Anmed Health v. Azar

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
ANMED HEALTH,
Plaintiff,
v. Civil Action No. 20-3826 (RDM)
XAVIER BECERRA, 1
Defendant.
MEMORANDUM OPINION
Plaintiff AnMed Health (“AnMed”) operates a hospital with two campuses—the main
North Fant Street Campus and the remote North Campus—less than 3 miles apart from one
another in Anderson, South Carolina. In 2016, AnMed applied for classification as a sole
community hospital under the Medicare program. See 42 C.F.R. § 412.92. If approved, AnMed
would be reimbursed at a higher rate for services provided to Medicare beneficiaries at both of
its campuses. To qualify as a sole community hospital under the relevant portion of the
governing regulations, AnMed was required to show that it was located more than 25 miles
“from other like hospitals.” Id. § 412.92(a)(1).
The Centers for Medicare and Medicaid Services (“CMS”) rejected AnMed’s application
for failure to satisfy the distance requirement because the hospital’s remote North Campus was
located less than 25 miles (i.e., 23.8 miles) from a like hospital. AnMed appealed, arguing that
the Medicare statute and governing regulations required that AnMed satisfy the distance
requirement only as to its main North Fant Street Campus, which was located more than 25 miles
1
Xavier Becerra is substituted for his predecessor, Alex M. Azar II, as the Secretary of Health
and Human Services. Fed. R. Civ. P. 25(d).
from a like hospital. On appeal, the Provider Reimbursement Review Board (the “Board”)
agreed with AnMed and held that its application should have been approved. The Secretary of
the Department of Health and Human Services (the “Secretary”), however, acting through the
Principal Deputy Administrator of CMS, reviewed the Board’s decision and reversed.
AnMed brings this action pursuant to the Medicare statute, 42 U.S.C. § 1395oo(f),
challenging the Secretary’s decision, which it contends (1) was not dictated by the Medicare
statute; (2) is contrary to the plain language of the then-applicable regulations and to the
Secretary’s own interpretation of those regulations; and (3) impermissibly gives retroactive
effect to a regulation adopted after the relevant reporting period. The parties’ cross-motions for
summary judgment are now before the Court.
For the reasons explained below, the Court will DENY AnMed’s motion for summary
judgment and will GRANT the Secretary’s cross-motion.
I. BACKGROUND
A. Statutory and Regulatory Background
1. Sole Community Provider Rule
Established in 1965, the Medicare program “provides health insurance for the elderly and
disabled and reimburses qualifying hospitals for services provided to eligible patients.” Cath.
Health Initiatives Iowa Corp. v. Sebelius, 718 F.3d 914, 915–16 (D.C. Cir. 2013). In 1972,
Congress authorized the Secretary of Health, Education, and Welfare to set prospective limits on
costs that hospitals could recover for services provided to Medicare beneficiaries. Social
Security Amendments of 1972, Pub. L. No. 92-603, § 223, 86 Stat. 1329, 1393–94 (1972). The
statute did not give special consideration to hospitals that were the sole providers of Medicare
services in their communities. The congressional committees that reported the legislation,
2
however, indicated that they “expect[ed] that the provision [would] not be applicable where there
is only one hospital in a community” because “additional charges could be imposed on
beneficiaries who have no real opportunity to use a less expensive, non-luxury institution, and
where the provision would be difficult to apply because competitive cost data for the area are
lacking.” S. Rep. No. 92-1230, at 188 (1972); H.R. Rep. No. 92-231, at 84 (1971) (same). In
light of these concerns, the Secretary of Health, Education, and Welfare promulgated regulations
exempting “sole community provider[s]” from Medicare reimbursement limits “where a
provider[,] by reason of factors such as isolated location or absence of other providers of the
same type, is the sole source of such care reasonably available to beneficiaries.” 20 C.F.R.
§ 405.460(f)(4) (1975).
The “sole community provider” designation remained purely regulatory until 1983, when
Congress overhauled the Medicare provider reimbursement process by establishing the Inpatient
Prospective Payment System (“IPPS”). Under the IPPS, hospitals now receive fixed payments
for inpatient services at prospective rates set by the Secretary (by this time, Congress had created
the Department of Health and Human Services). See generally Social Security Amendments of
1983, Pub. L. No. 98–21, tit. VI, §§ 601–07, 97 Stat. 149, 158 (1983). Congress adopted this
system “to improve the medicare system’s ability to act as a prudent purchaser of services, and to
provide predictability regarding payment amounts for both the Government and hospitals.” H.R.
Rep. No. 98-25, at 132 (1983). Most importantly, the system was adopted “to reform the
financial incentives hospitals face, promoting efficiency in the provision of services by
rewarding cost/effective hospital practices.” Id. At the same time, however, Congress remained
concerned about communities with only one hospital, and it therefore established a separate and
more generous reimbursement formula for “sole community hospital[s],” which are statutorily
3
defined as “hospital[s] that, by reason of factors such as isolated location, weather conditions,
travel conditions, or absence of other hospitals (as determined by the Secretary), [are] the sole
source of inpatient hospital services reasonably available to individuals in a geographical area
who are entitled to benefits under [Medicare] part A.” Pub L. No. 98–21 § 601(e), 97 Stat. 158.
Congress has amended the statutory definition of a “sole community hospital” or
(“SCH”) several times since it first appeared in 1983. Under the current definition, which is
applicable to the events at issue in this case, an SCH is any “hospital”:
(I) that the Secretary determines is located more than 35 road miles from
another hospital,
(II) that, by reason of factors such as the time required for an individual to
travel to the nearest alternative source of appropriate inpatient care (in
accordance with standards promulgated by the Secretary), location,
weather conditions, travel conditions, or absence of other like hospitals
(as determined by the Secretary), is the sole source of inpatient hospital
services reasonably available to individuals in a geographic area who are
entitled to benefits under part A, or
(III) that is located in a rural area and designated by the Secretary as an
essential access community hospital under section 1395i-4(i)(1) of this
title as in effect on September 30, 1997.
42 U.S.C. § 1395ww(d)(5)(D)(iii).
CMS, which administers the Medicare program on behalf of the Secretary, has
promulgated regulations implementing this provision. See 42 C.F.R. § 412.92. Under those
regulations, “CMS classifies a hospital as a sole community hospital if it is located more than 35
miles from other like hospitals, or it is located in a rural area . . . and meets one of [several
alternative] conditions.” Id. § 412.92(a) (emphasis added). As relevant here, those alternative
conditions include that “[t]he hospital is located between 25 and 35 miles from other like
hospitals and” the hospital satisfies one of three additional criteria, id. § 412.92(a)(1)(i)-(iii),
4
which are not at issue for present purposes. 2 The SCH regulations define “miles” to mean “the
shortest distance in miles measured over improved roads.” Id. § 412.92(c)(1). An “improved
road,” in turn, is defined to include (1) “any road that is maintained by a local, State, or Federal
government entity and [that] is available for use by the general public” and (2) “the paved
surface up to the front entrance of the hospital.” Id.
The regulations define a “like hospital” to mean:
a hospital furnishing short-term, acute care. Effective with cost reporting
periods beginning on or after October 1, 2002, for purposes of a hospital seeking
sole community hospital designation, CMS will not consider the nearby hospital
to be a like hospital if the total inpatient days attributable to units of the nearby
hospital that provides a level of care characteristic of the level of care payable
under the acute care hospital inpatient prospective payment system are less than
or equal to 8 percent of the similarly calculated total inpatient days of the
hospital seeking sole community hospital designation.
Id. § 412.92(c)(2). Under this rule, CMS uses “inpatient days as the unit of measurement for
determining” whether hospitals provide “overlapping services,” and a hospital is an “other like
2
Those criteria include the following:
(i) No more than 25 percent of residents who become hospital
inpatients or no more than 25 percent of the Medicare beneficiaries
who become hospital inpatients in the hospital's service area are
admitted to other like hospitals located within a 35-mile radius of
the hospital, or, if larger, within its service area;
(ii) The hospital has fewer than 50 beds and the MAC certifies that the
hospital would have met the criteria in paragraph (a)(1)(i) of this
section were it not for the fact that some beneficiaries or residents
were forced to seek care outside the service area due to the
unavailability of necessary specialty services at the community
hospital; or
(iii) Because of local topography or periods of prolonged severe weather
conditions, the other like hospitals are inaccessible for at least 30
days in each 2 out of 3 years.
42 C.F.R. § 412.92(a)(1).
5
hospital” if “the total acute inpatient days of the nearby hospital is greater than 8 percent of the
total inpatient days reported by the SCH applicant hospital.” Medicare Program; Changes to the
Hospital Inpatient Prospective Payment Systems and Fiscal Year 2003 Rates, 67 Fed. Reg.
49,982, 50,054–55 (Aug. 1, 2002).
To apply for classification as an SCH, a hospital must submit a request to its Medicare
Administrative Contractor (“MAC”), a private contractor that processes reimbursement claims
on behalf of CMS. 42 C.F.R. § 412.92(b)(1)(i); see also 42 U.S.C. § 1395h. The MAC then
reviews the hospital’s request and sends it, with a recommendation, to CMS. 42 C.F.R.
