Anna Jacques Hospital v. Sylvia Mathews Burwell

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 6, 2015 Decided August 14, 2015
No. 14-5125
ANNA JACQUES HOSPITAL, ET AL.,
APPELLANTS
v.
SYLVIA MATHEWS BURWELL,
APPELLEE
Appeal from the United States District Court
for the District of Columbia
(No. 1:13-cv-00053)
Keith D. Barber argued the cause for appellants. With
him on the briefs were N. Kent Smith and Amy L. Brown.
Katherine T. Allen, Attorney, U.S. Department of Justice,
argued the cause for appellee. On the brief were Ronald C.
Machen, Jr., U.S. Attorney at the time the brief was filed, and
Michael S. Raab, Attorney. Samantha L. Chaifetz, Attorney,
and R. Craig Lawrence, Assistant U.S. Attorney, entered
appearances.
Before: KAVANAUGH, MILLETT and WILKINS, Circuit
Judges.
Opinion for the Court filed by Circuit Judge MILLETT.
2
MILLETT, Circuit Judge: The Medicare Act, 42 U.S.C.
§§ 1395 et seq., established a nationwide, federally funded
health insurance program for the elderly and individuals with
disabilities. Unsurprisingly, reimbursing hospitals for
Medicare services provided to patients across the entire
United States is a complicated business. One reason is that
the cost of providing such care can vary significantly
depending on where a hospital is located. An influential
factor in that variation is the wages paid to hospital
employees, which fluctuate based on the cost of living in
different geographic areas. To help compensate for those
disparities, the Medicare Act charges the Secretary of Health
and Human Services with computing annually a “wage index”
that compares hospital wages within defined geographic areas
to a national average, and adjusts Medicare reimbursements
accordingly.
This case arises from the Secretary’s decision in 2005 to
change the boundaries of the geographic areas used to
compute those regional wage indices. The new lines fell in a
way that left three multi-campus hospitals straddling different
geographic areas. One is the Southcoast Hospital Group,
which found itself with campuses in both the Boston-Quincy,
Massachusetts region and in the neighboring Providence-New
Bedford-Fall River (“Providence”) region. 1 Consistent with
longstanding agency regulations, the Secretary factored all of
Southcoast’s wages into the Boston-Quincy index because
that is where its principal campus with the group’s Medicare
provider and reporting number was situated. Concerned that
the inclusion of wages from the Providence-area campuses
lowered their wage index and thus their Medicare
reimbursements, a group of hospitals challenged the
1
Providence is in Rhode Island; New Bedford and Fall River are in
Massachusetts.
3
Secretary’s decision to include wage data from Southcoast
campuses outside the Boston-Quincy area in calculating the
index for that area for fiscal years 2006 and 2007.
We uphold the Secretary’s decision. The Secretary’s
treatment of Southcoast hewed to the existing administrative
treatment of such multi-campus hospital groups. And
reasonably so—there were substantial informational and
operational obstacles to implementing a different
computational method quickly in 2006 or retroactively now.
Moreover, appellants admit that the temporary effect of
Southcoast’s multi-campus data on the wage index was a
“one-off” occurrence arising from “unusual circumstances”
that apparently did not affect any other multi-campus hospital
group’s treatment. Oral Arg. Tr. 52–53. Nothing in the
Medicare Act or established principles of administrative
review mandate that the Secretary individually tailor one
hospital’s reporting treatment to fit plaintiffs’ preferred
computational outcome.
I
Statutory and Regulatory Framework
As has oft been noted, Medicare is a “complex and highly
technical regulatory program.” Thomas Jefferson University
v. Shalala, 512 U.S. 504, 512 (1994) (citation omitted). The
Medicare program is administered by the Centers for
Medicare and Medicaid Services (“Centers”), a division of the
Department of Health and Human Services, under the
executive management of the Secretary of Health and Human
Services. St. Elizabeth’s Medical Center of Boston, Inc. v.
Thompson, 396 F.3d 1228, 1230 (D.C. Cir. 2005). As part of
the program, health care providers are reimbursed for certain
costs that they incur in treating Medicare beneficiaries.
4
Methodist Hospital of Sacramento v. Shalala, 38 F.3d 1225,
1227 (D.C. Cir. 1994).
Originally, health care providers were reimbursed for the
“reasonable costs” of services furnished to Medicare patients.
Methodist Hospital, 38 F.3d at 1227. In 1983, Congress
substantially revised that payment regime and created the
Prospective Payment System. See Social Security
Amendments of 1983, Pub. L. No. 98-21, § 601, 97 Stat. 65,
149; see also Methodist Hospital, 38 F.3d at 1227. The
Prospective Payment System reimburses hospitals for medical
care requiring at least one night’s stay on the basis of a pre-
established formula, regardless of the actual costs incurred by
the hospital. 42 U.S.C. § 1395ww(d); see generally Anna
Jaques Hospital v. Sebelius, 583 F.3d 1, 2 (D.C. Cir. 2009).
The payment rates are tied to the national average cost of
treating a patient’s particular ailment. See 42 U.S.C.
§ 1395ww(d). Congress intended for those rates to “reform
the financial incentives hospitals face [and] promot[e]
efficiency in the provision of services[.]” Methodist Hospital,
38 F.3d at 1227 (quoting H.R. Rep. No. 25, 98th Cong., 1st
Sess. 132 (1983)).
In calculating those standard payments, the Secretary is
required to adjust the “proportion” of the payment attributable
to “wages and wage-related costs” for “area differences in
hospital wage levels[.]” 42 U.S.C. § 1395ww(d)(3)(E)(i). To
ensure uniformity in the adjustment process, the statute
requires the Secretary to compute a “factor” that “reflect[s]
the relative hospital wage level in the geographic area of the
hospital compared to the national average[.]” Id. That
“factor” is commonly referred to as “the wage index.”
Southeast Alabama Medical Center v. Sebelius, 572 F.3d 912,
914–915 (D.C. Cir. 2009); see also Changes to the Hospital
Inpatient Prospective Payment Systems and Fiscal Year 2006
5
Rates (“Final 2006 Rules”), 70 Fed. Reg. 47,278, 47,281
(Aug. 12, 2005) (“The base payment rate is comprised of a
standardized amount that is divided into a labor-related share
and a nonlabor-related share. The labor-related share is
adjusted by the wage index applicable to the area where the
hospital is located[.]”).
