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Geisinger Cmty. Med. Ctr. v. Sec'y United States HHS

United States Court of Appeals, Third Circuit

July 23, 2015

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

Argued April 21, 2015

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[Copyrighted Material Omitted]

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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.

Mary Kay Brown, Esq., Brown Wynn McGarry Nimeroff, Philadelphia, PA; Joseph D. Glazer, Esq. (ARGUED), Princeton, NJ, Counsel for Appellant.

Kate L. Mershimer, Esq., D. Brian Simpson, Esq., Office of United States Attorney, Harrisburg, PA; Tara S. Morrissey, Esq. (ARGUED), Michael S. Raab, Esq., United States Department of Justice, Washington, DC, Counsel for Appellees.

Before: FISHER, CHAGARES and COWEN, Circuit Judges. COWEN, Circuit Judge, dissenting.


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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, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), and granted summary judgment in favor of Appellees. Because we conclude that Section 401 is unambiguous, we will reverse.



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

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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. 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 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

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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 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:

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 ...

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