§ 412.92(b)(1)(iv). CMS, in turn, reviews the request and the MAC’s recommendation and
“forward[s] its approval or disapproval to the MAC.” Id. § 412.92(b)(1)(v). If the hospital is
dissatisfied with CMS’s determination, it may file an appeal with the Provider Reimbursement
Review Board, an administrative tribunal “composed of five members appointed by the
Secretary,” which has “the power to affirm, modify, or reverse a final determination.” 42 U.S.C.
§ 1395oo(a), (d), (h); see also 42 C.F.R. § 412.92(b)(2)(ii). The Board’s decision is “final unless
the Secretary, on his own motion, and within 60 days after the [hospital] is notified of the
Board’s decision, reverses, affirms, or modifies the Board’s decision.” § 1395oo(f)(1). The
provider may seek judicial review “within 60 days of the date on which notice of any final
decision by the Board or any reversal, affirmance, or modification by the Secretary is received.”
Id.
2. Provider-Based Status
Since the beginning of the Medicare program, some hospitals have owned, operated, and
financially and clinically administered subordinate medical facilities—including off-campus
6
facilities—under the umbrella of a single entity. 3 Prior to the creation of the IPPS in 1983,
“there was little incentive for providers to affiliate with one another merely to increase Medicare
revenues . . . because at that time each provider was paid primarily on a retrospective, cost-based
system.” 65 Fed. Reg. at 18,504. The creation of the IPPS, however, generated “financial and
organizational incentives” for hospitals to acquire additional facilities and to bill Medicare as a
single unit. Id. In the fifteen years following the IPPS’s creation, the number of affiliated
facilities claiming a Medicare status as a single hospital skyrocketed. See Medicare Program;
Prospective Payment Systems for Hospital Outpatient Services, 63 Fed. Reg. 47,552, 47,587
(proposed Sept. 8, 1998). In response, CMS adopted requirements that main hospitals and their
subordinate facilities must satisfy to obtain “provider-based” status for the subordinate facility—
that is, to enable the subordinate facility to be viewed as “part of the hospital” for, among other
things, billing purposes. 81 Fed. Reg. at 45,682; see also 42 C.F.R. § 413.65.
Current Medicare regulations set detailed conditions for obtaining “provider-based
status,” including when the main hospital seeks to treat “remote locations” as part of the “the
hospital.” 42 C.F.R. § 413.65(a)(1)(i). Under these regulations, a “provider-based status” arises
when a “main provider” “creates, or acquires ownership of, another entity to deliver additional
health care services under [the main provider’s] name, ownership, and financial and
administrative control.” Id. § 413.65(a)(2). “[W]hether located on or off the campus of a
potential main provider,” CMS will grant a “facility or organization” “provider-based status”
3
See Office of Inspector General; Medicare Program; Prospective Payment System for Hospital
Outpatient Services, 65 Fed. Reg. 18,434, 18,504 (Apr. 7, 2000) (to be codified at 42 C.F.R. pts.
409, 410, 411, 412, 413, 419, 424, 489, 498, 1003); Medicare Program: Hospital Outpatient
Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting
Programs, 81 Fed. Reg. 45,604, 45,682 (proposed July 14, 2016) (to be codified at 42 C.F.R. pts.
416, 419, 482, 486, 488, 495).
7
only if both the main and affiliated facility (here, a “remote location”) satisfy certain
requirements. Id. § 413.65(d).
First, if permitted by state law, the main and remote locations must operate under the
same license. Id. § 413.65(d)(1). Second, the “clinical services” of the main and remote
locations must be “integrated as evidenced by the following:” (1) the professional staff at the
remote location have “clinical privileges” at the main facility; (2) the main provider “maintains
the same monitoring and oversight of the [remote facility] as it does for any other department of
the provider;” (3) “[t]he medical director of the [remote facility] maintains a reporting
relationship with the chief medical officer . . . of the main provider that has the same frequency,
intensity, and level of accountability that exists in the relationship between the medical director
of a department of the main provider and the chief medical officer . . . of the main provider” and
is “under the same type of supervision and accountability as any other director . . . of the main
provider;” (4) “[m]edical staff committees . . . at the main provider are responsible for medical
activities” at the remote facility; (5) “[m]edical records for patients treated in the [remote]
facility are integrated into a unified retrieval system . . . of the main provider;” and (6)
“[i]npatient and outpatient services” in the two facilities are integrated, so that “patients treated
at the [remote] facility . . . who require further care have full access to all services of the main
provider and are referred where appropriate to the corresponding inpatient or outpatient
department . . . of the main provider.” Id. § 413.65(d)(2). Third, “[t]he financial operations of
the” two facilities must be “fully integrated,” and, fourth, the remote facility must be “held out to
the public and other payers as part of the main provider,” so that patients who enter the remote
facility “are aware that they are entering the main provider and are billed accordingly.” Id.
§ 413.65(d)(3)–(4).
8
Off-campus facilities or organizations, moreover, must meet additional requirements.
Id. § 413.65(e). They must, for example, demonstrate that “[t]he facility or organization seeking
provider-based status is operated under the ownership and control of the main provider.”
Id. § 413.65(e)(1). They must also meet location-based criteria: To qualify for provider-based
status, an off-campus facility must be in the same state or an adjacent state as the main provider,
id. § 413.65(e)(3)(vii), and must either be within 35 miles of the main provider,
id. § 413.65(e)(3)(i), or “meet other specified location requirements designed to ensure that the
campuses serve the same patient populations,” Anna Jacques Hosp. v. Burwell, 797 F.3d 1155,
1168 n.6 (D.C. Cir. 2015) (citing 42 C.F.R. § 413.65(e)(3)(ii)-(vi)).
As noted above, one type of facility that may obtain provider-based status is a “remote
location of a hospital.” 42 C.F.R. § 413.65. Under CMS regulations, a remote location of a
hospital is defined, in relevant part, as:
[A] facility or an organization that is either created by, or acquired by, a hospital
that is a main provider for the purpose of furnishing inpatient hospital services
under the name, ownership, and financial and administrative control of the main
provider, in accordance with the provisions of this section. A remote location
of a hospital comprises both the specific physical facility that serves as the site
of services for which separate payment could be claimed under the Medicare or
Medicaid program, and the personnel and equipment needed to deliver the
services at that facility. The Medicare conditions of participation do not apply
to a remote location of a hospital as an independent entity.
Id. § 413.65(a)(2). Like other provider-based facilities, remote locations of hospitals operate
under the main provider’s Medicare provider agreement, using the main provider’s Medicare
provider number, through which the remote location may bill for services provided to Medicare
beneficiaries. See id. The main provider and the remote location “operate[] as a single
institution with integrated finances, administration, and organization.” Anna Jacques Hosp., 797
9
F.3d at 1158. The combined hospital, known as a “multi-campus hospital,” submits a combined
Medicare cost report to the Secretary each year. See id. at 1158–59.
3. 2018 Sole Community Hospital Regulation
Although not applicable here, in May 2018, CMS proposed an amendment to the SCH
regulations regarding “the treatment of multicampus hospitals” that apply for SCH status. See
Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals
and the Long-Term Care Hospital Prospective Payment System and Proposed Policy Changes
and Fiscal Year 2019 Rates, 83 Fed Reg. 20,164, 20,358 (proposed May 7, 2018). According to
the Notice of Proposed Rulemaking, CMS had “received an increasing number of inquiries
regarding the treatment of multicampus hospitals as the number of multicampus hospitals has
grown in recent years.” Id. Recognizing that “the regulations at § 412.92 for sole community
hospitals (SCHs) . . . do not directly address multicampus hospitals,” CMS “propo[sed] to
codify . . . the policies for multicampus hospitals that [it had] developed in response to recent
questions.” Id. Specifically, CMS proposed adopting the following language as one of the
“[c]riteria for classification” under 42 C.F.R. § 412.92(a):
For a hospital with a main campus and one or more remote locations under a
single provider agreement where services are provided and billed under the
inpatient hospital prospective payment system and that meets the provider-based
criteria at § 413.65 of this chapter as a main campus and a remote location of a
hospital, combined data from the main campus and its remote location(s) are
required to demonstrate that the criteria specified in paragraphs (a)(1)(i) and (ii)
of this section are met. For the mileage and rural location criteria in paragraph
(a) of this section and the mileage, accessibility, and travel time criteria
specified in paragraphs (a)(1) through (3) of this section, the hospital must
demonstrate that the main campus and its remote location(s) each independently
satisfy those requirements.
10
83 Fed. Reg. at 20,566 (emphasis added). In other words, CMS proposed that “a main campus of
a hospital cannot obtain [SCH status] independently or separately from its remote location(s),
and vice versa.” Id. at 20,358.
