Geisinger Community Medical Center v. Secretary United States Department of Health & Human Services

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

______

No. 15-1202

______

GEISINGER COMMUNITY MEDICAL CENTER,

Appellant

v.

SECRETARY UNITED STATES DEPARTMENT OF

HEALTH AND HUMAN SERVICES;

MARILYN TAVENNER, Administrator, Centers for

Medicare and Medicaid Services;

ROBERT G. EATON, Chairman, Medicare Geographic

Classification Review Board

______

On Appeal from United States District Court

for the Middle District of Pennsylvania

(M.D. Pa. No. 3-14-cv-01763)

District Judge: Honorable Malachy E. Mannion

______

Argued Tuesday, April 21, 2015

Before: FISHER, CHAGARES and COWEN, Circuit Judges

(Filed: July 23, 2015)

Mary Kay Brown, Esq.

Brown Wynn McGarry Nimeroff

2001 Market Street

Two Commerce Square, Suite 3420

Philadelphia, PA 19103

Joseph D. Glazer, Esq. (ARGUED)

Suite 200

116 Village Boulevard

Princeton, NJ 08540

Counsel for Appellant

Kate L. Mershimer, Esq.

D. Brian Simpson, Esq.

Office of United States Attorney

228 Walnut Street, P.O. Box 11754

220 Federal Building and Courthouse

Harrisburg, PA 17108

Tara S. Morrissey, Esq. (ARGUED)

Michael S. Raab, Esq.

United States Department of Justice

Room 7262

950 Pennsylvania Avenue, N.W.

Washington, DC 20530

Counsel for Appellees

______

OPINION OF THE COURT

______

2

FISHER, Circuit Judge.

Hospitals that are disadvantaged by their geographic

location may reclassify to a different wage index area for

certain Medicare reimbursement purposes by applying for

redesignation to the Medicare Geographic Classification

Review Board (“Board”). Section 401 of the Medicare,

Medicaid, and SCHIP Balanced Budget Refinement Act of

1999, Pub. L. No. 106-113, 113 Stat. 1501 (1999) (“Section

401”), enacted ten years after the Board was established,

creates a separate mechanism by which qualifying hospitals

located in urban areas “shall [be] treat[ed] . . . [as] rural” for

the same reimbursement purposes. To avoid supposed

strategic maneuvering by hospitals, the Secretary of the U.S.

Department of Health and Human Services issued a

regulation providing that hospitals with Section 401 status

cannot receive additional reclassification by the Board on the

basis of that status. See 42 C.F.R. § 412.230(a)(5)(iii)

(“Reclassification Rule”).

Geisinger Community Medical Center (“Geisinger”), a

hospital located in an urban area, received rural designation

under Section 401 but was unable to obtain further

reclassification by the Board pursuant to the Reclassification

Rule. Geisinger sued the Secretary, Sylvia Matthews

Burwell; the Administrator of the Centers for Medicare and

Medicaid Services (“CMS”), Marilyn Tavenner; and the

Chairman of the Board, Robert G. Eaton, in their official

capacities (collectively, “Appellees”), challenging the

Reclassification Rule as unlawful. The District Court upheld

the regulation under Chevron, U.S.A., Inc. v. Natural Res.

Def. Council, Inc., 467 U.S. 837 (1984), and granted

summary judgment in favor of Appellees. Because we

conclude that Section 401 is unambiguous, we will reverse.

3

I.

A.

The Medicare program provides a system of federally-

funded health insurance for eligible elderly and disabled

individuals under Title XVII of the Social Security Act, 42

U.S.C. § 1395 et seq. Under § 1395ww(d), or “subsection

(d),” hospitals are reimbursed for inpatient costs at fixed rates

for categories of treatment through an inpatient prospective

payment system (“IPPS”). Calculating inpatient

reimbursement payments under IPPS is a multi-step process.

First, the Secretary establishes a nationwide standardized rate

for all subsection (d) hospitals located in an “urban” or

“rural” regional area. 42 U.S.C. § 1395ww(d)(2)(A)-(D).

Second, among other variables, CMS adjusts the standardized

rate by a “wage index” that reflects the difference between

hospitals’ local wages and wage-related costs and the national

average. Id. § 1395ww(d)(3)(E).

A hospital’s wage index is the wage index the

Secretary assigns to the specific geographic area where the

hospital is located. Hospitals located in rural areas receive a

wage index that applies to all rural areas in their state.

Hospitals located in urban areas are grouped and treated as a

single labor market based on the area, known as the Core

Based Statistical Area (“CBSA”), in which they are

physically located. Higher wage indices, which reflect higher

labor costs in relation to the national average, correspond to

higher reimbursement rates. Thus, the wage index is a

significant determinant of the way hospitals are reimbursed

for inpatient care costs.

IPPS may yield inequitable results where, for instance,

a rural hospital’s lower wage index does not accurately reflect

its labor costs because it competes for the same labor pool as

hospitals in a nearby but higher wage-index urban area.

4

Thus, in 1987 and 1988, Congress amended the Medicare Act

to allow a hospital to seek reclassification from its

geographically-based wage index area to a nearby wage index

area if it meets certain criteria. See Robert Wood Johnson

Univ. Hosp. v. Thompson, 297 F.3d 273, 276 (3d Cir. 2002)

(explaining the history of the Board reclassification system).

And in 1989, because only a limited number of hospitals were

reclassified under those laws, Congress established the Board

to systematically decide hospitals’ various reclassification

requests. See 42 U.S.C. § 1395ww(d)(10). “The Board shall

consider the application of any subsection (d) hospital

requesting that the Secretary change the hospital’s geographic

classification for purposes of determining” the hospital’s

average standardized rate or wage index. Id.

§ 1395ww(d)(10)(C). Congress gave the Secretary authority

to formulate guidelines to be used by the Board in rendering

its decisions. Id. § 1395ww(d)(10)(D)(i) (“The Secretary

shall publish guidelines to be utilized by the Board in

rendering decisions on applications submitted under this

paragraph . . . .”).