The wage index must be updated each year “on the basis
of a survey” of the wage-related costs for hospitals in the
United States. 42 U.S.C. § 1395ww(d)(3)(E)(i). The
Secretary collects annual cost reports from each hospital, see
Anna Jaques, 583 F.3d at 3; 42 C.F.R. § 413.20(b), and she
publishes a manual to guide hospitals through the reporting
process, see Centers for Medicare & Medicaid Services,
Medicare Provider Reimbursement Manual (“Reimbursement
Manual”), Part 2, Chapter 1 §§ 100 et seq. 2 Generally, each
hospital or facility that has been assigned its own Medicare
provider number must file its own report. Id. § 112 (“Each
provider in a chain organization or other group of providers,
except as noted below, must file a separate, individual cost
report.”). 3
A different rule applies, however, for multi-campus
hospitals. A multi-campus hospital is an organization with
multiple facilities that operates as a single institution with
2
Available at http://www.cms.gov/Regulations-and-
Guidance/Guidance/Manuals/Paper-Based-Manuals-
Items/CMS021935.html (last visited Aug. 11, 2015).
3
Each entity that has been certified to participate in the Medicare
program is assigned a unique numerical identifier for use in the full
range of Medicare filings and transactions. See generally HIPAA
Administrative Simplification: Standard Unique Health Identifier
for Health Care Providers, 69 Fed. Reg. 3434 (Jan. 23, 2004).
6
integrated finances, administration, and organization. See
Centers for Medicare & Medicaid Services, Medicare State
Operations Manual (“Operations Manual”), Chapter 2
§§ 2024, 2779F; 42 C.F.R. §§ 413.65(d)-(e). 4 A multi-
campus hospital may submit only one cost report each year
under its “principal provider” number. See Reimbursement
Manual, Part 2, Chapter 1 § 112 (“Institutions which have
multiple facilities but only one provider number * * * are
required to submit one cost report under that principal
provider number[.]”).
Multi-campus hospitals often form as the result of a
hospital merger or joint venture. After such a change, the
relevant state agency and the Centers regional office ascertain
whether the hospitals have the extensive legal, financial,
organizational, and administrative integration that is required
to be certified to operate as a single institution. See 42 C.F.R.
§ 413.65(d)–(e) (listing criteria to qualify as a single
institution); Operations Manual, Chapter 2 § 2024 (“When
two or more hospitals merge,” the agency must decide
“whether to continue to certify the hospitals separately or
certify them as a single hospital (i.e., hospital with a main
campus and an additional location).”). If any of the
integration criteria is not met, the campuses are treated as
“[f]ree-standing facilit[ies],” see 42 C.F.R. § 413.65(a)(2),
and each must operate under its own Medicare provider
number and submit, inter alia, its own cost reports, see
Reimbursement Manual, Part 2, Chapter 1 § 112.
If certified as a single institution, the hospital must
designate a “main campus,” and that campus’s Medicare
provider number is adopted by the hospital for common use
4
Available at http://www.cms.gov/Regulations-and-
Guidance/Guidance/Manuals/Downloads/som107c02.pdf (last
visited Aug. 11, 2015).
7
by all of its facilities. See generally Operations Manual,
Chapter 2 § 2779F. The provider numbers that correspond to
the other campuses, if any, are retired. See id. § 2779F.
Multi-campus hospitals also operate under a single provider
agreement with Medicare, id., through which they may bill for
services provided to Medicare beneficiaries as long as they
comply with all program requirements, 42 C.F.R. § 489.3.
Multi-campus hospitals’ subordinate campuses have
“provider-based” status that entitles them to operate under the
multi-campus hospital’s number and agreement. Id.
§ 413.65(a)(2).
After collecting cost reports from each hospital or
hospital group, the Secretary removes data that fails to meet
set criteria for reasonableness, including data that is
“incomplete[,] inaccurate * * *, or otherwise aberrant[.]”
Anna Jaques, 583 F.3d at 3 (quoting Changes to the Hospital
Inpatient Prospective Payment Systems and Fiscal Year 2005
Rates (“Final 2005 Rules”), 69 Fed. Reg. 48,916, 49,049–
49,050 (Aug. 11, 2004)). Because of the extensive amount of
time required to verify, scrub, and process the data, the
Secretary calculates each year’s wage index using data from
cost reports collected three years earlier. See Final 2005
Rules, 69 Fed. Reg. at 49,049.
In calculating a proposed wage index, the Secretary first
determines the regional average hourly wage rate for hospitals
in the defined geographic area, then calculates the national
average hourly wage rate, and finally divides the former by
the latter. See Final 2006 Rules, 70 Fed. Reg. at 47,373–
47,374. The closer the wage index for an area is to 1.0, the
closer that area’s wage costs are to the national average.
The Secretary publishes the proposed wage indices and
solicits comments from the public. 42 C.F.R. § 412.8. The
8
Secretary then promulgates the final wage indices as part of
the Inpatient Prospective Payment System rules and policies
for that year. 42 U.S.C. § 1395ww(d)(6). The index for each
geographic area will be used for one year to adjust the wage
portion of the prospective reimbursement payment for
treatment provided in that area. See Southeast Alabama
Medical Center, 572 F.3d at 915.
Of course, before any relevant wage data can be collected
or indices calculated, the Secretary must assign Medicare
hospitals to appropriate geographic regions. For the first two
decades of the Prospective Payment System, the Secretary
utilized the Office of Management and Budget’s Metropolitan
Statistical Areas to delineate the geographic areas for each
wage index. See Prospective Payments for Medicare
Inpatient Hospital Services, 48 Fed. Reg. 39,752, 39,766
(Sept. 1, 1983).
In December 2000, the Office of Management and
Budget announced that it would adopt a new standard for
demarcating metropolitan areas, known as Core-Based
Statistical Areas. See Final 2005 Rules, 69 Fed. Reg. at
49,027 (citing Standards for Defining Metropolitan and
Micropolitan Statistical Areas, 65 Fed. Reg. 82,228, 82,238
(Dec. 27, 2000)). After years of study, the Secretary
determined that, beginning in fiscal year 2005, she would use
those new Core-Based Statistical Areas to calculate the wage
indices. Final 2005 Rules, 69 Fed. Reg. at 49,027. The
Secretary recognized that this change would have
considerable impact on hospitals. Id. at 49,026–49,034. To
mitigate those effects, the Secretary implemented various
transitional provisions that, among other things, allowed
affected hospitals to be temporarily reimbursed on the basis of
other areas’ wage indices. See id.
9
The Secretary later learned that, in three instances, the
new geographic lines ran through multi-campus hospital
groups, leaving them straddling the borders of more than one
Core-Based Statistical Area. Final 2006 Rules, 70 Fed. Reg.
at 47,444; Changes to the Hospital Inpatient Prospective
Payment Systems and Fiscal Year 2008 Rates (“Final 2008
Rules”), 72 Fed. Reg. 47,130, 47,318 (Aug. 22, 2007) (noting
that only three hospitals were affected).