CMS provided two reasons for proposing this regulatory text. First, “each remote
location of a hospital is included on the main campus’s cost report and shares the same
[Medicare] provider number.” Id. Put differently, “the main campus and remote location(s)
would share the same status . . . because the hospital is a single entity with one provider
agreement.” Id. Second, it would not be “administratively feasible” for CMS to track every
hospital with remote locations and to “assign different statuses . . . exclusively to the main
campus or to its remote location.” Id. Nor would such separation be appropriate because
consideration of both the main and remote campus “is necessary to show that the hospital is
indeed the sole source of inpatient hospital services reasonably available to individuals in a
geographic area.” Id. at 20,359.
After providing an opportunity for public comment, CMS approved the file rule on
August 17, 2018, and the rule took effect on October 1, 2018. See Medicare Program; Hospital
Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care
Hospital Prospective Payment System and Policy Changes and Fiscal Year 2019 Rates, 83 Fed.
Reg. 41,144 (Aug. 17, 2018). All agree that the new rule does not itself apply retroactively,
although the Secretary posits that it clarifies what was, in any event, prior existing policy. See
id. at 41,371–72.
B. Factual Background
AnMed Health is an acute-care hospital with two locations in Anderson, South Carolina.
The main campus, located at 800 North Fant Street, is a “full-service hospital” with 461 beds and
11
an emergency department. Administrative Record (“AR”) 8, 75–76; see also AR 76 (“The Fant
Street campus . . . do[es] basically everything but transplants.”). AnMed describes the North
Fant Street Campus as “home to AnMed Health’s acute, inpatient services” and states that it
“includes AnMed Health Medical Center, AnMed Health Heart and Vascular Center, most of the
system’s support and professional staff, and a number of doctors’ offices along North Fant
Street.” AR 17–18.
AnMed’s remote location, known as the AnMed Health Women’s and Children’s
Hospital or the North Campus, is located 2.61 miles north of the main campus at 2000 East
Greenville Street. AR 76, 162. The North Campus is a 72-bed facility that lists the following
services: “adult surgery, inpatient pediatric care, maternity services, [and] joint replacement
surgery.” AR 17. The North Campus does not have an emergency department; when a patient at
the North Campus requires emergency services, the patient is transferred to the main campus.
AR 76. According to AnMed’s website, “[t]he North Campus includes AnMed Health Cancer
Center, AnMed Health Rehabilitation Hospital and more than 30 doctors’ offices.” AR 18.
In 2010, AnMed applied for classification as an SCH and sought to establish that it
satisfied the regulatory criteria for a hospital that is “located between 25 and 35 miles from other
like hospitals.” AR 199–202 (citing 42 C.F.R. § 412.92(a)(1)(i)). In a letter to CMS, the MAC
assigned to AnMed’s region identified “[t]he item of concern” regarding AnMed’s application:
“the location from which the mileage requirement is determined [when] there are two hospital
campuses with inpatient services.” AR 201. According to data obtained from Google Maps, the
main North Fant Street Campus was located more than 25 miles away from “other like
12
hospitals,” but the remote North Campus was not. 4 AR 200–01. The MAC thus determined that
if the distance to “other like hospitals” was measured from the main campus only—as AnMed
proposed in its application—“then AnMed Health is between 25 and 35 miles from other like
hospitals.” AR 200. But, if the distance to other like hospitals was “determined from the North
Campus,” then “the hospital is less than 25 miles from two hospitals.” Id. Ultimately, the MAC
concluded that the distance to other like hospitals should be measured from both campuses and
recommended to CMS that “the SCH criteria is not met.” AR 201. On December 21, 2010,
CMS issued a denial letter to AnMed, explaining that AnMed “does not meet federal
requirements found in 42 CFR 412.92 to be classified as a[n] . . . SCH[]” because “[t]he North
Campus facility, Women’s & Children Hospital, does not meet [the distance] requirement per
documentation provided.” AR 198. AnMed did not appeal that determination.
On December 21, 2016, AnMed again applied for SCH classification. AR 280–354. The
hospital argued that it satisfied the mileage requirement based on CMS’s regulatory definition of
“miles.” AR 281 (citing 42 C.F.R. § 412.92(c)(1)). AnMed maintained that the regulatory
definition of “miles” does not merely require CMS to measure the “shortest distance . . . over
improved roads . . . maintained by a local, State, or Federal government entity” and the “paved
surface” leading up to the hospital, but also specifies the end point for the measurement: “the
front entrance of the hospital.” Id. (citing 42 C.F.R. § 412.92(c)(1)). According to AnMed, “the
front entrance of the hospital” refers—in its case—to “[t]he front entrance of AnMed Health [at]
800 North Fant Street, Anderson SC 29621.” Id. AnMed then identified seven like hospitals
4
The MAC concluded that the North Campus was 23.8 miles from Palmetto Easley hospital in
Easley, South Carolina, and 24.4 miles from Greenville Hospital Center in Greenville, South
Carolina. AR 201. The record contains immaterial variations of these calculations, however.
See, e.g., AR 45 (stating that the hospitals were 23.3 and 24.9 miles from the North Campus,
respectively).
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within a 35-mile radius of the main campus, AR 282, and submitted printouts from Google Maps
showing that each of those seven hospitals was located more than 25 miles from the front
entrance of the North Fant Street Campus, AR 319–39. AnMed Health did not submit evidence
regarding the distances between the seven other hospitals and AnMed’s North Campus.
On July 25, 2017, CMS again denied AnMed Health’s application for SCH classification
on the ground that “AnMed Health does not meet [the] distance requirement in 42
CFR 412.92(a)” because “the [North Campus] is less than 25 miles from two other hospitals.”
AR 355. On August 11, 2017, AnMed requested reconsideration of that determination, arguing
that the decision to measure the distance to other like hospitals from both of AnMed’s locations
was inconsistent with the governing regulations. AR 356–358. CMS denied AnMed’s
reconsideration request, AR 359, and AnMed timely filed an appeal and request for hearing
before the Board. AR 361–75. For purpose of that appeal, AnMed and the MAC stipulated that
the “sole justification” for denying AnMed’s request was that AnMed’s remote location was less
than 25 miles from other “like hospitals” under 42 C.F.R. § 412.92(a)(1). AR 116.
On September 4, 2020, the Board issued its decision, concluding that CMS erred in
applying the SCH distance requirement to both of AnMed’s campuses. AR 40. The Board
acknowledged that the term “the hospital,” as used in the SCH regulations, “necessarily
encompasses” both the main North Fant Street Campus and the remote North Campus. AR 45–
46. But it nonetheless concluded that CMS should have measured the distance necessary to
qualify for SCH status from the main campus alone. That conclusion was dictated, in the
Board’s view, by the regulatory definition of “miles,” which “is very specific” that mileage must
be “determin[ed] . . . by measuring ‘paved surface up to the front entrance of the hospital[,]’ and
[the regulation] makes no mention of remote locations or multiple front entrances.” AR 46
14
(quoting 42 C.F.R. § 412.92(c)(1) (emphasis added)). The Board continued that if required to
identify a single “front entrance of the hospital,” that entrance must be located on the main (and
not the remote) campus. AR 46.
The Board also considered the regulatory history of § 412.92(c)(1) and commentary
relating to another rule, which addressed Critical Access Hospitals (“CAHs”). First, the Board
observed that, when the definition of the term “miles” was added to the SCH regulations, the
preambles to both the proposed and final rules explained that the new definition was “‘consistent
with the [Medicare Geographic Classification Review Board (“MGCRB”)] definition of
mileage.’” AR 46 (quoting FY 2002 IPPS Proposed Rule 66 Fed. Reg. 22,645, 22,648 (proposed
May 4, 2001); FY 2002 IPPS Final Rule, 66 Fed. Reg. 39,828, 39,874–75 (Aug. 1, 2001). This
mattered because, according to the Board, the “then-existing MGCRB definition of ‘miles’”
measured the “distance from the hospital . . . based on paved surfaces from the front door of the
main hospital.” AR 46. 5
Second, the Board cited a 2007 rulemaking relating to Critical Access Hospitals,
concluding that, in that rulemaking, “the Secretary made clear that the then-existing § 412.92(a)
requirements for SCH designation did not address multicampuses.” AR 47. In the CAH
rulemaking, CMS adopted a requirement that hospitals measure distances from both their main
campuses and any remote locations when seeking classification as CAHs. 6 See CY 2008 OPPS
5
IPPS reimbursement rates are adjusted according to “wage index[es]” that reflect regional
variations in hospital wage costs. See Palisades Gen. Hosp. Inc. v. Leavitt, 426 F.3d 400, 401
(D.C. Cir. 2005). The MGCRB “reviews applications from hospitals seeking geographic
redesignation to a nearby area in order to use that area’s (higher) wage index.” Id. at 402 (citing
42 U.S.C. § 1395ww(d)(1) and 42 C.F.R. §§ 412.230–.235).
6
CAHs are hospitals that provide certain emergency services in rural areas and are located
“more than a 35-mile drive . . . from a hospital, or another facility described” in the CAH
subsection. 42 U.S.C. § 1395i-4(c)(2)(B)(i)(I). As with SCHs, Congress has authorized more
15
Proposed Rule, 72 Fed. Reg. 42,628, 42,807 (proposed Aug. 2, 2007); see also 42 C.F.R.