Under those guidelines, which are generally listed at

42 C.F.R. § 412 et seq., a hospital seeking reclassification

must show (1) proximity to the area to which it seeks

redesignation, 42 C.F.R. § 412.230(a)(2), (b)(1); (2) that the

hospital’s three-year average hourly wage (“AHW”) is higher

than other hospitals’ in the area in which it is located, id.

§ 412.230(d)(1)(iii); and (3) that the hospital’s AHW is

comparable to hospitals’ in the area to which it seeks

redesignation, id. § 412.230(d)(1)(iv). For all three criteria,

there are more relaxed standards for hospitals located in rural

areas. For instance, the proximity rule requires that urban

hospitals be located within 15 miles of the area to which it

seeks reclassification, but only requires rural hospitals to be

5

within 35 miles. Id. § 412.230(b)(1). In addition, certain

“special” status hospitals, such as rural referral centers

(“RRCs”), are exempt from the first and second requirements.

See 42 U.S.C. § 1395ww(d)(10)(D)(iii); 42 C.F.R.

§ 412.230(a)(3), (d)(3).

In 1999, ten years after the Board was established,

Congress enacted Section 401. Section 401 allows hospitals

located in urban areas to be treated as hospitals located in

rural areas for the purpose of determining three aspects of

Medicare reimbursement: inpatient reimbursement, 42

U.S.C. § 1395ww(d)(8)(E); outpatient reimbursement, id.

§ 1395l(t); and critical access hospital eligibility, id. § 1395i-

4(c)(2)(B)(i). Only the first component, which amends

subsection (d), is at issue here. It reads in full:

42 U.S.C. [§] 1395ww(d)(8)[] is amended by

adding at the end the following new

subparagraph:

(E)(i) For purposes of this subsection, 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))1 of the State in

which the hospital is located.

(ii) For purposes of clause (i), a subsection

(d) hospital described in this clause is a

1

Pursuant to 42 U.S.C. § 1395ww(d)(2)(D), “the term

‘rural area’ means any area outside [] an [urban] area.”

6

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.

Id. § 1395ww(d)(8). In the Conference Report accompanying

Section 401, Congress highlighted several benefits of a

hospital receiving Section 401 status:

7

Hospitals qualifying under this section shall be

eligible to qualify for all categories and

designations available to rural hospitals,

including sole community, Medicare dependent,

critical access, and referral centers.

Additionally, qualifying hospitals shall be

eligible to apply to the Medicare Geographic

[Classification] Review Board for geographic

reclassification to another area. The Board shall

regard such hospitals as rural and as entitled to

the exceptions extended to referral centers and

sole community hospitals, if such hospitals are

so designated.

H.R. Conf. Rep. No. 106-479, 512 (1999).

The Secretary, in implementing Section 401, was

concerned that the statute would “create an opportunity for

some urban hospitals to take advantage of the [Board]

process.” See 65 Fed. Reg. 47,054, 47,087 (Aug. 1, 2000).

She was afraid that some hospitals, claiming to be

disadvantaged by their urban status, could first be reclassified

as rural under Section 401 and thereby “receiv[e] the benefits

afforded to rural hospitals,” and then subsequently claim

disadvantage from that rural status and “seek reclassification

through the [Board] back to the urban area for purposes of

their standardized amount and wage index.” Id. As a result,

the Secretary issued the Reclassification Rule:

An urban hospital that has been granted

redesignation as rural under § 412.103 [the

regulation implementing Section 401] cannot

receive an additional reclassification by the

[Board] based on this acquired rural status for a

year in which such redesignation is in effect.

8

42 C.F.R. § 412.230(a)(5)(iii). Under the Reclassification

Rule, a hospital with Section 401 status cannot be reclassified

by the Board to a different wage index area for any year the

hospital maintains that status. To seek reclassification by the

Board, therefore, a subsection (d) hospital must cancel its

Section 401 designation.

B.

Geisinger is a not-for-profit, general, acute care

hospital physically located in the Scranton-Wilkes-Barre-

Hazelton, PA CBSA. It applied for designation as a Section

401 hospital and was approved, effective June 11, 2014. It

also applied for designation as an RRC and was approved,

effective July 1, 2014.2 On August 26, 2014, Geisinger

cancelled its Section 401 status, effective October 1, 2015.

On August 28, 2014, Geisinger submitted two

applications to the Board to redesignate to a different urban

area, effective October 1, 2015: (1) on the basis of its Section

401 status, a primary application as a rural hospital to

reclassify to the Allentown-Bethlehem-Easton, PA-NJ CBSA

(“Allentown CBSA”); and (2) on the basis of its cancelled

Section 401 status, effective October 1, 2015, a secondary

application as an urban hospital to reclassify to the East

Stroudsburg, PA CBSA (“East Stroudsburg CBSA”), which

would be considered only if the former was denied.

Geisinger estimates that reclassification to the Allentown

CBSA would increase its reimbursement payments by

approximately $2.6 million per year and to the East

Stroudsburg CBSA by approximately $1.3 million per year.

2

See 42 U.S.C. § 1395ww(d)(5)(C)(i) (providing that

to earn status as an RRC a hospital must first be classified as

rural).

9

The 27-mile distance between Geisinger and the

Allentown CBSA fails to meet the proximity requirement

under the Secretary’s rules for hospitals located in urban

areas, but it meets the more relaxed criteria for hospitals

located in rural areas. See id. § 412.230(b)(1). But for the

Reclassification Rule, therefore, Geisinger’s primary

application as a hospital with Section 401 status would be

considered by the Board using the rural standards. However,

because it was “[l]eft with no choice but to try to comply with

the Secretary’s illegal regulatory scheme or lose millions of

dollars in reimbursement,” Geisinger cancelled its Section

401 status so that the Board could alternatively consider its

application to the East Stroudsburg CBSA, whose

requirements it could meet as an urban hospital.3 Appellant’s

Br. at 14.

C.

On September 10, 2014, while its applications were

pending before the Board, Geisinger filed a complaint in the

U.S. District Court for the Middle District of Pennsylvania.