That posed a unique problem for the Secretary: Although
Medicare deemed those multi-campus hospitals to be “merged
facilities operat[ing] as a single institution,” and thus applied
their combined wage data to the wage index for the main
provider’s geographic area, reimbursement for Medicare
services would be based on the wage index of the area in
which the patient was discharged. See Final 2006 Rules, 70
Fed. Reg. at 47,444; 42 C.F.R. § 412.64(b)(5). That meant
that services provided at certain campuses might be
reimbursed at a lower rate than services provided at others
within the same institution.
Normally, the Secretary can rectify such unfairness in the
reimbursement process through reclassification, a process by
which hospitals and hospital facilities can be certified to
receive payments based on the wage index of a different
geographic area when their cost reports reflect comparable
wage costs and proximity to that area. See 42 C.F.R.
§ 412.230. Such reclassification was not an option for the
campuses of multi-campus hospitals, however, because they
submitted “a single cost report * * * [which did] not
differentiate between merged facilities in a single wage index
area or in multiple wage index areas.” Final 2006 Rules, 70
Fed. Reg. at 47,444; see also Final 2008 Rules, 72 Fed. Reg.
at 47,317 (“[T]he Medicare cost report, in its current form,
does not enable [] multicampus hospital[s] to separately report
10
[their] costs by location” because they are “integrated
institution[s] with one accounting structure.”).
In response, the Secretary proposed that individual
campuses manually report campus-specific wage data through
a supplemental form. Final 2006 Rules, 70 Fed. Reg. at
47,444. That would allow the Secretary to determine whether
that specific campus’s wage costs better approximated those
of its physical situs or of the main provider’s reporting area.
Id.
Although the Secretary was focused on the patient-
reimbursement-rate problem, one commenter suggested that,
if the Secretary obtained this supplemental campus-based
data, she should also use it to calculate the average hourly
wage of the geographic area in which a campus was located,
rather than the geographic area of the main campus. Final
2006 Rules, 70 Fed. Reg. at 47,445 (Secretary should “modify
[her] policy and include only salaries and hours of the
workforce attributable to the campus or campuses in the area
in order to calculate an area wage index.”). Put simply, the
commenter suggested that a wage index should be based on
data solely from campuses within the geographic area, and not
from campuses situated in another Core-Based Statistical
Area.
After studying the issue and the public comments,
however, the Secretary rejected the collection of such
supplemental campus-based data at that time as infeasible.
Final 2006 Rules, 70 Fed. Reg. at 47,445–47,446. Based on
her analysis, she concluded that any benefit that would arise
from requiring supplemental data—whether for calculating
the wage index or for Medicare-reimbursement
reclassification applications—had not yet been shown to
justify the substantial administrative burden it would impose
11
on hospitals, fiscal intermediaries, and the Secretary. Id. As
the Secretary explained, calculating the wage index based on
the geography of individual campuses rather than that of main
providers “presents certain logistical challenges that [she]
would like to consider in the context of possible permanent
cost report changes to accommodate the electronic reporting
of separate wage data by individual campus,” and she
anticipated “having a full discussion of these issues as part of
a future rulemaking.” Final 2006 Rules, 70 Fed. Reg. at
47,446.
Many of the Secretary’s concerns overlapped with the
problems of requiring supplemental data generally. Multi-
campus hospitals might not have readily available campus-
specific information because of their complete financial and
operational integration, as well as the fact that employees
commonly worked at multiple campuses. See Final 2008
Rules, 72 Fed. Reg. at 47,318–47,319. Furthermore,
whatever information could be collected would have to be
audited, a process that normally takes three years—far too
long to permit timely remediation of the problem for 2006 and
2007.
And even if reliable calculations could be timely made
and timely audited, the Secretary determined that
supplemental campus-based data would be of limited value.
Because those groups that qualify as multi-campus hospitals,
by definition, have integrated finances, the average hourly
wage for each campus would be expected to approximate or
be nearly identical to the average wage of the entire
institution. Final 2006 Rules, 70 Fed. Reg. at 47,445.
The Secretary, in short, “reasonably believe[d] that the
added precision” that might come from collecting the data on
a campus-specific basis “would not justify the added
12
complication.” ParkView Medical Associates, LP v. Shalala,
158 F.3d 146, 149 (D.C. Cir. 1998); accord Atrium Medical
Center v. Department of Health and Human Services, 766
F.3d 560, 570 (6th Cir. 2014) (“[T]he Medicare Act allows
the Secretary to sacrifice complete accuracy for
‘administrative simplicity.’”) (citation omitted); Adventist
GlenOaks Hospital v. Sebelius, 663 F.3d 939, 945 (7th Cir.
2011); see also Final 2006 Rules, 70 Fed. Reg. at 47,446;
Changes to the Hospital Inpatient Prospective Payment
Systems and Fiscal Year 2007 Rates (“Final 2007 Rules”), 71
Fed. Reg. 47,870, 48,067 (Aug. 18, 2006).
The Secretary, however, encouraged additional input on
how the issue should be handled going forward. Final 2006
Rules, 70 Fed. Reg. at 47,446. In August 2007, that
continued study bore fruit, and the Secretary partially revised
her view. Specifically, she concluded that “allocation of a
multicampus hospital’s wages and hours across different labor
markets” could increase the precision of the wage index.
Final 2008 Rules, 72 Fed. Reg. 47,130, 47,317. She
accordingly proposed to change course in calculating the
wage indices starting in fiscal year 2008. Id.
The Secretary, however, still considered the collection of
campus-specific wage data from multi-campus hospitals to be
logistically impracticable, so she sought an alternative means
of reliably attributing wage costs to individual campuses.
Final 2008 Rules, 72 Fed. Reg. at 47,317–47,318. The
Secretary considered three potential proxies for wage data: (i)
the number of beds in each campus, (ii) the number of
discharged patients in each campus, or (iii) the number of
full-time staff in each campus. Id.
Each approach had problems. Neither the number of
beds nor the number of discharges bore any logical
13
correlation to wage costs. Final 2008 Rules, 72 Fed. Reg. at
47,317–47,318. And commenters explained that providing
information about the full-time employees at each campus
would be extremely burdensome because of the fully
integrated structure of multi-campus hospitals. Id. In
particular, one multi-campus hospital noted that “over half of
the organization’s employees have responsibilities at two and
three of its campuses[,] * * * some types of employees * * *
spend time at all three campuses[,] and nurses move from
facility to facility depending on need.” Id.
The least problematic approach, the Secretary
determined, would be to use the number of full-time
employees to allocate the hospital’s wage-cost data to
individual campuses. Final 2008 Rules, 72 Fed. Reg. at
47,319. If that information were not available due to
difficulties in accurately assigning employees to campuses,
Medicare discharge data would be used. Id. Once she had
allocated cost report data by campus, the Secretary would use
that data to calculate the average hourly wage for the
geographic area in which the campus was located. Id. at
47,317–47,319.
