that some hospitals’ classifications would fall within the currently
applicable geographic delineations, while other hospitals would be classified in Statistical Areas
that either no longer existed or for which the hospitals no longer met the proximity requirements.
To avoid creating such discrepancies, the Secretary opted to assign each affected hospital’s
reclassifications to the Statistical Area (under the newly revised OMB delineations) containing the
nearest county located (1) outside of the hospital’s geographic area and (2) within the extinguished
Statistical Area, as previously configured, to which it has an approved reclassification. See FY
2021 IPPS Final Rule, 85 Fed. Reg. 58,432, 58771.6 The Secretary went on to explain how this
proposal remained consistent with Congress’ intent:
[W]e believe assigning reclassifications to the [Statistical Area] that
contains the nearest county that meets the aforementioned criteria
satisfies the statutory requirement at section 1886(d)(10)(v) of the
Act by maintaining reclassification status for a period of 3 fiscal
years, while generally respecting the longstanding principle of
geographic proximity in the labor market reclassification process.
Id. at 58,772. Ultimately, such a policy means that all hospitals classified to a specific Statistical
Area will meet regulatory proximity requirements instead of having disparate treatment of
different hospitals depending on whether a hospital has a reclassification decision and when that
decision was made. Any such reclassification, however, remains intact for a period of three
years. Such rulemaking constitutes a “reasonable policy choice” in interpreting Congress’ intent.
Am. Farm Bureau, 792 F.3d at 295.
6 As noted above, this Final Rule stated: “Therefore, to maintain the integrity of a hospital’s
3-year reclassification period, we proposed that current geographic reclassifications (applications
approved effective for FY 2019, FY 2020, or FY 2021) that would be affected by [Statistical Areas]
that are split apart or counties that shift to another [Statistical Area] under the revised OMB
delineations, would ultimately be assigned to a [Statistical Area] under the revised OMB
delineations that contains at least one county from the reclassified [Statistical Area] under the
current FY 2020 definitions, and would be generally consistent with rules that govern geographic
reclassification.” Id.
Third, although the Secretary’s policy is neutrally applied to all affected hospitals, without
regard to any benefit or harm to a particular hospital, the Secretary recognized the potential
economic effects of the reclassification reassignment policy. The Secretary noted that “for
hospitals that are reclassified to [Statistical Areas] that would split apart or to counties that would
shift to another [Statistical Area] under the revised OMB delineations[, the policy] may result in
the reassignment of the hospital for the remainder of its 3-year reclassification period to a
[Statistical Area] having a lower wage index than the wage index that would have been assigned
for the reclassified hospital in the absence of the adoption of the revised OMB delineations.” 85
Fed. Reg. 58,432, 58,772. Therefore, the Secretary adopted several mitigating measures, including
a five percent cap on any decrease in a hospital’s wage index from the hospital’s final wage index
for the prior fiscal year in order to ease significant negative payments for Fiscal Year 2021 and
afford hospitals adequate time to fully assess any additional reclassification options available to
them. Id. In addition, The Secretary proposed that affected hospitals could submit a request to the
Centers for Medicare & Medicaid Services to be reassigned to a different Statistical Area, so long
as the requested Statistical Area contains a county that was part of the original Statistical Area to
which the hospital was reclassified. Id. at 58,774.
Temple could not take advantage of the first measure because its original reclassification
to the New York-Jersey City-White Plains, NY-NJ Statistical Area had not yet gone into effect,
meaning that its final wage index for the prior fiscal year did not reflect what it expected to receive
from its reclassification decision. Temple is currently seeking reclassification to a different
Statistical Area, although it posits that it will still be subject to a lower wage index than the one it
expected for Fiscal Year 2021. Such a detrimental impact, while unfortunate, cannot factor into
the analysis under step two of Chevron. See Universal Health Servs. of McAllen, Inc. Subsidiary
of Universal Health Servs., Inc. v. Sullivan, 770 F. Supp. 704, 719 (D.D.C. 1991) (“The Court will
not strike down this otherwise reasonable guideline because it, unfortunately, disadvantages one
provider of services.”) Rather, I must remain “mindful that the Secretary’s statutory duties include
administration of the entire Medicare program, which necessarily involves policy choices and
resource allocations.” Id. In other words, the fact that Temple will now obtain a lower rate on
Medicare reimbursement than it expected for three years starting in Fiscal Year 2021 does not
render the Secretary’s policy arbitrary and capricious.
Finally, as the Third Circuit has recognized, although the proper bounds of Chevron
deference remain ill-defined, “there remains a general consensus that such deference is appropriate
where the agency oversees a “complex and highly technical” regulatory program. Helen Mining
Co. v. Elliott, 859 F.3d 226, 238 (3d Cir. 2017); see also Mercy Home Health v. Leavitt, 436 F.3d
370, 377 (3d Cir. 2006) (holding that substantial deference to an agency’s interpretation of its own
regulations “is particularly appropriate in contexts that involve a ‘complex and highly technical
regulatory program, such as Medicare, which requires significant expertise and entail[s] the
exercise of judgment grounded in policy concerns.’”) (quoting Thomas Jefferson Univ. Hosp. v.
Shalala, 512 U.S. 504, 512 (1994)). With that deference in mind, I cannot prioritize Temple’s
individualized interest in ensuring its classification to the highest possible wage index over the
Secretary’s broad mandate to develop policies that fairly and evenhandedly determine how to
classify hospitals under current definitions of Statistical Areas. Accordingly, under step two of
Chevron, I find that the Secretary made a “reasonable policy choice” in reaching an interpretation
of the statutory scheme at issue.
IV. CONCLUSION
For all of the foregoing reasons, I conclude that the Secretary’s reclassification assignment
policy was a reasonable and lawful exercise of the Secretary’s rulemaking power. As such, I will
grant summary judgment in favor of the Secretary and against Temple. An appropriate Order
follows.