Count I alleged that the Reclassification Rule violates Section

401. Count II alleged that the Reclassification Rule violates

the Administrative Procedure Act (“APA”), 5 U.S.C. § 701 et

seq. Geisinger sought a declaratory judgment that the

Reclassification Rule was unlawful and a permanent

3

Geisinger’s application to the East Stroudsburg

CBSA relied on a rule that allows a hospital with current

status as an RRC (as of the date of the Board’s review) to

reclassify to the nearest urban area without satisfying

proximity requirements. See 42 C.F.R. § 412.230(a)(3).

Geisinger is located 15.7 miles away from the East

Stroudsburg CBSA, which is the nearest urban area to

Geisinger.

10

injunction, an order of mandamus, or both, prohibiting the

agency from applying the Reclassification Rule to its pending

applications and ordering it to apply the rural standards.

The parties filed cross-motions for summary judgment

and the District Court granted Appellees’ motion on

December 22, 2014. See Geisinger Cmty. Med. Ctr. v.

Burwell, Civ. A. No. 3:14-1763, 2014 WL 7338751 (M.D. Pa.

Dec. 22, 2014). The District Court first explained that it had

subject matter jurisdiction because Geisinger challenged the

legality of the Reclassification Rule itself and not the

agency’s decisions on its applications, over which the

Medicare Act precludes judicial review. See 42 U.S.C.

§ 1395ww(d)(10)(C)(iii)(II) (providing that Board decisions

may be appealed to the Secretary and that “[t]he decision of

the Secretary shall be final and shall not be subject to judicial

review”). On the merits, the District Court held that because

Congress did not expressly provide that Section 401 extends

to the Board reclassification process, and because Congress

granted the Secretary broad authority to administer that

process, Section 401 was ambiguous at Step One of Chevron,

467 U.S. at 842-43. At Step Two, the District Court

concluded that the Secretary’s decision to eliminate the

potential for “inconsistent reclassifications of the same

hospital for the same period” and other “unintended

consequences” vis-à-vis the Reclassification Rule was a

reasonable accommodation of Section 401 and therefore

should be upheld. Geisinger, 2014 WL 7338751, at *10.

Geisinger timely appealed.

On February 23, 2015, the Board did not treat

Geisinger as located in the rural area of Pennsylvania and

denied Geisinger’s primary application for reclassification to

the Allentown CBSA. It approved Geisinger’s secondary

application for reclassification to the East Stroudsburg CBSA

11

on the basis that Geisinger had cancelled its Section 401

status. Reinforcing the application of the Reclassification

Rule, the Administrator of CMS affirmed the Board’s

decision on June 1, 2015.4

II.

The District Court exercised jurisdiction under 28

U.S.C. §§ 1331 and 1361 and 5 U.S.C. § 701 et seq. We

exercise appellate jurisdiction under 28 U.S.C. § 1291.

The Court reviews the District Court’s grant of

summary judgment de novo. Montone v. City of Jersey City,

709 F.3d 181, 189 (3d Cir. 2013). Under the APA, a

reviewing court may “hold unlawful or set aside agency

action, findings, and conclusions” that are found to be, inter

alia, “not in accordance with law.” 5 U.S.C. § 706(2). While

we usually afford deference to an agency’s interpretation of a

statute it is charged with administering, “when we are called

upon to resolve pure questions of law by statutory

4

Because Geisinger does not seek judicial review of

the denial of its applications, this Court maintains jurisdiction

over the appeal. See ParkView Med. Assocs., L.P. v. Shalala,

158 F.3d 146, 148 (D.C. Cir. 1998) (explaining that

“hospitals [are] free to challenge the general rules leading to

denial” where the Secretary affirmed the Board’s denial of

plaintiff’s reclassification request); Universal Health Servs. v.

Sullivan, 770 F. Supp. 704, 710 (D.D.C. 1991) (“The

[Medicare] Act does not . . . expressly preclude judicial

review of the guidelines utilized by the Board and the

Secretary in deciding upon reclassification requests.”); cf. 5

U.S.C. § 702 (conferring a general cause of action upon

persons “suffering legal wrong because of agency action” and

withdrawing it where the relevant statute precludes judicial

review).

12

interpretation, we decide the issue de novo without deferring

to [the] agency.” Port Auth. Trans-Hudson Corp. v. Sec’y,

U.S. Dep’t of Labor, 776 F.3d 157, 161 (3d Cir. 2015)

(internal quotation marks omitted).

III.

Because this case concerns a challenge to an agency’s

construction of a statute, we use the familiar two-step analysis

set forth in Chevron. “First, always, is the question whether

Congress has directly spoken to the precise question at issue.

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.” Chevron, 467

U.S. at 842-43. We proceed to Step Two “if the statute is

silent or ambiguous with respect to the specific issue.” Id. at

843. Then, “the question for the court is whether the

agency’s answer is based on a permissible construction of the

statute,” and the regulation must be given deference unless it

is “arbitrary, capricious, or manifestly contrary to the statute.”

Id. at 843, 844.

The “precise question at issue” here is 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 842. Based on the plain

language of the statute, we conclude that Congress has

unambiguously expressed its intent that the Secretary shall do

so. Because Congress’s intent is clear, we complete our

analysis at Step One and do not proceed to Step Two to

determine whether the Reclassification Rule is a permissible

construction of Section 401.

A.

To determine whether a statute is unambiguous under

Step One, “court[s] should always turn first to one, cardinal

13

canon before all others[:] We have stated time and again that

courts must presume that a legislature says in a statute what it

means and means in a statute what it says there.” Conn. Nat’l

Bank v. Germain, 503 U.S. 249, 253-54 (1992). That is,

because we presume Congress expresses its intent through the

ordinary meaning of the words it uses, an exercise of statutory

interpretation must begin by examining the plain and literal

language of the statute. See United States v. Geiser, 527 F.3d

288, 294 (3d Cir. 2008). And “[w]here the statutory language

is plain and unambiguous, further inquiry is not required.”