§ 485.610(e)(2) (2008). According to the Board, a Medicare provider operating an SCH
commented on the CAH proposed rule, “express[ing] concerns regarding the loss of its special
reimbursement status” and “question[ing] why CMS was treating CAHs differently.” AR 47.
The Secretary responded that the new distance-based requirement for CAHs was “a statutory
requirement that reflect[ed] . . . the special status of CAHs (as opposed to other rural entities)
and should not limit access to care.” Id. (quoting CY 2008 OPPS Interim Final Rule, 72 Fed.
Reg. 66,580, 66,880–81 (Nov. 27, 2007)). In the Board’s view, this response signaled that the
2007 distance-based requirement for CAHs “was not intended to apply to SCHs.” Id.Finally, the Board addressed the preamble to the FY 2019 IPPS rule, which added a new
provision to the SCH regulations specifying that, “[f]or a hospital with a main campus and one or
more remote locations under a single provider agreement . . . that meets the provider-based
criteria at § 413.65[,] . . . the hospital must demonstrate that the main campus and its remote
location(s) each independently satisfy” the mileage requirement. See 42 C.F.R. § 412.92(a)(4).
Although the preamble explained that the new provision was added to clarify existing policy, the
Board seized on the agency’s observations (1) that it had “‘received an increasing number of
inquiries regarding the treatment of multicampus hospitals as the number of [such] hospitals has
grown in recent years,’” and (2) that the then-existing regulations did “‘not directly address
multicampus hospitals.’” AR 47 (quoting 83 Fed. Reg. at 41,369–70). In the Board’s view,
these observations show that the multicampus rule was not “in place at the time of AnMed’s
SCH application and that the FY 2019 IPPS rule was not a clarification of long-standing policy
generous reimbursement rates for these hospitals out of concern for rural access to health care.
See St. Helena Clear Lake Hosp. v. Becerra, 30 F.4th 301, 302 (D.C. Cir. 2022).
16
as it relates to § 412.92(a) requirements for SCH designation.” AR 47–48 (quoting 83 Fed. Reg.
at 41,369–70). This mattered, according to the Board, because if the policy adopted in the FY
2019 IPPS rule was, in fact, a new “substantive policy,” the Supreme Court’s decision in Azar v.
Allina Health Services, 139 S. Ct. 1804 (2019), makes clear that the rule may not be applied
retroactively to reporting periods preceding the notice-and-comment rulemaking. AR 48–50.
On October 30, 2020, the Secretary, acting through the Principal Deputy CMS
Administrator, reversed the Board’s decision. AR 7. The Secretary first concluded that CMS’s
determination was “consistent with the plain language of the statute [42 U.S.C.
§ 1395ww(d)(5)(D)(iii)], which defines a SCH[] as a hospital[] that by reason of the absence of
other like hospitals (as determined by the Secretary), is the sole source of inpatient hospital
services reasonably available to individuals in a geographic area who are entitled to benefits
under [Medicare] Part A.” AR 18. Most importantly, the statutory definition of a “hospital”
“does not distinguish or recognize separate identities for multicampus hospital locations,” AR 18
n.15 (citing 42 U.S.C. § 1395x(e)), and, “[i]n this case, the Hospital is comprised of two
locations”—the main North Fant Street Campus and the remote North Campus, AR 18. As a
result, “[t]he ‘Hospital’ must . . . meet the mileage rule for both campuses in order to qualify as
an SCH.” AR 18.
The Secretary was unpersuaded by AnMed’s contention that its North Campus was not a
“hospital” for purposes of determining SCH status because “it does not operate an Emergency
Room and serves only a small subset of individuals” and “is not a ‘hospital furnishing short-
term, acute care.’” AR 18–19. That argument failed, according to the Secretary, because CMS’s
provider-based status regulation, 42 C.F.R. § 413.65(a)(2), “recognizes that a ‘Hospital’ includes
a location that will not independently meet the condition of participation, but is still the site of
17
IPPS services for the Hospital, for which payment may be made.” AR 19. As the Secretary
explained, under the governing regulations, “[b]oth the main location and remote location are the
‘Hospital’ and provide the IPPS services under the one provider agreement.” Id.The Secretary also disagreed with AnMed’s contention and the Board’s conclusion that
the SCH regulations (as of the date that AnMed applied for SCH classification in 2016) required
CMS to measure the distance to other like hospitals from the front entrance of the main campus
and not from the remote campus. The Secretary explained: “[T]here is no reference to the ‘main
hospital’ . . . in the text of” § 412.92(c)(1), and the fact that the regulation refers—in the
singular—to “the hospital” is of no moment, since “there [is] always only one Hospital . . . being
evaluated[,] even if the Hospital has more than one location or campuses operating under [a
single] provider agreement.” AR 21 (emphasis added).
In addition, the Secretary rejected AnMed’s contention and the Board’s conclusion that
the FY 2019 IPPS Rule represented a change in CMS policy. AR 19. Unlike the Board, the
Secretary credited CMS’s statements in the Final Rule that it had “proposed to codify in the
regulations [its] existing policies for multicampus hospitals, and thus [that] these policies have
been and continue to be in effect.” AR 20 (quoting 83 Fed. Reg. at 41,372). Indeed, as the
Secretary explained, neither AnMed nor any of the commenters to the FY 2019 IPPS Rule
submitted any evidence of a “contrary application by CMS of the SCH rules to multicampus
hospitals.” AR 20 n.19. AnMed itself, moreover, had been rejected for SCH classification in
2010 “for th[e] same reason” given by CMS in 2016, proving a concrete and apt example of the
agency’s prior practice. See AR 20.
Finally, the Secretary dismissed the Board’s reliance on (1) the reference to the MGCRB
definition of “miles” in the FY 2002 IPPS Rule amending the SCH regulations to include a
18
definition of “miles” and (2) the response to the comments submitted to the CAH rule in 2007.
AR 21–23. Regarding the reference to the MGCRB’s approach to measuring “miles” “when
considering hospital reclassification applications,” 66 Fed. Reg. at 39,874, the Secretary
concluded that the Board read too much into the preamble to the FY 2002 IPPS rulemaking,
noting (as the Board did) that the rulemaking said nothing about multiple campus hospitals and
noting (as the Board failed to do) that neither the preamble nor the rule said anything about “the
‘main hospital.’” AR 21. With respect to CMS’s adoption of a distance requirement for CAHs
in 2007, the Secretary explained that “[i]t is not evident from [CMS’s] statement that CMS’[s]
response, referring to CAHs’ special status compared to other rural entities, was addressing or
even suggesting [that] SCH remote location hospitals would be exempt from the distance
requirements to retain their status.” AR 22. Noting the differences between the CAH and SCH
schemes, the Secretary reasoned that “[t]he policy treatment of the various off-site entities under
the CAH provisions, required due to [changes in the CAH statute], does not address, nor is
relevant to, SCH determinations.” AR 23.
AnMed filed this action on December 28, 2020. Dkt. 1. It claims that the Secretary’s
decision violates the Medicare regulations that were in effect at the relevant time and is “contrary
to the Medicare statute because it applies a regulation retroactively.” Id. at 3 (Compl. ¶ 7).
AnMed asks the Court to “reverse the Secretary’s decision and [to] order the Secretary to
recalculate AnMed’s Medicare payments under the reimbursement methodology applicable to
SCHs, effective August 25, 2017.” Id.; see also id. at 21–22 (Prayer for Relief).
AnMed moved for summary judgment on August 16, 2021, Dkt. 16, and the Secretary
cross-moved for summary judgment on October 22, 2021, Dkt. 18. For the following reasons,
19
the Court will GRANT the Secretary’s cross-motion for summary judgment and will DENY
AnMed’s motion for summary judgment.
II. LEGAL STANDARD
The Court’s jurisdiction is premised on the Medicare statute, 42 U.S.C. § 1395oo(f)(1),
which authorizes judicial review under the same standards applicable under the Administrative
Procedure Act (“APA”), 5 U.S.C. §§ 701–706; Humana, Inc. v. Heckler, 758 F.2d 696, 698–99
(D.C. Cir. 1985) (“The Medicare Act itself incorporates the standard of review set out in section
706 of the Administrative Procedure Act.”); Flint v. Azar, 464 F. Supp. 3d 1, 7 (D.D.C. 2020).
The Court, accordingly, must consider whether the Secretary “violated the Administrative
Procedure Act by taking action that is ‘arbitrary, capricious, an abuse of discretion, or otherwise
not in accordance with law.’” Forsyth Mem’l Hosp., Inc. v. Sebelius, 639 F.3d 534, 537 (D.C.
Cir. 2011) (quoting 5 U.S.C. § 706(2)(A)). This review is “fundamentally deferential.” Fox v.