Factual and Procedural Background
In 1996, three hospitals in southeastern Massachusetts—
Tobey Hospital, St. Luke’s Hospital, and Charlton Memorial
Hospital—merged to form Southcoast Hospital Group.
Southcoast chose Tobey Hospital as its main campus for
Medicare purposes, and Southcoast operates as a unified
hospital under a single Medicare provider agreement and
provider number. From 1996 until 2005, all of Southcoast’s
campuses were in the Boston-Quincy geographic area.
However, when the Secretary switched to Core-Based
Statistical Areas in fiscal year 2005, Tobey Hospital remained
14
in the Boston-Quincy area, but St. Luke’s and Charlton
Memorial fell within the Providence area. Because Tobey
Hospital is Southcoast’s main campus and holds the Medicare
provider number under which Southcoast operates,
Southcoast continued to provide its multi-campus wage data
in a single report, which the Secretary then applied to the
wage index calculation for the Boston-Quincy area. When, in
2008, the Secretary switched to using Southcoast’s Medicare
discharge data to allocate the previously submitted and
audited wage costs to individual campuses, the Boston-
Quincy wage index increased by .0147. See Final 2008 Rule,
72 Fed. Reg. at 47318.
Forty-one other Medicare provider hospitals from
Massachusetts, Rhode Island, and Vermont (“Providers”),
which are located in or were reclassified into the Boston-
Quincy area, filed a complaint with the Centers’ Provider
Reimbursement Review Board challenging the Secretary’s
inclusion of Southcoast’s wage data in the wage index for
fiscal years 2006 and 2007. The Board concluded that it did
not have the authority to decide the validity of the Secretary’s
rules, and permitted the Providers to proceed directly to
judicial review. 42 U.S.C. § 1395oo(f)(1); 42 C.F.R.
§ 405.1842(f)(1)(ii).
The Providers then filed suit in the United States District
Court for the District of Columbia. See 42 U.S.C.
§ 1395oo(f). They argued that the Secretary’s inclusion of
Southcoast’s unified wage data in calculating the Boston-
Quincy wage index for fiscal years 2006 and 2007 violated
the statutory requirement that the wage index “reflect[] 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), and was arbitrary and
capricious.
15
The district court granted summary judgment for the
Secretary. Anna Jaques Hospital v. Sebelius, 33 F. Supp. 3d
47 (D.D.C. 2014). The court held that the statutory text, 42
U.S.C. § 1395ww(d)(3)(E)(i), “expressly leaves the wage
index calculation to the agency,” and that index “is not
required to reflect the exact wage differences among
geographic areas; it is only required to approximate those
differences.” 33 F. Supp. 3d at 54. The court further held
that the Secretary reasonably determined that Southcoast was
a single hospital, and reasonably continued to treat Southcoast
as a single hospital in the Boston-Quincy area, where its main
Medicare provider was located. Id. at 55–57. 5
II
Analysis
We review the district court’s grant of summary
judgment de novo, applying the familiar standards of the
Administrative Procedure Act, which require us to set aside
an agency’s decision only if it is arbitrary, capricious, an
abuse of discretion, or otherwise not in accordance with law.
5 U.S.C. § 706(2); see also St. Luke’s Hospital v. Thompson,
355 F.3d 690, 693–694 (D.C. Cir. 2004).
We review the lawfulness of the Secretary’s transitional
method of calculating the wage index under the Chevron two-
5
The district court’s decision refers to the lead plaintiff in this case
as “Anna Jaques Hospital,” see Anna Jaques Hospital v. Sebelius,
33 F. Supp. 3d 47 (D.D.C. 2014), as did we in an earlier litigation,
Anna Jaques Hospital v. Sebelius, 583 F.3d 1 (D.C. Cir. 2009).
However, the original complaint and all of the parties’ submissions
to this court, including the notice of appeal, spell the name as
“Anna Jacques Hospital.” We will follow the Appellants’ chosen
spelling.
16
step framework, Chevron, U.S.A. Inc. v. Natural Resources
Defense Council, Inc., 467 U.S. 837 (1984). See also Anna
Jaques, 583 F.3d at 5; Southeast Alabama Medical Center,
572 F.3d at 916. When “Congress has directly spoken to the
precise question at issue[,] * * * that is the end of the
matter[.]” Chevron, 467 U.S. at 842–843. If the statute is
“silent or ambiguous with respect to the specific issue,” we
will uphold the Secretary’s interpretation if it is “based on a
permissible construction of the statute.” Id. at 843.
Chevron Step One
It bears noting, at the outset, that the Providers do not
challenge the Secretary’s adoption of the Core-Based
Statistical Areas. Nor do they dispute the propriety of the
Secretary’s decade-long treatment of Southcoast as a unified
hospital with its wages from all three campuses submitted in a
single, consolidated cost report within the Boston-Quincy
area. The question at Chevron step one, then, is whether the
Medicare Act forbade the Secretary, when calculating the
Boston-Quincy wage index for 2006 and 2007, from
continuing for a two-year transitional period to rely upon
Southcoast’s consolidated cost report, filed under the unified
hospital’s single, Boston-Quincy-area Medicare provider
number.
We see nothing in the statutory text that mandated the
selective deconsolidation of Southcoast’s wage data while
other Medicare reporting and operations remained
consolidated under the main provider and Medicare reporting
number. Quite the opposite, the statutory text expressly
affords the Secretary flexibility and discretion in compiling
data and calculating the wage index.
The text of the Medicare Act largely leaves the process of
defining geographic boundaries and computing the wage
17
index to the Secretary’s reasoned judgment. The Act requires
the Secretary to adjust the standard prospective payment rate
by “a factor (established by the Secretary)” that “reflect[s]”
the relative wage level “in the geographic area of the hospital
compared to the national average hospital wage level.” 42
U.S.C. § 1395ww(d)(3)(E)(i). The statute provides some
general guidance as to how the Secretary must calculate the
wage “factor,” by requiring that the wage index be updated at
least annually “on the basis of a survey conducted by the
Secretary (and updated as appropriate) of the wages and
wage-related costs of [participating] hospitals in the United
States.” Id. In addition, any adjustment “shall be made in a
manner that assures that the aggregate payments * * * are not
greater or less than those that would have been made in the
year without the adjustment.” Id.