Rosenberg v. XM Ventures, 274 F.3d 137, 141 (3d Cir. 2001);

In re Price v. Del. State Police Fed. Credit Union, 370 F.3d

362, 368 (3d Cir. 2004) (“We are to begin with the text of a

provision and, if its meaning is clear, end there.”).

While we also read the language in its broader context

of the statute as a whole, see id. at 369-70, this Court made

clear in United States v. Geiser that “legislative history

should not be considered at Chevron [S]tep [O]ne,” 527 F.3d

at 294; In re Phila. Newspapers, LLC, 599 F.3d 298, 304 (3d

Cir. 2010) (“Where the statutory language is unambiguous,

the court should not consider statutory purpose or legislative

history.”). Following the Court’s established precedent on

14

this matter, we will not consider legislative history in our Step

One analysis.5

With this framework in mind, we turn to the text of

Section 401. The relevant portion reads: “For purposes of

this subsection . . . the Secretary shall treat the hospital [with

Section 401 status] 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). The parties

make several quasi-textual and -structural arguments

supporting their interpretation of the statute that we group

into three categories and discuss in turn.

1.

Geisinger’s first argument relates to Section 401’s

opening clause, “[f]or purposes of this subsection.” Id. The

5

Geisinger argues that the Supreme Court’s recent

plurality decision in Lawson v. FMR LLC, which cited to the

legislative record to determine whether a provision of the

Sarbanes-Oxley Act was ambiguous, mandates that legislative

history should now be considered at Step One. 134 S. Ct.

1158, 1169-71 (2014). However, the Supreme Court has

often oscillated between considering and then refusing to

consider legislative history at Step One. We explicitly noted

the Supreme Court’s “ambiguous guidance” in this regard and

nonetheless firmly staked our position in Geiser. 527 F.3d at

293. If the Supreme Court had intended to clarify the

widespread confusion around this issue, we imagine that it

would say so clearly. And even if it had, it bears emphasis

that the decision was a plurality opinion. In any event, this

Court has spoken clearly on its refusal to consider legislative

history at Step One, see id., and we see no reason to revisit

that decision because some members of the Supreme Court

considered legislative history in passing in Lawson.

15

subsection to which the statute indisputably refers is

subsection (d), which, as discussed, addresses a wide range of

rules for inpatient care reimbursement under the Medicare

program, including the requirements for calculating the

standardized rate for rural and urban regional areas, id.

§ 1395ww(d)(2)(D); adjusting the wage index on the basis of

a hospital’s local geographic area, id. § 1395ww(d)(3); and

administering the Board reclassification process, id.

§ 1395ww(d)(10). Geisinger alleges that this clause, which

explicitly directs the Secretary to apply Section 401 for

purposes of subsection (d), requires the Secretary to apply

Section 401 to subsection (d)(10), i.e., the Board

reclassification process. We agree.

One of our “most basic interpretive canons” is that “[a]

statute should be construed so that effect is given to all its

provisions, so that no part will be inoperative or superfluous,

void or insignificant.” Corley v. United States, 556 U.S. 303,

314 (2009) (alteration in original) (internal quotation marks

omitted); see also Rosenberg, 274 F.3d at 142 (“[T]he

preferred construction of a statute and its regulations is one

that gives meaning to all provisions.”). Here, Congress must

have intended that Section 401 apply comprehensively over

subsection (d), including subsection (d)(10), because the

language “[f]or purposes of this subsection” would not have

any purpose or meaning if it did not.

Appellees counter that because Section 401 is not

applicable to every paragraph within subsection (d), whether

Section 401 must apply to the Board reclassification process

is ambiguous. For instance, the command that a hospital shall

be treated as rural is not applicable to subsection (d)(6),

which requires the Secretary to make certain publications in

the Federal Register, 42 U.S.C. § 1395ww(d)(6); or

subsection (d)(7), which limits administrative and judicial

16

review, id. § 1395ww(d)(7). In other words, there are some

subsection (d) provisions for which the hospital’s rural status

is irrelevant.

But this does not contravene Congress’s intent—

demonstrated by using the clause “[f]or purposes of this

subsection”—that Section 401 governs everywhere it is

applicable; it does not contravene Congress’s intent that

Section 401 governs everywhere a hospital’s rural status is

relevant. Cf. Babbitt v. Sweet Home Chap. of Cmtys. for a

Great Or., 515 U.S. 687, 722 (1995) (“[T]he definition of

‘take’ in [a provision of the Endangered Species Act] applies

‘[f]or the purposes of this chapter,’ that is, it governs the

meaning of the word as used everywhere in the Act.”). As

discussed, a hospital’s urban-rural geographic location has a

dispositive effect on the hospital’s designated standardized

rate and wage index. In turn, it has a dispositive effect on the

Board reclassification process, the statutory purpose of which

is to redesignate the hospital from rural to urban or vice versa

for purposes of receiving a new standardized rate or wage

index. See 42 U.S.C. § 1395ww(d)(10)(C). This bolsters our

conclusion that Congress intended Section 401 to apply to

these specific processes. Thus, we must 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.

The District Court disagreed with this construction,

concluding that “the statute does not discuss the Board

reclassification process at all, nor does it discuss the

intersection of redesignation and geographic reclassification

under the Medicare Act.” Geisinger, 2014 WL 7338751, at

*8; see also Appellees’ Br. at 23 (arguing that Section 401 is

“silent” with regard to Board reclassification). Appellees

further contend that if Congress had intended that subsection

17

(d) hospitals be able “to take advantage of both

reclassification procedures almost simultaneously, piling

exception on top of exception,” then it would have done so

more clearly. Appellees’ Br. at 25.