Clinton, 684 F.3d 67, 75 (D.C. Cir. 2012). Nonetheless, the APA requires that “an agency’s
decreed result be within the scope of its lawful authority” and that “the process by which it
reaches that result . . . be logical and rational.” Allentown Mack Sales & Serv., Inc. v. NLRB, 522
U.S. 359, 374 (1998).
III. ANALYSIS
According to AnMed, the Secretary’s decision must be set aside for four reasons. First,
the decision was “not dictated by the Medicare statute” and was “not required for consistency
with the statute.” Dkt. 16-1 at 29. Second, the decision “is contrary to the plain reading of the
applicable regulation at the time that AnMed submitted its SCH application.” Id. Third, the
decision “is contrary to the Secretary’s interpretation of that regulation over many years.” Id. at
20
29–30. Finally, the decision constitutes “improper retroactive rulemaking.” Id. at 30. The Court
will consider each argument in turn.
A. The Medicare Statute
AnMed’s first contention is not your typical administrative law argument. In a garden-
variety administrative law case, the plaintiff or petitioner typically argues that the agency has
exceeded its statutory authority or that its application of the statute is unreasonable. Here, in
contrast, AnMed starts by arguing that the Secretary has broad authority to implement the SCH
provision of the Medicare statute. See id. at 31–32. It argues, for example, that Congress
delegated to the Secretary authority to determine “whether distance must be measured from
remote locations in establishing . . . eligibility” as a SCH or to decide whether a remote location
should be treated as part of the hospital for purposes of the SCH program. Id. at 32. More
succinctly put, AnMed maintains that “the Medicare statute does not address the question at
issue in this case” and that “Congress left the Secretary to fill in many of the gaps in the statutory
text authorizing SCHs.” Id. at 38.
To the extent AnMed contends that the Secretary’s decision must be set aside because the
Secretary mistakenly believed that Congress tied his hands, depriving him of authority to adopt
(at least through a rulemaking) AnMed’s preferred rule, AnMed misreads the decision. AnMed
is correct that the Medicare statute confers broad discretion on the Secretary to implement the
SCH program in a manner consistent with the statutory objective of providing an enhanced IPPS
rate for “hospital[s] that, by reason of factors such as isolated location, weather conditions, travel
conditions, or absence of other hospitals” are “the sole source of inpatient hospital services
reasonably available to individuals in a geographic area.” § 601(e), 97 Stat. at 158. As the Ninth
Circuit observed in San Bernardino Mountains Community Hospital District v. Secretary of
21
Health and Human Services, 63 F.3d 882, 886–87 (9th Cir. 1995), the Medicare statute makes
“clear that Congress intended to delegate to the Secretary the task of outlining and defining the
criteria for attaining [SCH] status.” See also Clinton Mem’l. Hosp. v. Shalala, 10 F.3d 854, 857
(D.C. Cir. 1993) (noting the statute’s “delegation to the Secretary of primary responsibility for
implementing the SCH definition”).
The statute provides that a hospital is an SCH if “the Secretary determines [that it] is
located more than 35 road miles from another hospital,” but it does not specify how the Secretary
should “determine” whether a hospital meets the 35-mile requirement. 42 U.S.C.
§ 1395ww(d)(5)(D)(iii)(I). The statute also provides general guidance as to how the Secretary
should determine whether a hospital “is the sole source of inpatient hospital services reasonably
available to individuals in a geographic area who are entitled to benefits under [Medicare] part
A,” by including a nonexclusive list of factors “such as the time required for an individual to
travel to the nearest alternative source of appropriate inpatient care (in accordance with standards
promulgated by the Secretary), location, weather conditions, travel conditions, or absence of
other like hospitals (as determined by the Secretary).” Id. § 1395ww(d)(5)(D)(iii)(II). Beyond
that guidance, however, the question of how to measure the distance between a multicampus
hospital and other like hospitals is “precisely the type of interstitial question of implementation
that the statute leaves in the Secretary’s administrative hands.” Anna Jacques Hosp., 797 F.3d at
1165.
The Secretary, for his part, agrees that the statute contains a broad delegation of authority
to implement the SCH program in a reasonable manner, and, indeed, although not applicable to
this case, the Secretary has promulgated a regulation that speaks directly and clearly to the
question how to treat “a hospital with a main campus and one or more remote locations under a
22
single provider agreement.” See 42 C.F.R. § 412.92(a)(4). More to the point for present
purposes, to the extent AnMed contends that the Secretary denied its application for SCH status
based on the mistaken belief that the Medicare statute admits of no discretion in this regard, it
misreads the decision; the decision does not conclude that the Secretary is without discretion to
exclude remote campuses when measuring the distance between “the hospital” and “other like
hospitals,” 42 C.F.R. § 412.92(a)–(b). Rather, the Secretary construed CMS’s then-existing
regulation and concluded, based on the law as it then stood, (1) that a qualifying “hospital” must
be more than “25 miles . . . from other like hospitals;” (2) that (in the absence of any rule to the
contrary) the term “hospital,” as used in the SCH regulations, should be given the meaning
generally assigned to that term in the statute and regulations, AR 18; (3) that the statutory
definition of a “hospital” “does not distinguish or recognize separate identities for multicampus
hospital locations,” AR 18 n.15; and (4) that the regulations governing “provider-based status”
“recognize[] that a ‘Hospital’ includes a location that will not independently meet the condition
of participation[] but is still the site of IPPS services for the Hospital,” AR 19.
That syllogism is consistent with the D.C. Circuit’s observation that various provisions of
the Medicare statute “make clear that a ‘hospital’ can encompass institutes with multiple
campuses and facilities.” Anna Jacques Hosp., 797 F.3d at 1165. The Secretary’s reasoning,
moreover, does not imply that CMS is without authority to depart from the default rule and to
promulgate a rule that measures distance for purposes of the SCH program from only a portion
of the hospital. But that step, unlike what the Secretary did here, would have required looking
beyond the text of the then-existing rules and exercising prospective, policymaking authority.
To the extent that AnMed maintains that the Secretary misconstrued the statute, the Court is
unpersuaded.
23
Although AnMed does not develop the challenge in any detail, it also at least alludes to a
Chevron Step Two argument, suggesting that the Secretary’s decision is at odds with the purpose
of the SCH program. At Chevron Step Two, the Court must determine “whether the Secretary
has provided a reasonable rationale for his policy choice.” Methodist Hosp. of Sacramento v.
Shalala, 38 F.3d 1225, 1232 (D.C. Cir. 1994). That inquiry is “concededly narrow,” New
Lifecare Hospitals of Chester County LLC v. Azar, 417 F. Supp. 3d 31, 45 (D.D.C. 2019),
particularly in the Medicare context, where “heightened deference [must be given] to the
Secretary’s interpretation of [the] ‘complex and highly technical [Medicare] program,”
Methodist Hospital, 38 F.3d at 1229 (quoting Thomas Jefferson University v. Shalala, 512 U.S.
504, 512 (1994)).
Although far from clear, AnMed seems to make two versions of a Chevron Step Two
argument. It first argues that, to the extent the Secretary believed that he was compelled at
Chevron Step Two to treat multicampus hospitals, like AnMed, as a single hospital and to
measure the distance to any “other like hospital” from both the main and remote campuses, the
Secretary erred. Dkt. 16-1 at 36. As AnMed puts it, Chevron Step Two comes into play only if
“‘the governing statute, read as a whole, reveal[s] a clear congressional intent regarding the
relevant question or that the text of the statute and reasonable inferences from it give a clear
answer.’” Id. (quoting Nat’l Env’t Dev. Ass’n’s Clean Air Project v. EPA, 891 F.3d 1041, 1047
(D.C. Cir. 2018)). The problem with this version of AnMed’s argument is that the Secretary
never said that he was compelled, at Chevron Step One or Two, to reject AnMed’s preferred
rule. He merely concluded that the SCH regulations, as written, referred to the distance to “the
hospital,” and, based on the statute and regulations, that reference was construed to mean the
entire hospital, including any remote campus. Notably, AnMed itself concedes that the Secretary
24
is entitled to Auer deference in interpreting the SCH regulations, see Dkt. 21 at 8 (citing Kisor v.
Wilkie, 139 S. Ct. 2400 (2019)), and, here, the Secretary read the term “the hospital” in the SCH
regulations to include any remote campuses.
The second version of AnMed’s Chevron Step Two argument posits that AnMed’s
remote North Campus “serves only a small subset of patients” and “does not provide most
inpatient hospital services needed by women” and “provides very few inpatient services to men.”
Dkt. 16-1 at 37. AnMed then argues that “Congress likely did not intend that a [remote] facility
that is not required [separately] to meet the Medicare Conditions of Participation, does not have
an emergency department, and treats only a few specialized conditions to be considered a ‘source
of inpatient hospital services reasonably available to individuals in a geographic area.’” Id.(quoting 42 U.S.C. § 1395ww(d)(5)(D)(iii)(II)). To this, AnMed adds, “the legislative history of
the SCH statute suggests that Congress intended for the Secretary to adopt broad criteria for SCH
eligibility” and intended to avoid inconsistent, narrow, and restrictive interpretations of the
governing qualifications. Id. at 37–38.