That is it. On all other aspects of the wage-index
calculation, the statute is silent. It says nothing about the
treatment of unified hospitals with multiple campuses
working under a single Medicare provider agreement and
number. Nor does the statute say how the geographic lines
should be drawn or how to transition changes in those
boundaries. “[T]he statute leaves considerable ambiguity as
to the term ‘geographic area,’ which, based only on the literal
language of the provision, could be as large as a several-state
region or as small as a city block.” Bellevue Hospital Center
v. Leavitt, 443 F.3d 163, 175 (2d Cir. 2006). The statute
“merely requires the Secretary to develop a mechanism to
remove the effects of local wage differences”; it “does not
specify how the Secretary should construct the index” and, in
fact, “Congress through its silence delegated these decisions
to the Secretary.” Methodist Hospital, 38 F.3d at 1230. That
is the antithesis of a Chevron step one statutory directive.
18
The Providers argue that the Secretary violated the text of
the statute by creating a wage index for Boston-Quincy that
“reflect[ed]” the wage level of hospitals from outside of the
Boston-Quincy area. But that argument overlooks that, for
purposes of the Medicare program, Southcoast is a single
“hospital” with a single Medicare agreement and single
Medicare provider number tied to Tobey Hospital, which sits
squarely in the Boston-Quincy area.
Notably, the Medicare statute defines “hospital” as an
“institution” that provides a number of medical services. 42
U.S.C. § 1395x(e). Other provisions of the statute, which
refer to individual campuses of a hospital, make clear that a
“hospital” can encompass institutions with multiple campuses
and facilities. See, e.g., 42 U.S.C. § 1395nn(h)(7)(B)
(referring to “the facilities on the main campus of the
hospital”) (emphasis added); 42 U.S.C. § 1395nn(i)(3)(D)
(“Any increase in the number of operating rooms * * * may
only occur in facilities on the main campus of the applicable
hospital.”) (emphasis added); see also Community Hospital of
Chandler, Inc. v. Sullivan, 963 F.2d 1206, 1212 (9th Cir.
1992). For statutory purposes, then, Southcoast with all of its
campuses is one hospital situated in Wareham, Massachusetts
(Tobey Hospital’s location), which is within the Boston-
Quincy area.
The Secretary’s use of Southcoast’s wages to calculate
the Boston-Quincy wage index thus fully comported with the
statutory requirement that the wage index reflect wage costs
“in the geographic area of the hospital,” 42 U.S.C.
§ 1395ww(d)(3)(E)(i). Beyond that, the question of how to
deal with the fact that new boundaries placed campuses in a
different geographic area than their main campus is precisely
the type of interstitial question of implementation that the
statute leaves in the Secretary’s administrative hands. See
19
Methodist Hospital, 38 F.3d at 1230 (the statute “does not
specify how the Secretary should construct the index * * *
[so] Congress through its silence delegated these decisions to
the Secretary”); Bellevue, 443 F.3d at 175; cf. Adirondack
Medical Center v. Burwell, 782 F.3d 707, 710 (D.C. Cir.
2015) (rejecting challenge to “the precise methodology used
by the Secretary” in calculating budget neutrality adjustments
to reimbursement rates, noting “the wide discretion afforded
the Secretary to implement the Medicare reimbursement
formula”); Zuni Pub. Sch. Dist. No. 89 v. Department of
Educ., 550 U.S. 81, 90 (2007) (statutory “calculation method
* * * is the kind of highly technical, specialized interstitial
matter that Congress often does not decide itself, but
delegates to specialized agencies to decide”).
Requiring that the wage index “reflect[]” the wage rate in
the relevant geographic area, 42 U.S.C. § 1395ww(d)(3)(E)(i),
indicates that the Secretary is not required to calculate the
wage index with scientific “exactitude,” Atrium Medical
Center, 766 F.3d at 569. We, in fact, have held that the
Secretary can make “reasonable approximations” based on the
“most reliable data available” at the time of publication.
Methodist Hospital, 38 F.3d at 1230; see also Atrium Medical
Center, 766 F.3d at 569 (“[T]he Secretary need only
‘estimate[]’ the proportion of labor costs and the resulting
wage index need only ‘reflect’ the relative area wage
levels.”).
In sum, the Providers do not challenge the Secretary’s
decision to treat Southcoast as a single hospital for other
Medicare purposes; they just want a carve-out for wage
calculation. Nothing in the statute compels that.
20
Chevron Step Two
Even though the statute does not dictate the Providers’
desired solution to Southcoast’s wage data for 2006 and 2007,
the Providers nevertheless contend that the Secretary’s
decision does not qualify for deference under Chevron step
two at all because the decision to treat Southcoast as a single
wage-reporting hospital is embodied in the Provider
Reimbursement Manual, an informal guidance document.
Providers’ Br. 15. We disagree because the wage index was
promulgated through notice-and-comment proceedings, and
the treatment of Southcoast as a unified hospital for Medicare
reporting is the product of published regulations.
Administrative interpretations of statutory provisions
qualify for Chevron deference when “it appears that Congress
delegated authority to the agency generally to make rules
carrying the force of law, and that the agency interpretation
claiming deference was promulgated in the exercise of that
authority.” United States v. Mead Corp., 533 U.S. 218, 226–
227 (2001). Congress has expressly delegated to the
Secretary the authority and discretion to create the wage
index, 42 U.S.C. § 1395ww(d)(3)(E)(i), and the Providers do
not argue otherwise.
In addition, the Secretary’s calculation of the wage
indices for 2006 and 2007 went through notice–and-comment
rulemaking, a procedure ensuring the kind of deliberation that
typically triggers Chevron deference. See Mead, 533 U.S. at
226. On top of that, Southcoast’s status as a single hospital
for Medicare reporting purposes—the administrative basis for
the Secretary’s decision to collect a single cost report—is also
the product of numerous formal regulations. 42 C.F.R.
§ 413.65(d) (requiring integrated finances, administration, and
operational control); id. § 413.65(e) (requiring common
21
ownership, supervision, and physical proximity). The
Reimbursement Manual’s explanation that single-reporting
status under Medicare does not evaporate for cost reports
simply clarifies a status already accorded by formal
regulations. Therefore, we afford the Secretary’s decision
the same Chevron deference that we and other courts have
repeatedly given her calculation of the wage index in the past.
See, e.g., Atrium Medical Center, 766 F.3d at 573 (noting the
“exceptional breadth of Congress’s delegation to the
Secretary to establish and administer the wage index”); Anna
Jaques, 583 F.3d at 5; Southeast Alabama Medical Center,
572 F.3d at 271; Bellevue Hospital Center, 443 F.3d at 175
(Secretary has the discretion to interpret the term “geographic
area”); Methodist Hospital, 38 F.3d at 1230.