In other words, the District Court and Appellees read

ambiguity into the statute because of what it does not say,

rather than read it for what it plainly says. To be sure,

Congress did not explicitly provide that Section 401 applies

to subsection (d)(10). But it did explicitly provide that

Section 401 applies for purposes of subsection (d), which

covers subsection (d)(10) and had covered it for ten years

before Section 401 was amended. To comprehensively

amend subsection (d)—which contains dozens of paragraphs

and subparagraphs concerning inpatient reimbursement, many

of which involve a hospital’s rural or urban status—rather

than each provision within it, Congress necessarily used

broad language. Still, “[a]s a general matter of statutory

construction, a term in a statute is not ambiguous merely

because it is broad in scope.” See In re Phila. Newspapers,

599 F.3d at 310; see also Diamond v. Chakrabarty, 447 U.S.

303, 315 (1980) (“Broad general language is not necessarily

ambiguous when congressional objectives require broad

terms.”). If the phrase was not intended to cover subsection

(d)(10), contrary to the literal reading of the text, then

Congress would have noted which paragraphs of subsection

(d) were specifically excluded or included. It did not. And

despite Appellees’ attempt to infer intent against layering the

two reclassification processes, the Court cannot ignore the

plain language of the statute. “Our task is to apply the text,

not to improve upon it.” Pavelic & LeFlore v. Marvel Entm’t

Grp., 493 U.S. 120, 126 (1989).

18

2.

Next, Geisinger points to the portion of the text

mandating that hospitals with Section 401 status be treated

“as being located in the rural area (as defined in paragraph

(2)(D)) of the state where the hospital is located.” 42 U.S.C.

§ 1395ww(d)(8)(E)(i). Paragraph (2)(D) defines “rural area”

as “any area outside” an urban area. Id. § 1395ww(d)(2)(D).

Because there is only one definition of “rural” within

subsection (d), Geisinger argues, Congress must have

intended that the Board evaluate applications from hospitals

with acquired-rural status under Section 401 in the same way

it evaluates applications from hospitals physically located in

rural areas.

Appellees argue, however, that Geisinger’s

interpretation is permissible under the plain language of the

statute, but it is not compelled. Another interpretation of

Section 401, they reason, is that the Secretary must treat

Section 401 hospitals as rural for all inpatient reimbursement

purposes and, therefore, must not reclassify those hospitals as

urban under the Board reclassification process.

To be sure, “[a] provision is ambiguous only where the

disputed language is reasonably susceptible of different

interpretations.” In re Phila. Newspapers, 599 F.3d at 304

(internal quotation marks omitted). “But just because a

particular provision may be, by itself, susceptible to differing

constructions does not mean that the provision is therefore

ambiguous. . . . Rather, a provision is ambiguous when,

despite a studied examination of the statutory context, the

natural reading of a provision remains elusive.” In re Price,

370 F.3d at 369. Here, the natural reading of Section 401 and

the statutory scheme reinforces Geisinger’s view.

Section 401 does not say that we cannot reclassify the

Section 401 hospital as urban. It says we must treat the

19

Section 401 hospital as rural for purposes of subsection (d),

including subsection (d)(10). This means that Section 401

hospitals must be able to participate in the Board

reclassification process and seek redesignation from their

current location to another location for purposes of receiving

a new standardized rate or wage index. To this end, Section

401 mandates that hospitals with Section 401 status be treated

as rural, which has well-settled meaning and implications

under the Medicare Act. See supra Part I.A. Thus, hospitals

with Section 401 status should apply as being located in the

rural area of their state and be evaluated by the Board under

the more relaxed standards regularly applied to rural

hospitals. Considering this “broader, contextual view”

together with the text, In re Price, 370 F.3d at 369, we find

the statute unambiguous. Appellees’ view that Section 401

hospitals cannot be reclassified as urban would, in effect,

prohibit hospitals with Section 401 status from reclassifying

under subsection (d)(10), contrary to the plain and natural

reading of the statute.

3.

Third, and finally, Geisinger focuses on Section 401’s

command that “the Secretary shall treat” hospitals with

Section 401 status as rural. 42 U.S.C. § 1395ww(d)(8)(E)(i)

(emphasis added). Geisinger argues that the “shall” language

in Section 401 must be viewed as mandatory. See, e.g.,

United States v. Monsanto, 491 U.S. 600, 607 (1989).

Indeed, “[t]he word shall is ordinarily the language of

command.” Alabama v. Bozeman, 533 U.S. 146, 153 (2001)

(internal quotation marks omitted).

Appellees do not dispute that Section 401 uses

mandatory language, nor do we. Appellees argue, rather, that

because Congress granted the Secretary authority to

promulgate guidelines for the Board reclassification process,

20

see 42 U.S.C. § 1395ww(d)(10)(D), the Reclassification Rule

was a permissible and necessary exercise of that authority in

the supposed gap that Section 401 created. Appellees

emphasize that “[n]othing in Section 401 constrains the

Secretary’s broad discretion to establish criteria for Board

reclassification,” which “‘is precisely the type of legislative

gap-filling that [courts] entrust to an agency’s sound

discretion.’” Appellees’ Br. at 23 (quoting Santomenno ex

rel. John Hancock Trust v. John Hancock Life Ins. Co.

(U.S.A), 768 F.3d 284, 299 (3d Cir. 2014)).

But this authority was granted in subsection (d)(10),

which, again, covers the Board reclassification process.

While the Secretary is unquestionably authorized to issue

guidelines regarding Board reclassification, e.g., to design the

proximity standards for urban versus rural hospitals, it does

not follow that the Secretary is authorized to disregard the

plain language of Section 401. Rather, Section 401’s

mandate that the Secretary shall treat Section 401 hospitals as

rural without adding any discretionary language as Congress

used in subsection (d)(10) and elsewhere in Section 401 itself,

see 42 U.S.C. § 1395ww(d)(8)(E)(i) (referencing the receipt

of an application “in a form and manner determined by the

Secretary”); id. § 1395ww(d)(8)(E)(ii)(IV) (establishing as

the last criterion for Section 401 eligibility any “other criteria

as the Secretary may specify”), lends itself to the opposite

conclusion. “[W]here Congress includes particular language

in one section of a statute but omits it in another section of the

same Act, it is generally presumed that Congress acts

intentionally and purposely in the disparate inclusion or

exclusion.” Russello v. United States, 464 U.S. 16, 23 (1983)

(alteration in original) (internal quotation marks omitted).

Congress could have granted the Secretary discretion to

administer Section 401. It did not. Rather, it used

21

commanding language and the Court must give that language

effect, notwithstanding the Secretary’s independent authority

to develop guidelines used in the Board reclassification

process.