In pressing this argument, AnMed disregards the Secretary’s well-reasoned explanation
for his decision. Beyond the textual rationale explained above, the Secretary noted that “the
operational origins of [CMS’s] policy” reflect “the legal status of a multicampus hospital,”
including the fact that a “remote location of a hospital is included on the main campus’s cost
report and shares the same provider number.” AR 20. This means that the main and remote
campuses “share the same status . . . because the hospital is single entity with one provider
agreement.” Id. As a result, if the hospital qualifies for the enhanced SCH Medicare
reimbursement rates, the main and remote campuses both obtain the benefit. And, as the
Secretary further explained, “it would not be administratively feasible for CMS and the MACs to
25
track every hospital with remote locations within the same [area] and to assign different statuses
or rural reclassifications exclusively to the main campus or to its remote location.” Id. (quoting
83 Fed. Reg. at 41,369). In short, because AnMed’s remote North Campus would receive the
same enhanced SCH rate that its main North Fant Street Campus would receive should AnMed
qualify for that benefit, and because any effort to treat the North Campus as distinct for this one
reason would pose unreasonable administrative burdens on CMS, the Secretary was unpersuaded
by AnMed’s policy arguments. That decision, moreover, was eminently reasonable and easily
satisfies Chevron Step Two.
In the end, it is unclear whether AnMed is pressing these statutory arguments because it
believes the Secretary actually misconstrued or misapplied the Medicare statute or whether, as
seems more likely, merely to set the stage for its remaining arguments. But, as explained below,
those arguments fare no better.
B. The “Miles” Regulation
The principal argument that AnMed raised in the administrative process, which it renews
here, focuses on the definition of the term “miles” contained in the SCH regulations. The
relevant text provides as follows:
The term miles means the shortest distance in miles measured over improved
roads. An improved road for this purpose is any road that is maintained by a
local, State, or Federal government entity and is available for use by the general
public. An improved road includes the paved surface up to the front entrance of
the hospital.
42 C.F.R. § 412.92(c)(1). As AnMed reads it, this provision requires CMS to measure distance
for purposes of the SCH rule from the front door of the main hospital of a multicampus and to
disregard any remote campuses or facilities. The Court is unpersuaded.
26
Much of AnMed’s argument turns on the fact that “[t]he regulation establishing the
mileage standard is stated in the singular,” referring to “‘the front entrance of the hospital,’ not to
entrances or hospitals.” Dkt. 16-1 at 39. But, as the Secretary explained, the reference to a
single hospital is unremarkable, since “there [is] always only one Hospital” for purposes of the
SCH rule, even if that single “Hospital has more than one location or campus[] operating under
[the single] provider agreement.” AR 21. Indeed, if anything, the reference to a single hospital
supports that Secretary’s reasoning, which starts with the premise that “[t]he hospital” must be
more than 25 miles “from other like hospitals,” see 42 C.F.R. § 412.92(a)(1) (emphasis added),
and then observes that when, as here, “the hospital” “is comprised of two campuses that are
providing IPPS services,” “the hospital” must satisfy the mileage requirement “for both
campuses in order to qualify as an SCH,” AR 18.
Nor is the Court persuaded that the reference to “the front entrance of the hospital” means
the front door of the “main” campus of a multicampus hospital. In AnMed’s view, “[i]t is simply
nonsensical to suggest that a hospital can have ‘the front entrance’ on two buildings.” Dkt. 16-1
at 39. But that contention places far too much weight on the use of the singular in a provision
that merely defines the terms “miles” and “improved roads” and that says nothing about
multicampus hospitals. Before considering AnMed’s specific argument, it bears note that
reading a singular reference to include the plural—in a particular context—is far from
nonsensical. Indeed, in the analogous realm of statutory interpretation, courts are required to
read a singular reference to include the plural, “unless the context indicates otherwise,” 1 U.S.C.
§ 1 (“In determining the meaning of any Act of Congress, unless the context indicates
otherwise[,] words importing the singular include and apply to several . . . things”), and there is
27
no reason why that common sense practice should not apply to regulatory interpretation as well,
at least when warranted by the circumstances.
For several reasons, the Court is convinced that this is such a case. Most significantly,
the regulatory language that AnMed seizes upon appears in a provision that says nothing about
multicampus hospitals and, instead, merely requires the Secretary to measure mileage “over
improved roads” and then defines “improved road[s]” to include government maintained roads
“available for use by the general public” and “paved surface[s] up to the front entrance of the
hospital.” 42 C.F.R. § 412.92(c)(1). Read in this context, the disputed clause—“up to the front
entrance of the hospital”—is best understood to address the relevant portions of the road to
measure, and not whether a multicampus hospital can have more than one front entrance. For
this reason, AnMed’s ipse dixit assertion that “its front entrance is located at” its main North
Fant Street Campus, Dtk. 16-1 at 40, misses the point. In defining “miles” and “improved
roads,” the Secretary said nothing about multicampus hospitals and certainly did not specify, as
AnMed contends, that only the main campus of a multicampus hospital counts for purposes of
satisfying the SCH distance requirement. See AR 21 (noting that “there is no reference to the
‘main hospital’” in 42 C.F.R. § 412.92(c)(1)).
The provision’s regulatory history confirms that its purpose was to define how CMS
should measure miles, and not how it should decide which location(s) of a hospital must satisfy
the distance requirements. Prior to 2001, the agency defined “miles” using the existing language
(with minor grammatical differences) but without the last sentence that refers to the “front
entrance of the hospital.” See 42 C.F.R. § 412.92(c)(1) (2000). In 2001, the Secretary
promulgated a rule adding the “front entrance of the hospital” language to the SCH regulations.
See FY 2002 IPPS Final Rule, 66 Fed. Reg. 39,828, 39,874–75 (Aug. 1, 2001). The Secretary
28
explained that he “consider[ed] improved roads to include the paved surface up to the front
entrance of the hospital because this portion of the distance is utilized by the public to access the
hospital.” Id. at 39,874. In other words, the Secretary added “paved surface up to the front
entrance of the hospital” to the definition of “miles” because that surface is part of a patient’s
commute to a hospital, and he wanted hospitals to make accurate approximations of patients’
travel requirements. That consideration, of course, has nothing to do with the proper treatment
of multicampus hospitals.
AnMed has a different take on the regulatory history. As the preamble to the FY 2002
IPPS Final Rule explains, the Secretary amended the definition of “miles” in the SCH
regulations to clarify that CMS should measure mileage for purposes of the SCH rule over
“improved roads” because the public uses “the paved surface up to the front entrance . . . to
access the hospital,” and thus the definition of mileage should include “this portion of the
distance.” Id. AnMed, however, focuses on the next sentence of preamble, which states: “This
definition provides consistency with the interpretation of the MGCRB when considering hospital
reclassification applications.” Id. That sentence is important, according to AnMed, because
when “a hospital with more than one campus in the same wage index area submits a request for
reclassification, the MGCRB measures distance from only the main campus.” Dkt. 16-1 at 41–
42. From these premises, AnMed then concludes that “[i]n order to reconcile the Secretary’s
statements that the definition of miles is consistent for purposes of the MGCRB reclassifications
and SCH designations, the Secretary should have measured distance only from AnMed’s main
campus when he evaluated AnMed’s SCH application.” Dkt. 16-1 at 42.
This argument mixes apples and oranges. The fact that the Secretary adopted a definition
of “mileage” that is consistent with the definition used by “the MGCRB when considering
29
hospital reclassification applications,” 66 Fed. Reg. at 39,874, does not mean that he also
adopted the MGCRB’s procedures relating to the treatment of multicampus hospitals. Those are
different questions, and all the Court can conclude from the preamble to the FY 2002 IPPS Final
Rule is that the Secretary intended for the same understanding of “improved roads” to apply for
purposes of both MGCRB reclassification and SCH status—that is, “improved roads” should
“include the paved surface up to the front entrance of the hospital because this portion of the
distance is utilized by the public to access the hospital.” Id. In rejecting AnMed’s (and the
Board’s) position, the Secretary made just this point, noting that the preamble to the FY 2002
IPPS Final Rule says nothing about a “main hospital.” AR 21.
Surprisingly, the only MGCRB definition of “mile” that AnMed cites in its briefs merely
provides, as does the first portion of the SCH definition, that “the term (road) miles means ‘the
shortest distance in miles measured over improved roads’” and that “[a]n improved road . . . is
any road that is maintained by a local, State or Federal government entity and which is available
for use by the general public.’” Dkt. 16-1 at 41 (quoting MGCRB Interim Final Rule, 55 Fed.
Reg. 36,754, 36,761 (Sept. 6, 1990); MGCRB Final Rule, 56 Fed. Reg. 25,458, 25,471–72 (June
4, 1991)). Indeed, at least before this Court, AnMed fails to cite to anything supporting the
proposition that “the MGCRB measures distance only from the main campus.” Id. at 42. The
Court does not doubt that MGCRB generally considers only the main campus for purposes of
making reclassification decisions, but, as the Secretary notes, the MGCRB applies an entirely
different statutory regime. AR 21 n.21.