Looking through the lens of Chevron deference, the
question is whether the Secretary acted reasonably in using
Southcoast’s unified wage data to calculate the hourly wage
in the geographic area of its main campus and its
administrative site for Medicare reporting purposes. See
Illinois Public Telecommunications Ass’n v. FCC, 752 F.3d
1018, 1023 (D.C. Cir. 2014) (“[O]ne of the first principles of
administrative law is that ‘if the statute is silent or ambiguous
with respect to the specific issue,’ the only question for the
court is whether the agency’s interpretation of that statute is
reasonable.”) (citation omitted). In making that
determination, the Secretary effectively made two decisions:
(1) for 2006 to 2007, she was not yet prepared to calculate the
wage index on the basis of campus-specific data, and given
that, (2) she would treat Southcoast as if it were located “in”
the geographic area of its main provider. Both of those
actions fell within the range of reasonableness afforded the
Secretary in calculating the wage index.
22
(1) Campus-specific data
In first addressing how to handle the three multi-campus
hospitals that were split by the transition to Core-Based
Statistical Areas, the Secretary decided that, for 2006 and
2007, she would maintain the status quo of single-hospital
reporting and not calculate the wage index based on campus-
specific data. That judgment was reasonable.
To begin with, the Secretary reasonably concluded that
the regulatory requirements of operating as a single hospital
and the realities of employee fluidity between campuses
ensured that the wages of each campus of a multi-campus
hospital would be sufficiently similar to “reflect” the wage
rate in the main provider’s (and thus the entire institution’s)
geographic area. Final 2006 Rules, 70 Fed. Reg. at 47,445
(“[W]e believe there may not be a wide range of salaries for
the same occupational categories within the same
institution.”).
That judgment was grounded in experience. Multi-
campus hospitals have existed from “the beginning of the
Medicare program” and have long been treated as single
institutions with completely integrated organizational
structure, finances, and administrative control. Medicare
Program; Prospective Payment System for Hospital
Outpatient Services, 63 Fed. Reg. 47,552, 47,587 (Sept. 8,
1998) (“[F]rom the beginning of the Medicare program, some
providers, which are referred to in this section as ‘main
providers,’ have owned and operated other facilities * * * that
were administered financially and clinically by the main
provider[,]” and “[i]n order to accommodate the financial
integration of the two facilities without creating an
administrative burden, we have permitted the subordinate
facility to be considered provider-based.”); see also Office of
23
Inspector General; Medicare Program; Prospective Payment
System for Hospital Outpatient Services, 65 Fed. Reg. 18,434,
18,504 (April 7, 2000); Final 2006 Rules, 70 Fed. Reg. at
47,445–47,446; Final 2008 Rules, 72 Fed. Reg. at 47,318.
Moreover, to qualify for single-hospital status, the
hospital group must meet a litany of integration requirements,
such as ensuring that:
• the facility operates under the same license as the
main provider;
• clinical services are integrated, as evidenced by:
o professional staff that have clinical privileges
at the main provider;
o monitoring and oversight of the facility by the
main provider;
o a reporting relationship between the medical
director of the facility and the chief medical
officer of the main provider;
o integrated medical records in a unified
retrieval system (or cross reference) of the
main provider; and
o integrated inpatient and outpatient services
such that patients treated at the facility have
full access to the services of the main
provider;
• financial operations are fully integrated within the
main provider’s system, as evidenced by shared
income and expenses between the main provider and
facility, with all costs reported in the cost center of
the main provider; and
• the facility is held out to the public and other payers
as part of the main provider, and patients, upon
entering the facility, are aware that they are entering
the main provider and are billed accordingly.
24
42 C.F.R. § 413.65(d)(1)–(4).
For the facility that is not located on the campus of the
main provider, as is the case with two of Southcoast’s three
campuses, additional requirements must be met:
• The facility must operate under the ownership and
control of the main provider, as evidenced by:
o the main provider’s 100% ownership of the
business enterprise that constitutes the facility;
o a shared governing body with the main
provider;
o the same organizational documents as the
main provider; and
o the main provider’s exercise of final
responsibility for administrative decisions,
final approval for contracts with outside
parties, final approval and responsibility for
personnel actions and policies, and final
approval for medical staff appointments in the
facility.
• The main provider must directly supervise the
facilities in the same manner that it would monitor an
existing department, as evidenced by:
o monitoring and oversight of the facility by the
main provider, including a reporting and
accountability relationship between the
facility director and a manager at the main
provider; and
o integrated administrative functions, including
billing services, records, human resources,
payroll, employee benefit package, salary
structure, and purchasing services.
25
• The facility must be proximately located to the main
provider. 6
42 C.F.R. § 413.65(e)(1)-(3).
The Secretary reasonably determined that the effect of
that extensive operational, organizational, and financial
integration is that multi-campus hospitals tend to have similar
wages across campuses. In addition, such multi-campus
institutions commonly have employees—such as doctors,
nurses, technicians, and administrators—that routinely
migrate between campuses. Indeed, they are required by
regulation to have privileges at each campus. 42 C.F.R.
§ 413.65(d)(2)(i). Accordingly, the Secretary reasonably
concluded “that the average hourly wages for an individual
campus and the whole hospital are similar because the two (or
more) campuses are operating as a single entity under one
Medicare provider number, are under common ownership and
control, and are clinically and financially integrated.” Final
2006 Rule, 70 Fed. Reg. at 47,445.
Furthermore, calculating the wage index on the basis of
campus-specific data in 2006 and 2007, in the immediate
wake of the geographical transition, would have imposed a
substantial burden on the Secretary, fiscal intermediaries, and
multi-campus hospitals. See Final 2006 Rules, 70 Fed. Reg.
at 47,445. In fiscal years 2006 and 2007, the Secretary did
not yet have separate wage data for individual campuses of
multi-campus hospitals. See id. at 47,444 (“[B]ecause a
6
To qualify as proximately located, the facility must be in the
same State or an adjacent State as the main provider, 42 C.F.R.
§ 413.65(e)(3)(vii), and must either be within 35 miles of the main
provider, 42 C.F.R. § 413.65(e)(3)(i), or meet other specified
location requirements designed to ensure that the campuses serve
the same patient populations, 42 C.F.R. § 413.65(e)(3)(ii)–(vi).
26
multicampus hospital is required to report data for the entire
entity on a single cost report, there is no wage survey data for
the individual hospital campus[.]”). Multi-campus hospitals
have only ever submitted one cost report to the Secretary.
Understandably so. The hospitals are required, by the
Secretary’s regulations, to integrate their finances, 42 C.F.R.
§ 413.65(d)(3), and therefore would not have separate cost
data to report, Final 2006 Rules, 70 Fed. Reg. at 47,445–
47,446.