B.

Section 401 refers to subsection (d) in its entirety,

which includes the Board reclassification process; requires

the Secretary to treat Section 401 status hospitals as rural,

which has a singular definition and well-settled implications

under the Medicare Act; and uses mandatory language

(“shall”). Altogether, we read Section 401 to reflect

Congress’s unambiguous intent on the “precise question at

issue,” Chevron, 467 U.S. at 842: for subsection (d)

purposes, including administering Board applications for

wage index reclassification, the Secretary shall treat Section

401 hospitals as located in the rural area of the state. Because

Congress’s intent is clear, we end our inquiry here and do not

reach Chevron Step Two. See id. at 843 n.9 (“If a court,

employing traditional tools of statutory construction,

ascertains that Congress had an intention on the precise

question at issue, that intention is the law and must be given

effect.”).

IV.

Congress has unambiguously expressed its intent that

the Secretary shall treat Section 401 hospitals as rural for

Board reclassification purposes. See 42 U.S.C.

§ 1395ww(d)(8)(E)(i). We conclude, therefore, that the

Reclassification Rule is unlawful and reverse the District

Court’s order granting Appellees’ summary judgment motion.

22

COWEN, Circuit Judge, dissenting

The majority offers a well-reasoned reading of Section 401.

In fact, the majority may even offer the most persuasive

interpretation of this statutory provision. However, it is not this

Court’s job to adopt what it believes to be the best reading of the

statute. Instead, we must “use the familiar two-step analysis set

forth in Chevron.” (Majority Opinion at 12.) Under this doctrine,

we must first decide whether or not “Congress has directly spoken

to the precise question at issue.” Chevron, U.S.A., Inc. v. Natural

Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984). If we

conclude that the statute is silent or ambiguous with respect to the

specific question at issue, the Court must then consider whether the

agency’s approach is based on a permissible construction of the

statute. See, e.g., id. at 843. “‘Chevron deference is premised on

the idea that where Congress has left a gap or ambiguity in a

statute within an agency’s jurisdiction, that agency has the power

to fill or clarify the relevant provisions.’” Santomenno ex rel. John

Hancock Trust v. John Hancock Life Ins. Co. (U.S.A.), 768 F.3d

284, 299 (3d Cir. 2014) (quoting Core Commnc’ns, Inc. v. Verizon

Pa. Inc., 493 F.3d 333, 343 (3d Cir. 2007)), cert. denied, 135 S. Ct.

1860 (2015). Accordingly, the Court must leave undisturbed “‘a

reasonable accommodation of conflicting policies that were

committed to the agency’s care by the statute . . . unless it appears

from the statute or its legislative history that the accommodation is

not one that Congress would have sanctioned.’” Chevron, 467

U.S. at 845 (citation omitted). We must defer to an agency’s

reasonable construction of a statute—“whether or not it is the only

possible interpretation or even the one a court might think best.”

Holder v. Martinez Gutierrez, 132 S. Ct. 2011, 2017 (2012) (citing

Chevron, 467 U.S. at 843-44 & n.11). Because I believe that

Section 401 is ambiguous and that the Reclassification Rule

constitutes a permissible interpretation of this statutory provision, I

must respectfully dissent.

1

“Section 401 refers to subsection (d) in its entirety” (which

includes subsection (d)(10)), expressly requires the Secretary to

treat a Section 401 hospital as being located in the rural area (as

defined in subsection (d)(2)(D)) of the State in which the hospital

is located, and, in the process, “uses mandatory language” (i.e.,

provides that the Secretary “shall” treat the hospital as being

located in a rural area). (Id. at 21.) Even if Section 401

unambiguously requires that a Section 401 hospital be treated as

though it were a hospital located in a rural area for purposes of

subsection (d)(10), it does not follow that this statutory provision

unambiguously requires the Secretary and the Board to consider

applications filed by Section 401 hospitals under the same exact

criteria the Secretary adopted to govern reclassification

applications filed by hospitals physically located in rural areas.

I agree with the District Court (as well as the United States

District Court for the District of Connecticut) that Section 401 is

silent as to whether hospitals reclassified as rural under Section

401 must be considered eligible for Board reclassification pursuant

2

to subsection (d)(10).1 See Lawrence & Mem’l Hosp. v. Burwell,

Civ. No. 3:13cv1495 (JBA), 2014 WL 7338859, at *6 (D. Conn.

Dec. 22, 2014); Geisinger Cmty. Med. Ctr. v. Burwell, --- F. Supp.

3d ---, 2014 WL 7338751, at *8 (M.D. Pa. 2014); Lawrence &

Mem’l Hosp. v. Burwell, 986 F. Supp. 2d 124, 135 (D. Conn. Dec.

6, 2013). Section 401 does not expressly address the specific

criteria that must be satisfied in order to obtain Board

reclassification. Even though it contains mandatory language, this

statutory provision does not expressly direct the Secretary or the

Board to treat Section 401 hospitals exactly the same as hospitals

physically located in rural areas as part of the Board

reclassification process. In fact, the provision does not address the

Board reclassification process at all—nor does it take into account

the intersection or relationship between Board reclassification

1

It appears that, although the Reclassification Rule

was promulgated in 2000, only two lawsuits have been filed

(to date) challenging the lawfulness of this rule. In addition

to the current proceeding filed by Geisinger in 2014,

Lawrence & Memorial Hospital commenced an action in the

District of Connecticut in 2013 attacking the Reclassification

Rule as unlawful under the terms of Section 401. The

Lawrence & Memorial Hospital court initially denied the

hospital’s motion for a preliminary injunction (enjoining

defendants from acting on its application for Board

reclassification under subsection (d)(10) until the district

court could hold a hearing on the merits of its action). See

Lawrence & Mem’l Hosp., 986 F. Supp. 2d at 127-38. It

subsequently granted summary judgment in favor of the

defendants. See Lawrence & Mem’l Hosp., 2014 WL

7338859, at *1-*10. Lawrence & Memorial Hospital’s

appeal is currently pending before the Second Circuit.