The provenance of AnMed’s contention, moreover, casts further doubt on its argument.
In its Final Position Paper before the Board, AnMed asserted that, “[i]f a hospital with a main
campus and remote location in the same metropolitan statistical area . . . applies . . . for wage
30
index reclassification, the MGCRB considers only the mileage from the front entrance of the
main campus to determine whether the hospital meets the proximity criteria.” AR 253. AnMed
then cited to an email chain between its counsel and two CMS employees from January 2018, in
which one of the CMS employees explains that, as long as both campuses of a multicampus
hospital are located in the same labor market area, only the main campus needs to satisfy the “15
mile criteria” for purposes of wage index reclassification to a different Metropolitan Statistical
Area. AR 376–78. There is no reason to believe that this correspondence—from seventeen
years after the FY 2002 IPPS Final Rule was promulgated and which says nothing about the
definition of “mileage”—formed the basis for the contested sentence in the preamble. More
importantly, there is no evidence that the MGCRB ever defined “mile” or “mileage” to mean
anything more than the shortest distance over improved roads, including the paved surface up to
the front of the entrance.
Finally, any possible doubt regarding the permissibility of the Secretary’s interpretation
of the definition of “miles” contained in the SCH regulations is put to rest by AnMed’s
concession that, “[i]f an agency has issued regulations under statutorily delegated authority, a
reviewing court must analyze the regulation[s] under the standards set for in Kisor v. Wilkie.”
Dkt. 21 at 8. Here, AnMed merely argues that the definition unambiguously favors its position,
Dkt. 16-1 at 40, and hints (without developing the argument) that the Secretary’s decision “does
not reflect fair and considered judgment” and, instead, is “merely [a] convenient litigating
position,” Dkt. 21 at 9 (internal quotations omitted). None of these contentions advance
AnMed’s position. For the reasons explained above, even without any deference, the Court is
persuaded that the Secretary’s reading of the definition of “miles” represents the better view.
But even if one might plausibly argue that the definition implicitly deals with the question of
31
multicampus hospitals, that argument is, at best, plausible and does not provide a basis for the
Court to reject the Secretary’s (convincing) interpretation of his own regulation. See Kisor, 139
S. Ct. at 2415; Christensen v. Harris Cnty., 529 U.S. 576, 588 (2000); Thomas Jefferson Univ. v.
Shalala, 512 U.S. 504, 512 (1994). Nor has AnMed shown that the Secretary’s reading of the
mileage regulation was unconsidered or unreasonable or that he adopted it merely as a litigation
expedient.
The Court, accordingly, rejects AnMed’s contention that the definition of “miles”
contained in the SCH regulations addresses the question of multicampus hospitals and requires
CMS to measure the relevant distance from the main campus of a multicampus hospital.
C. Prior Interpretations of the SCH Distance Measurement
Next, AnMed argues that “[t]he Secretary has made numerous statements, and [has] taken
numerous actions over the span of many years, that contradict his reasons for denying AnMed’s
SCH application.” Dkt. 16-1 at 40. AnMed’s first example of such contradictory action merely
repeats AnMed’s contentions that the Secretary adopted the MGCRB’s definition of “miles” for
purposes of the SCH regulations and that, under that definition, CMS may consider only the
location of the main campus of a multicampus hospital. For the reasons explained above, that
argument fails.
AnMed’s second example fares no better. For this example, AnMed points to statements
that the Secretary made in the CY 2008 OPPS Final Rule regarding the distance requirements for
Critical Access Hospital classification. In that rulemaking, the Secretary added a new provision
to the CAH regulations specifying that, “[i]f a CAH . . . operates an off-campus provider-based
location . . . including a . . . remote location, . . . that was . . . acquired by the CAH on or after
January 1, 2008, the CAH can continue to meet the location requirement of . . . this section only
32
if the off-campus provider-based location or off-campus distinct part unit is located more than a
35-mile drive . . . from a hospital or another CAH.” 42 C.F.R. § 485.610(e)(2); 72 Fed. Reg. at
66,880–81. As AnMed notes, one commenter “stated that its Medicare designation as a sole
community hospital has geographic limitations, but that it should not be threatened with the loss
of its special reimbursement status if it meets community needs by developing provider-based or
off-campus services” and “questioned why CMS is treating CAHs differently.” Id. at 66,880. In
response to that comment—and a host of other comments expressing concern about limiting
access to healthcare services for the residents of their communities—the Secretary responded at
length, noting among other things that “the [CAH] distance requirement is a statutory
requirement that reflects the intent of the CAH program to provide hospital-level services in
essentially small rural communities,” and that the proposed rule “reflects this understanding and
the special status of CAHs (as opposed to other rural entities) and should not limit access to
care.” Id. at 66,880–81. According to the Board and AnMed, this comment demonstrates that—
at least in 2008—the SCH regulations “did not address multicampuses.” AR 47; see also Dkt.
16-1 at 43-44.
The Secretary was unpersuaded, explaining that “[t]he Provider incorrectly states that
[the CY 2008 OPPS Final Rule preamble] specifically suggested that distance rules would not
apply to the remote location of SCH applicants and that, [if] [the Secretary] was applying such a
rule to SCHs, [he] would have explicitly stated” that he was doing so. AR 21. Moreover, the
Secretary continued, it is far from evident that the response to the comment “was addressing or
even suggesting [that] SCH remote location hospitals would be exempt from the distance
requirements [needed] to retain their [SCH] status.” AR 22. Instead, the “response recognize[d]
the special statutory basis for CAHs and the unique situation for CAHs where even the CAH’s
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provider-based clinic(s) . . . and excluded units are considered part of the CAH and are paid the
same as the CAH.” AR 23. He then concluded that “[t]he policy treatment of the various off-
site entities under the CAH provisions, required due to CAH statutory changes, does not address,
nor is relevant to, SCH determinations, and was not properly addressed in” the CY 2008 OPPS
rulemaking. Id.
The Court agrees with the Secretary that the Board and AnMed place undue weight on a
single sentence responding to a comment raised in an unrelated rulemaking. As the Secretary
explained in the CY 2008 OPPS proposed rule, prior to January 1, 2006, “[s]tates were permitted
to waive the CAH minimum distance eligibility requirement by certifying that a CAH was a
[‘]necessary provider[’].” 72 Fed. Reg. at 42,806. Congress amended the CAH statute in 2003,
however, to eliminate the ability of states to waive the distance criteria through “necessary
provider” designations after January 1, 2006. See Medicare Prescription Drug, Improvement,
and Modernization Act of 2003, Pub. L. No. 108-173, § 405(h)(1) (2003). Following that
amendment, the statute now provides only that a hospital shall be designated as a CAH if it is
“more than a 35-mile drive . . . from a hospital, or another facility described” in the CAH
subsection. 42 U.S.C. § 1395i-4(c)(2)(B)(i)(I). The agency interpreted the distance
requirement—now that it is no longer accompanied by the “necessary provider” exemption—as a
mandatory provision that must apply to all of a hospital’s locations. 72 Fed. Reg. at 42,806.
The SCH statute is different; it allows hospitals to be classified as SCHs even if they are
fewer than 35 miles from other hospitals, according to criteria set by the Secretary. See 42
U.S.C. § 1395ww(d)(5)(D)(iii)(II)–(III). Against this backdrop, the Secretary’s brief response to
the comment from an SCH in the CY 2008 OPPS rulemaking is best understood merely to clarify
that the rulemaking focused on “the special status of CAHs”—as opposed to other entities, like
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SCHs—and that the CY 2008 OPPS rulemaking “should not limit access to care.” 72 Fed. Reg.
at 66,881.
Moving beyond these examples, AnMed also contends that the Secretary “has had
numerous opportunities to explain that the distance measurement for SCHs should be taken from
remote locations[] but has never done so.” Dkt. 16-1 at 48. That is an odd argument. Even
assuming that the Secretary could have clarified how to treat multicampus hospitals before the
FY 2019 IPPS Final Rule, he was under no obligation to so, particularly where the SCH
regulations have long required that “[t]he hospital” be located at least 25 miles “from other like
hospitals” and the definition of “hospital” has long included remote campuses of a provider-
based facility. Adopting a clarifying rule is helpful but not a requirement, nor is there any reason
to conclude that a provider is entitled to reimbursement based on its preferred reading of a rule
merely because the regulations might have been clearer. It bears mention, moreover, that CMS
did explain the distance requirement to AnMed in 2010 when AnMed unsuccessfully applied for
SCH status. See AR 20; see also AR 198–202. AnMed was thus aware of CMS’s position and
merely “decided to submit [the] second request” so that it could bring this challenge. AR 77
([Q]: And can you please explain [why] AnMed decided to submit that second request? [A:] We
disagreed with the ruling the first time . . . [and] decided to request it again so that we could take
it to appeal.”).