Nor was that information readily obtainable in 2006 and
2007. The wage index is calculated based on cost reports
from three years before the rule’s promulgation. Final 2005
Rules, 69 Fed. Reg. at 49,049. To calculate the wage index
for 2006 and 2007 on a campus-specific basis, the hospitals
would have to have submitted three-year-old data, and the
Secretary would have to have audited it in an extremely
expedited manner before the wage index’s promulgation—
within one month for 2006 and one year for 2007. That was
impracticable given that “the submission of manual
[supplemental] cost report data would require a lengthy and
tedious manual audit process for fiscal intermediaries[.]”
Final 2006 Rules, 70 Fed. Reg. at 47,445. In addition,
because multi-campus hospitals’ staff members are required
to have privileges across campuses, and indeed often work on
multiple campuses, 42 C.F.R. § 413.65(d)(2)(i); Oral Arg. Tr.
54, requiring hospitals to go back in time to assign an
individual employee’s wage costs to a particular campus,
rather than to the hospital as a whole, could have resulted in
an artificial and unreliable measure of area wages. See Final
2008 Rules, 72 Fed. Reg. at 47,318.
Readjusting the data after the fact, as the Providers now
seek, would have run into additional difficulties. The wage
index must be a budget-neutral determination. See 42 U.S.C.
27
§ 1395ww(d)(3)(E)(i) (any adjustment made “shall be made
in a manner that assures that the aggregate payments * * * are
not greater or less than those that would have been made in
the year without such adjustment”). But any retroactive
payments could not be offset now, almost a decade after the
fact, against other payments made in other areas to other
providers without profoundly unsettling the system and the
reliance interests of countless hospitals nationwide, a problem
that counsel for the Providers acknowledged at oral argument.
Oral Arg. Tr. 15. In addition, the Secretary’s policy, upheld
by this court, is that retroactive corrections to the wage index
undermine the statutory purpose to base Medicare
reimbursement rates on predetermined rates. Methodist
Hospital, 38 F.3d at 1228–1229.
In other words, fully aware of the campuses’
comprehensive integration and the obstacles it posed to
collecting campus-specific wage data, the Secretary
reasonably concluded that the tremendous burden of
completely revamping the wage index calculation (and its
application) would far outweigh any marginal impact it might
have. That careful balancing of considerations reflects a fair
and reasonable exercise of the Secretary’s discretionary
judgment in addressing this transitional issue.
Furthermore, the Secretary’s decision simply maintained
the wage-reporting status quo for a two-year transitional
period while she continued to study the problem, sensibly
concluding that “the interests in finality and administrative
efficiency outweighed the value of increased accuracy.”
Methodist Hospital, 38 F.3d at 1235. We commonly “defer to
the agency’s judgment about how best to achieve a smooth
transition[.]” Sorenson Communications, Inc. v. FCC, 765
F.3d 37, 52 (D.C. Cir. 2014); see MCI Telecommunications
Corp. v. FCC, 750 F.2d 135, 141 (D.C. Cir. 1984)
28
(“Substantial deference must be accorded an agency when it
acts to maintain the status quo so that the objectives of a
pending rulemaking proceeding will not be frustrated.”).
“While [the Secretary’s] choice was not the only one
permissible under the statute, the court has no occasion to
second guess” the Secretary’s judgment in that respect.
Methodist Hospital, 38 F.3d at 1235.
The Providers present four objections that, in their view,
establish that the Secretary’s decision not to calculate the
wage index on the basis of campus-specific data for the
interim period of 2006–2007 was arbitrary and capricious.
While they are thoughtfully presented, ultimately none
succeeds.
First, the Providers contend that the Secretary provided
“no rational explanation” for including wage data from
outside the Boston-Quincy geographic area in calculating that
area’s wage index. Providers’ Br. 19. That simply recycles
the already-rejected argument that the Secretary improperly
gave effect to Southcoast’s recognized status as a unitary
hospital for cost reporting, with an address in the Boston-
Quincy area. While the Providers wish the Secretary had
made a different choice, it was entirely rational to treat
Southcoast as a single institution with respect to wage data,
just as it is treated for numerous other Medicare purposes.
See Final 2006 Rules, 70 Fed. Reg. at 47,446 (“[T]he use of
the wage data for the entire multicampus hospital is consistent
with [the Centers’] treatment of multicampus hospitals for
calculating area wage index values, GME [Graduate Medical
Education], DSH [Disproportionate Share Hospital], and
provider-based purposes, under which multicampus hospitals
operating under a single Medicare provider number are
treated as a single hospital for payment purposes.”).
29
Beyond that, the Secretary offered three quite
reasonable explanations for her transitional treatment of
multi-campus hospitals that straddled two Core-Based
Statistical Areas. She discussed (i) the lack of available data
from providers at that time on which to allocate wage data by
campus, (ii) the practical and administrative obstacles to
obtaining that data in a timely manner, and (iii) the stark
imbalance between the logistical hurdles of collecting and
using campus-specific data and the marginal anticipated
impact of that data on the wage index calculation. Given
those considerations, the Secretary’s decision to treat
Southcoast as in the same geographic area as its main
provider’s address, as the Secretary does for other Medicare
purposes, falls within the range of reasonable judgment. See
Barnhart v. Thomas, 540 U.S. 20, 29 (2003); Adventist
GlenOaks Hospital, 663 F.3d at 945 (in calculating the wage
index, Secretary may adopt “a bright-line rule that is
comparatively easy to administer”).
Second, the Providers argue that the Secretary’s altered
approach in 2008 shows that her decision in 2006 and 2007
was unreasonable. Providers’ Br. 20. Not so. Courts have
long recognized that “[a]n initial agency interpretation is not
instantly carved in stone,” and that, to engage in informed
rulemaking, the agency may “consider varying interpretations
and the wisdom of its policy on a continuing basis.” Chevron,
467 U.S. at 863–864; accord National Cable &
Telecommunications Ass’n v. Brand X Internet Services, 545
U.S. 967, 983 (2005). There can, after all, be more than one
reasonable solution to a problem. The agency just must offer
a reasoned explanation for changing course. See FCC v. Fox
Television Stations, Inc., 556 U.S. 502, 514 (2009); Anna
Jaques, 583 F.3d at 6.
30
The Secretary provided that reasoned explanation here.
Unlike in 2006 and 2007, when the consequences of the
geographic reconfiguration first flared on the scene, by 2008,
the Secretary had had three years to study the multi-campus
hospital problem and to evaluate alternative ways of
accurately and practicably collecting wage data. “Nothing
prohibits federal agencies from moving in an incremental
manner,” Fox Television, 556 U.S. at 522, even when that
includes revisiting prior judgments, Brand X, 545 U.S. at
1002.