3

under subsection (d)(10), on the one hand, and Section 401

reclassification, on the other hand.

According to the majority, the District Court and Appellees

have read ambiguity into the statute based on what it does not say,

as opposed to what it plainly says. However, “what it does not

say” (id. at 17) is of special significance here given Congress’s

creation of two reclassification mechanisms. Both Section 401 and

subsection (d)(10) effectively serve as exceptions to the general

principle that a hospital’s reimbursement is tied to its physical

location. Does Section 401 unambiguously grant hospitals like

Geisinger the right “to take advantage of both reclassification

procedures almost simultaneously, piling exception on top of

exception”—and to do so under the same Board reclassification

standards that otherwise apply to hospitals physically located in

rural areas? (Appellees’ Brief at 25.) Given the statutory silence,

the answer to this question must be “No.” According to Appellees,

Section 401 could reasonably be read as a directive for the

Secretary to treat Section 401 hospitals as rural for all purposes,

thereby prohibiting any further reclassification under subsection

(d)(10). While this may not be the best reading of the statutory

provision, the majority goes too far by claiming that it is contrary

to the plain and natural reading of this provision. After all, Section

401 broadly applies to subsection (d) and states, inter alia, that the

Secretary “shall treat” the hospital as being located in the “rural”

area of the State. Congress, in any event, left what could only be

considered a “‘gap’” between two distinct reclassification

mechanisms, which the Secretary attempted “‘to fill’” by adopting

the Reclassification Rule. Santomenno, 768 F.3d at 299 (citation

omitted). In fact, Congress delegated to the Secretary broad

4

discretionary authority over the Board reclassification process.2

Subsection (d)(10)(D)(i) provides that “[t]he Secretary shall

publish guidelines to be utilized by the Board in rendering

decisions on applications submitted under this paragraph.” The

majority acknowledges that “the Secretary is unquestionably

authorized to issue guidelines regarding Board reclassification,

e.g., to design the proximity standards for urban versus rural

hospitals,” but it underestimates the scope and significance of this

delegation of authority. (Majority Opinion at 20.) This Court has

recognized that Congress established the Board to pass on

applications for reclassification “according to certain standards and

guidelines” and then “gave the Secretary the authority to formulate

the guidelines to be used by the [Board].” Robert Wood Johnson

Univ. Hosp. v. Thompson, 297 F.3d 273, 276 (3d Cir. 2002) (citing

subsection (d)(10)(D) and 42 C.F.R. § 412.230 et seq.); see also,

e.g., Athens Comty. Hosp., Inc. v. Shalala, 21 F.3d 1176, 1179

(D.C. Cir. 1994) (indicating that Congress delegated to Secretary

authority to determine degree to which Board’s discretion should

2

I further note that the majority also relies on what

Section 401 “does not say” at several points in its opinion.

(See Majority Opinion at 17 (“If the phrase was not intended

to cover subsection (d)(10), contrary to the literal reading of

the text, then Congress would have noted which paragraphs

of subsection (d) were specifically excluded or included.”),

19 (“Section 401 does not say that we cannot reclassify the

Section 401 hospital as urban.”), 20-21 (“Rather, Section

401’s mandate that the Secretary shall treat Section 401

hospitals as rural without adding any discretionary language

as Congress used in subsection (d)(10) and elsewhere in

Section 401 itself, lends itself to the opposite conclusion.”

(citations omitted)).

5

be limited); Universal Health Servs. of McAllen, Inc. v. Sullivan,

770 F. Supp. 704, 716-17 (D.D.C. 1991) (explaining that Congress

intended to grant Secretary power to establish substantive criteria

for Board reclassification), aff’d mem., 978 F.2d 745 (D.C. Cir.

1992). “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.’” Robert Wood Johnson, 297 F.3d at 282 (quoting

Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994)); see

also, e.g., Universal Health Servs., 770 F. Supp. at 718 (“Judicial

deference is particularly appropriate because the Secretary’s

obligation to promulgate reclassification guidelines involves an

‘“accommodation of conflicting policies that were committed to

the agency’s care by statute, . . .”’ [Chevron, 467 U.S. at 845]

(citations omitted). As previously discussed, the Secretary’s duty

to ensure budget neutrality is at odds with his duty to reclassify

hospitals so that they may receive increased Medicare

reimbursement. The Secretary, as sole administrator of the

Medicare Act, is in a unique position to evaluate and reconcile the

competing policy concerns within the Medicare program.”).

Most of the substantive standards or criteria that the Board

uses to dispose of reclassification applications are set forth in the

Secretary’s own regulations. Congress did expressly direct the

Secretary to include guidelines for, inter alia, “comparing wages”

in the area in which the hospital is classified and the area in which

the hospital is applying to be classified. § 1395ww(d)(10)(D)(i)(I).

It also specified that the guidelines shall provide for the Board to

base any comparison of the “average hourly wage” on the average

of the AHW in the most recently published data and such amount

from each of the two immediately preceding surveys. §

1395ww(d)(10)(D)(vi). “Under the guidelines published by the

Secretary under clause (i), in the case of a hospital which has ever

6

been classified by the Secretary as a rural referral center under

paragraph (5)(C), the Board may not reject the application of the

hospital under this paragraph on the basis of any comparison

between the average hourly wage of the hospital and the average

hourly wage of hospitals in the area in which it is located.” §

1395ww(d)(10)(D)(iii). In turn, it was the Secretary—and not

Congress—that then adopted the specific criteria that a hospital

must meet, i.e., a basic proximity requirement as well as standards

for comparing the hospital’s AHW with the AHW of other

hospitals located in the area in which the hospital is located and

with the AHW of hospitals in the area to which it seeks to

reclassify. See, e.g., Universal Health Servs., 770 F. Supp. at 706-

22 (rejecting challenge to Secretary’s proximity requirement). It

was also the Secretary that chose to treat urban and rural hospitals

differently for purposes of these criteria by, among other things,

specifying disparate proximity criteria for urban and rural

hospitals. I note that subsection (d)(10) does not even use the

terms “urban hospital,” “hospital located in an urban area,” or

“rural hospital.” Although it does refer to RRCs, the subsection

expressly mentions “hospitals located in a rural area” only once,

and it does so to specify that two Board members shall be

representatives of such hospitals. § 1395ww(d)(10)(B)(i).