Finally, AnMed argues that the Secretary’s “assertion [in the FY 2019 IPPS Final Rule]
that he [was] merely clarifying his existing policy is at odds with his admissions in the preamble
to the” rulemaking. Dkt. 16-1 at 49. In particular, AnMed equates language in the preamble
noting that the rulemaking was prompted by the “increasing number of inquiries [received by
CMS] regarding the treatment of multicampus hospitals as the number of multicampus hospitals
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has grown in recent years,” 83 Fed. Reg. at 41,369, with an admission by the Secretary “that he
had not previously adopted [the] requirement [to include remote hospitals when measuring
distance] and that the Secretary expected that existing SCHs [might] lose their SCH status as a
result of th[e] regulatory change,” Dkt. 16-1 at 50. That is a non sequitur. The reason to adopt a
clarifying amendment is to address questions and uncertainty. But that does not mean that the
rule represented a change in policy.
The Court, accordingly, rejects AnMed’s contention that the decision at issue in this
proceeding is inconsistent with prior SCH policy or prior interpretations of the SCH statute or
regulations.
D. The Prohibition on Retroactive Rulemaking
Finally, AnMed contends that the Secretary engaged in retroactive rulemaking by
applying the distance criteria that CMS adopted in the FY 2019 IPPS Rule to AnMed’s 2016
application for SCH classification. “It is well settled that an agency may not promulgate a
retroactive rule absent express congressional authorization.” Ne. Hosp. Corp. v. Sebelius, 657
F.3d 1, 13 (D.C. Cir. 2011) (citing Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208
(1988)). The Medicare statute provides that rules may not be “applied (by extrapolation or
otherwise) retroactively” unless the Secretary determines that (1) “such retroactive application is
necessary to comply with statutory requirements” or (2) “failure to apply the change
retroactively would be contrary to the public interest.” 42 U.S.C. § 1395hh(e)(1)(A). Because
the Secretary does not contend that either of those exceptions applies here, the Court must set
aside the Secretary’s decision if it retroactively applied a new rule—that is, 42 C.F.R.
§ 412.92(a)(4)—to AnMed’s application for SCH status. See Dkt. 16-1 at 55.
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Had the Secretary applied § 412.92(a)(4) to AnMed’s application, he could have resolved
the dispute in a single paragraph: All agree that AnMed’s remote North Campus qualifies for
provider-based status and is located less than 25 miles from another like hospital, and the
amended regulation provides that multicampus hospitals that qualify for provider-based status
“must demonstrate that the main campus and its remote location(s) [must] each independently
satisfy the” distance criteria. 42 C.F.R. § 412.92(a)(4). And, had he done so, AnMed might well
have sound basis to challenge the decision as an impermissible retroactive application of a
“substantive change” in a regulation, interpretative rule, or statement of policy. 42 U.S.C.
§ 1395hh(e)(1)(A). But that is not what the Secretary did. Rather, for all the reasons explained
above, the Secretary reasonably construed the then-existing rule to require that CMS measure the
distance from “the hospital,” which the Secretary explained included a remote location that
qualifies for provider-based status. That reading was consistent with the statute and regulations
as they existed at that time, and it is consistent with the D.C. Circuit’s observation that “the
Medicare statute defines ‘hospital’ as an ‘institution’ that provides a number of medical services”
and, in various provisions, “make[s] clear that a ‘hospital’ can encompass institutions with
multiple campuses and facilities,” Anna Jacques Hosp., 797 F.3d at 1164–65. Critically, AnMed
identifies no evidence that the Secretary’s decision effected “a substantive change from the
agency’s prior regulation or practice” or “altered the past legal consequences of past action.” Ne.
Hosp. Corp., 657 F.3d at 14 (citations omitted). To the contrary, for all the reasons explained
above, it was AnMed that sought a change in policy, and the Secretary merely rejected that
entreaty.
AnMed relies, in part, on Northeast Hospital Corporation v. Sebelius, 657 F.3d 1 (D.C.
Cir. 2011). That case concerned the Secretary’s implementation of the “disproportionate share
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hospital” (“DSH”) adjustment to IPPS payments, under which the Secretary pays more for
services provided by hospitals that “serve[] a significantly disproportionate number of low-
income patients.” 657 F.3d at 3 (quoting 42 U.S.C. § 1395ww(d)(5)(F)(i)(I)). The amount a
hospital receives in DSH adjustments depends on the “Medicare fraction,” which is calculated
according to a formula established in CMS regulations. Id. at 3–4. In Northeast Hospital, the
plaintiff hospital “claimed it was owed an additional $737,419 in Medicare payments [for 1999–
2002] as a result of the intermediary’s improper calculation” of the Medicare fraction. Id. at 4.
The Secretary upheld the intermediary’s calculation based on an interpretation of the Medicare
statute that had been adopted through notice-and-comment rulemaking in 2004, after the
payment period at issue. See id. at 5, 14. As here, the Secretary did not explicitly apply the 2004
rule in her decision, and the Secretary argued that the 2004 rule merely adopted the agency’s
“longstanding policy.” Id. at 15. Notwithstanding that assertion, the D.C. Circuit concluded that
the 2004 rule did not codify longstanding policy, and it held that the Secretary’s application of
the interpretation that “stem[med] from” the 2004 rule could not be applied to the plaintiff
hospital’s payments for 1999-2002. Id. at 14–17.
In holding that the Secretary engaged in impermissible retroactive rulemaking, the D.C.
Circuit relied upon four considerations. First, the court noted that “[i]n two recent [Board]
hearings, [Medicare] providers submitted evidence based on hundreds of cost reports from
numerous hospitals that between 1999 and 2004, [and] the Secretary routinely” calculated the
Medicare fraction according to the plaintiff hospital’s preferred method, and not the method
codified in the 2004 rule. Id. at 15. Second, the court cited evidence that, prior to 2004, the
Secretary instructed some hospitals not to submit data that would have been necessary to
calculate the Medicare fraction according to the 2004 rule. Id. Third, the Secretary conceded
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that she “routinely failed” to follow the purportedly longstanding policy prior to 2004. Id. And
finally, the court cited statements in the Federal Register characterizing the 2004 rule as a
“policy change” and an “adopt[ion] of policy.” Id. at 16.
AnMed’s reliance on Northeast Hospital is misplaced. In that case, substantial evidence
demonstrated that the 2004 rule constituted a change in the Secretary’s methodology for
calculating the Medicare fraction, and, on that basis, the D.C. Circuit rejected the Secretary’s
claim that the 2004 rule represented a codification of “longstanding policy.” Here, in contrast,
AnMed has offered no such evidence, and, indeed, has failed to identify a single instance in
which the Secretary declined to consider the location of a remote, provider-based campus of a
multicampus hospital when measuring distance under the SCH rule. Notably, the only evidence
in the record regarding a similar decision is the Secretary’s denial of AnMed’s application for
SCH classification in 2010.
On the record before it, the Court is unpersuaded that the 2018 rule represented a
“substantive change” in policy. 42 U.S.C. § 1395hh(e)(1)(A). To be sure, the new regulation is
“clearer and remove[s] any possible ambiguity” in the preexisting regulations. Baptist Mem’l
Hosp.-Golden Triangle v. Sebelius, 566 F.3d 226, 229 (D.C. Cir. 2009). But that alone is
insufficient to show that the Secretary’s decision was unlawful. See id. (“[W]hen [an agency]
adopts a new clarifying law or rule, it does not necessarily follow that an earlier version did not
have the same meaning.”).
The Court, accordingly, will not set the Secretary’s decision aside on the ground that it
constitutes the retroactive application of a new, substantive rule. 7
7
Although AnMed also raises a claim under 42 U.S.C. § 1395hh(a)(2) in its complaint, Dkt. 1 at
21 (Compl. ¶ 75), it makes only passing reference to this provision in its motion for summary
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CONCLUSION
For the foregoing reasons, the Court will DENY AnMed’s motion for summary
judgment, Dkt. 16, and GRANT the Secretary’s cross-motion for summary judgment, Dkt. 18.
A separate order will issue.
/s/ Randolph D. Moss
RANDOLPH D. MOSS
United States District Judge
Date: September 15, 2022
judgment and opposition to defendant’s cross-motion and, as far as the Court can discern, does
not seek relief on the basis of this provision or the Supreme Court’s decision in Azar v. Allina
Health Services, 139 S. Ct. 1804 (2019). But, in any event, had AnMed does so, its argument
would fail for the same reasons discussed above. The Secretary did not “establish[] or change[]”
a “substantive legal standard governing the scope of benefits,” 139 S. Ct. at 1809, but, rather,
reasonably construed an existing regulation to condition SCH status on the distance between “the
hospital”—which includes a remote, provider-based campus—from “other like hospitals,” 42
C.F.R. § 412.92(a)(1); see also 42 U.S.C. § 413.65(d) (provider-based status); Anna Jacques
Hosp., 797 F.3d at 1165 (noting that “‘hospital’ can encompass institutions with multiple
campuses and facilities”).
40