Notably, even in 2008, the Secretary continued to have
serious qualms about the campus-by-campus calculation
methodologies suggested by commenters. The Secretary
explained that the number of discharges was an “unstable data
source to use in allocating a hospital’s wages,” and the
number of beds “does not correlate well with how a hospital
incurs its wage costs.” Final 2008 Rules, 72 Fed. Reg. at
47,318. Furthermore, many multi-campus hospitals—
including Southcoast—did not have full-time employment
data for specific campuses because their employees often
work at multiple campuses, rotating through them—
sometimes on a daily basis—depending on need. Id.
The Secretary, in short, only altered her approach in 2008
because she became persuaded that “the benefit of having
more accuracy in the wage index calculations should
outweigh concerns over which alternative methods to use,”
Final 2008 Rules, 72 Fed. Reg. at 47,318–47,319, and not
because she found the alternative wage-calculation methods
to be obviously superior or her prior view to be unreasonable.
Nothing in that decision evidences that her declination to leap
immediately to that same conclusion in 2006 was arbitrary
and capricious. Instead, both approaches were reasonable
under their different circumstances.
31
Third, the Providers contend that the Secretary acted
unreasonably because, while she used Southcoast’s unified
wage data to calculate the Boston-Quincy wage index, she
paid Medicare reimbursements to Southcoast’s New Bedford
and Fall River campuses on the basis of the Providence wage
index. Providers’ Br. 19–20.
That may appear odd at first blush, but nothing in the
Medicare Act requires that hospitals be treated the same for
reimbursement and wage-index measurement purposes. For
example, the statute “allow[s] a hospital to seek
reclassification from its geographically-based wage area to a
nearby wage area for payment purposes if it meets certain
criteria.” Robert Wood Johnson Univ. Hosp. v. Thompson,
297 F.3d 273, 276 (3d Cir. 2002); see 42 U.S.C.
§ 1395ww(d)(10); 42 C.F.R. § 412.230(a)(1)(ii). 7 Moreover,
Medicare reimbursements to such reclassified hospitals are
governed by an entirely different statutory provision, 42
U.S.C. § 1395ww(d)(8)(B)(i), than the creation of the wage
index, 42 U.S.C. § 1395ww(d)(3)(E)(1). And the wage data
of reclassified hospitals may or may not be included in their
new area’s wage index calculations, depending on the
circumstances. See 42 U.S.C. § 1395ww(d)(8)(C)(i)(II)
(requiring the Secretary to exclude reclassified hospitals’
wage data from calculating the wage index under certain
conditions); Final 2006 Rules, 70 Fed. Reg. at 47,378. In
short, the statute does not categorically dictate that hospitals
be reimbursed in accordance with a wage index that
incorporates their own wage data, and, in some scenarios,
even prescribes otherwise.
7
Some of petitioners themselves have been reclassified into the
Boston-Quincy area for patient reimbursement purposes. See
Administrative Record at 100, Anna Jaques Hospital v. Sebelius,
No. 1:13-cv-00053-ABJ (D.D.C. filed May 17, 2013), ECF No. 14.
32
It also bears noting that reimbursement for patient
services on a campus-specific basis is significantly more
administrable because it turns on the readily ascertainable
location of the patient. Reconfiguring the wage index, by
contrast, requires finding a reasonable way to unscramble an
institution’s merged financial and operational practices and to
attribute centralized costs to individual campuses, even when
employees routinely migrate between campuses.
Fourth, the Providers argue that, by not separating out
campus-specific data, the Secretary failed to provide a
uniformly measured wage index. Providers’ Br. 20–23. As
the Providers see it, the Secretary failed to apply geographic
lines consistently across the Country. That is not correct.
Uniformly and nationwide, the Secretary collected one cost
report from each hospital participating in the Prospective
Payment System, and used the wage data from that cost report
to calculate the average hourly wage for the geographic area
associated with the hospital’s provider number. She utilized
that rule consistently and evenhandedly for all hospitals,
whether or not multi-campus.
At bottom, the Providers’ central objection is that they
believe there was a better method of calculating the wage
index for their area. Maybe so. But all that the law requires,
and all that we can evaluate on review, is whether the
Secretary’s approach was reasonable. See American Forest
and Paper Ass’n v. FERC, 550 F.3d 1179, 1183 (D.C. Cir.
2008) (“Step two of Chevron does not require the best
interpretation, only a reasonable one.”). And that it was.
(2) Geographic Designation of Southcoast
The Secretary also acted reasonably in recognizing Tobey
Hospital, located in the Boston-Quincy area, as Southcoast’s
main campus for purposes of the Medicare program and, on
33
that basis, treating all of Southcoast’s employees (or more
accurately, their wage data) as located in that same
geographic area. See Final 2006 Rules, 70 Fed. Reg. at
47,445–47,446. Tobey Hospital had performed that function
within the Medicare program for nearly a decade, and
Southcoast met all of the statutory and regulatory criteria for
reporting in that manner, which the Providers do not dispute.
Furthermore, Tobey Hospital provided the Medicare reporting
number for the unified hospital, through which other
Medicare reporting and all Medicare billings and certification
took place.
In addition, the complications inherent in retroactively re-
determining where a multi-campus hospital is located are
identical to those the Secretary was attempting to avoid by
declining to allocate the multi-campus hospitals’ wage data by
campus. The Providers’ argument that “90%” or “the vast
bulk of the multicampus hospital was located” in the
Providence area proves that point. Reply Br. 6; Oral Arg. Tr.
48–49, 52–54. That “90%” number is based on the number of
beds in Southcoast’s campuses, which “does not correlate
well with how a hospital incurs its wage costs.” Final 2008
Rules, 72 Fed. Reg. at 47,318. Nor would Medicare
discharges be a reliable basis on which to determine where the
bulk of Southcoast’s personnel and operations were located
because the number “can fluctuate from year to year and may
be an unstable data source.” Id. at 47,317–47,318.
More importantly, the Secretary did not have the
substitute data that the Providers prefer in 2006 or 2007.
Final 2008 Rules, 72 Fed. Reg. at 47,318 (“Furthermore,
neither of these numbers [the number of beds or discharges] is
available on a campus-specific basis in Medicare’s data
systems.”). Indeed, the Secretary’s ultimate adjustment in
2008 had to rely on Southcoast’s discharges because
34
Southcoast did not have reliable full-time and campus-
specific employment data since its employees routinely
worked on multiple campuses. See id. at 47,319. It thus was
neither arbitrary nor capricious for the Secretary, when first
confronting the problem in 2006, to eschew an approach that
depended on unreliable data not in the Secretary’s possession.
III
Conclusion
We hold that the Secretary’s calculation of the wage
index for fiscal years 2006 and 2007 was reasonable, non-
arbitrary, and supported by substantial evidence. The
judgment below is affirmed.
So ordered.