The majority appears to suggest that this delegation of

authority is entitled to little, if any weight, in the current inquiry

because it was set forth in subsection (d)(10)—and not Section

401. According to the majority, “Section 401’s mandate that the

Secretary shall treat Section 401 hospitals as rural without adding

any discretionary language as Congress used in subsection (d)(10)

and elsewhere in Section 401 itself lends itself to the opposite

conclusion [that the Secretary is not “authorized to disregard the

plain language of Section 401”].” (Id. at 20-21 (citations

omitted).) As the majority recognized, we nevertheless must read

the language of a statutory provision in its broader context. See,

7

e.g., FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120,

132-33 (2000).

Section 401 itself purportedly amends subsection (d)(10)

(which was enacted ten years earlier). It is this subsection (and not

Section 401) that establishes the Board and grants the Secretary the

power to develop guidelines for the Board. It is reasonable to

conclude that Congress believed there was no need to add

additional language expressly granting the Secretary power to

adopt regulations regarding the eligibility of Section 401 hospitals

for Board reclassification (and the criteria to be used in assessing

their applications for Board reclassification) because Congress had

already delegated to the Secretary broad discretionary authority

over the entire Board reclassification process. In subsection

(d)(10)(D)(iii), Congress expressly prohibited the Secretary from

adopting any guideline allowing the Board to reject an application

filed by a hospital that has at any time been classified as an RRC

on the basis of a comparison of its AHW to the AHW of hospitals

in the area in which it is located. Congress similarly could have

amended subsection (d)(10) to add, for instance, language directing

the Secretary to publish a guideline requiring the Board to consider

applications filed by Section 401 hospitals under the same exact

criteria that govern reclassification applications filed by hospitals

physically located in rural areas. It did not do so, and I find that

this fact strongly weighs against the majority’s conclusion that

Congress unambiguously expressed its intent that the Secretary

shall treat Section 401 hospitals as rural for Board reclassification

purposes. (Cf., e.g., id. at 20-21 (“‘[W]here Congress includes

particular language in one section of a statute but omits it from

another, it is generally presumed that Congress acts intentionally

and purposefully in the disparate inclusion or exclusion.’ Russello

v. United States, 464 U.S. 16, 23 (1983) (alteration in original)

(internal quotation marks omitted).”).)

8

Because I conclude that Congress has not “directly spoken

to the precise question at issue” in this case, Chevron, 467 U.S. at

842-43, I must consider whether the Reclassification Rule

constitutes a permissible construction of Section 401. Given the

statutory ambiguity, it was the Secretary’s task—exercising the

broad discretionary authority granted under subsection (d)(10)—to

attempt to fill the gap that exists between two reclassification

mechanisms. See, e.g., Santomenno, 768 F.3d at 299. It is then

our obligation to decide whether this “‘interpretation is reasonable

in light of the language, policies, and legislative history’” of

Section 401 and the statutory scheme as a whole. United States v.

McGee, 763 F.3d 304, 315 (3d Cir. 2014) (quoting GenOn REMA,

LLC v. EPA, 722 F.3d 513, 522 (3d Cir. 2013), cert. denied, 135 S.

Ct. 1402 (2015). In light of the fact that Chevron deference is

especially appropriate in the Medicare context, see, e.g., Robert

Wood Johnson, 297 F.3d at 282, I believe that the Reclassification

Rule satisfies Chevron Step Two.

As the District Court aptly pointed out in its ruling, “[i]t

cannot be said that the Secretary’s regulation, which was

promulgated to avoid permitting a hospital to be treated as rural for

some purposes and as urban for others allowing the hospital to

receive inappropriate reimbursements, was unreasonable, even if

the plaintiff can point to other reasonable policy choices.”

Geisinger, 2014 WL 7338751, at *11. In the respective preambles

to the proposed and final rules implementing Section 401, the

Secretary addressed the statutory language, identified her primary

concern about this legislation (e.g., that hospitals physically

located in urban areas might try to take advantage of Section 401

by obtaining reclassification under this statutory provision and the

various benefits accorded to rural hospitals and then seek

reclassification under subsection (d)(10) back to urban areas for

standardized amount and wage index purposes), explained why

such a result would be inappropriate, and considered but rejected

9

alternative approaches. Medicare Program; Changes to the

Hospital Inpatient Prospective Payment Systems & Fiscal Year

2001 Rates, 65 Fed. Reg. 47,054, 47,087-89 (Aug. 1, 2000);

Medicare Program; Changes to the Hospital Inpatient Prospective

Payment Systems & Fiscal Year 2001 Rates, 65 Fed. Reg. 26,282,

26,308 (May 5, 2000); see also, e.g., Lawrence & Mem’l Hosp.,

2014 WL 7338859, at *8 (“[T]he record shows that the Secretary’s

decision was deliberate, logical, and considered.”). She expressly

addressed the Conference Report accompanying Section 401. 65

Fed. Reg. at 47,087-89; 65 Fed. Reg. at 26,308. By stating that the

Section 401 hospitals shall be eligible for Board reclassification

and that “[t]he Board shall regard such hospitals as rural,” the

report does weigh in favor of Geisinger’s reading of this statutory

provision. H.R. Conf. Rep. No. 106-479, 512 (1999). However,

this report (which did not mention subsection (d)(10)’s delegation

of authority to the Secretary and did not expressly consider the

potential problems that could arise from the existence of two

distinct reclassification mechanisms) is insufficient to establish

that Congress would never have sanctioned the Secretary’s

Reclassification Rule. See, e.g., Chevron, 467 U.S. at 845. In the

end, the Secretary appropriately exercised the power she was

granted by Congress so as to reconcile the distinct reclassification

mechanisms created by Congress.

For the foregoing reasons, I would affirm the order of the

District Court granting Appellees’ motion for summary judgment.

10