Bayside Community Hospital v. Leavitt

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
)
BAYSIDE COMMUNITY HOSPITAL, )
)
Plaintiff, )
) Civil Action No. 07-1562(EGS)
v. )
)
KATHLEEN SEBELIUS,1 Secretary )
of the Department of Health )
and Human Services, )
)
Defendant. )
)
MEMORANDUM OPINION
Plaintiff, Bayside Community Hospital (“plaintiff” or
“Hospital”), a critical access hospital (“CAH”), was denied
reimbursement by the Secretary of Health and Human Services
(“defendant” or the “Secretary”) for the costs of acquiring the
services of a certified registered nurse anesthetist (“CRNA”)
during its fiscal years 2002, 2003, and 2004. Plaintiff
challenges that denial pursuant to the Administrative Procedure
Act, 5 U.S.C. § 551 et seq (the “APA”). The parties agree that
there are no material facts in dispute and that this controversy
can be resolved on cross motions for summary judgment, which have
been filed and fully briefed. This Court referred the motions to
Magistrate Judge Deborah A. Robinson for a Report and
1
Pursuant to Federal Rule of Civil Procedure 25(d),
Secretary Sebelius, in her official capacity as the Secretary of
the Department of Health and Human Services, is automatically
substituted as the named defendant.
Recommendation. Now pending before the Court is the defendant’s
objection to the Report and Recommendation. Upon careful
consideration of the Report and Recommendation, the defendant’s
objection, the response and reply thereto, the cross motions for
summary judgment, responses and replies thereto, the applicable
law, the entire record herein, and for the reasons stated below,
the Court adopts the Magistrate Judge’s recommendations, GRANTS
plaintiff’s motion for summary judgment, and DENIES defendant’s
motion for summary judgment.
I. Statutory Framework
In order to resolve the dispute in this case, the Court must
review several statutory and regulatory provisions relating to
(a) reimbursement for CRNA services; (b) the Medicare program’s
definition of “rural” hospital; and (c) the creation of CAHs.
A. Medicare Reimbursement and the Prospective Payment
System
The Medicare statute, 42 U.S.C. § 1395 et seq. (“Social
Security Act” or “Act”), sets forth a federal health insurance
program for the elderly and disabled. A hospital participates in
the Medicare program under a “provider agreement” with the
Secretary. 42 U.S.C. § 1395cc. In 1983, Congress enacted a
Medicare reimbursement program known as the Prospective Payment
System ("PPS"), which replaced the prior practice of reimbursing
hospitals based on the “reasonable costs” of covered services.
County of Los Angeles v. Shalala, 192 F.3d 1005, 1008 (D.C. Cir.
2
1999), cert. denied, 530 U.S. 1204 (2000). Under the PPS,
Medicare pays hospitals for their inpatient operating costs on
the basis of prospectively determined flat rates, set according
to historic regional costs and patients' diagnoses, rather than
on a reasonable cost basis. Id.The Secretary has delegated much of the responsibility for
administering the Medicare program to the Centers for Medicare
and Medicaid Services (“CMS”). See 42 U.S.C. §§ 1395h, 1395u.
The Secretary, through CMS, delegates many of Medicare’s audit
and payment functions to organizations known as fiscal
intermediaries (“intermediaries”), which are typically private
insurance companies.
When changing to the PPS system, Congress recognized that
hospitals in different regions may not have the same cost
structures; therefore, Congress required the Secretary to
consider cost averages for each region and for hospitals located
in urban or rural areas within each region. See 42 U.S.C. §
1395ww(d)(2)(D).2
2
Section 1886(d) of the Act is codified at 42 U.S.C. §
1395ww(d). For ease of reference to the pleadings and to the
Administrative Record (“AR”), citations to the Act shall be used
to refer to the operative statutory provisions discussed in this
opinion. Citations will be provided to the codified version
where appropriate.
3
B. CRNA Pass-Through Provision
Congress has created certain exceptions to the PPS,
including an exception that allows rural hospitals to obtain
reasonable cost (“pass-through”) reimbursement for the cost of
obtaining CRNA services. This exception was created when
Congress passed the Family Support Act of 1988. The Family
Support Act extended the provision indefinitely by adding a new
subsection (k) to section 9320 of the Omnibus Budget
Reconciliation Act of 1986, which had originally authorized the
continuation of pass-through payment status for CRNA services to
hospitals “located in a rural area (as defined for purposes of
section 1886(d) of the Social Security Act).” Family Support
Act of 1988, Pub. L. No. 100-485 (Oct. 13, 1988)(“Family Support
Act of 1988”).3
CMS created 42 C.F.R. § 412.113(c) to implement the CRNA
pass-through payment. The regulation permits a hospital to
receive pass-through payment for CRNA services if “the hospital
or CAH is located in a rural area as defined in Sec. 412.62(f).”
42 C.F.R. § 412.113(c)(2)(i)(A). Section 412.62(f) defines
“rural area” as “any area outside an urban area.” 42 C.F.R. §
412.62(f). This definition tracks the language in Section
3
CMS later specified that, although CAHs are not
technically “hospitals” under the Act’s statutory definitions, it
“consider[ed] CAHs to be ‘hospitals’ for purposes of extending
eligibility for CRNA pass-through payments to them.” 66 Fed.
Reg. 39,922 (Aug. 1, 2001).
4
1886(d)(2)(D) of the Act, which also defines rural as “any area
outside [an urban area].” 42 U.S.C. § 1395ww(d)(2)(D).
C. Section 1886(d)
For purposes of the Medicare program, hospitals are defined
as or deemed to be “rural” pursuant to Section 1886(d). The crux
of the dispute in this case centers on two paragraphs within
Section 1886(d): specifically, Section 1886(d)(2)(D), which
defines the terms “urban” and “rural” and was included in Section
1886(d) when Congress created the CRNA pass-through provision in
1988, and Section 1886(d)(8)(E), which was added by Congress to
Section 1886(d) in 1999.4 Those provisions read as follows:
1886(d)(2)(D):
For purposes of this subsection, the term “region”
means one of the nine census divisions, comprising the
fifty States and the District of Columbia, established
by the Bureau of the Census for statistical and
reporting purposes; the term “urban area” means an area
within a Metropolitan Statistical Area (as defined by
the Office of Management and Budget) or within such
similar area as the Secretary has recognized under
subsection (a) of this section by regulation; the term
“large urban area” means, with respect to a fiscal
year, such an urban area which the Secretary determines
(in the publications described in subsection (e)(5) of
this section before the fiscal year) has a population
of more than 1,000,000 (as determined by the Secretary
based on the most recent available population data
published by the Bureau of the Census); and the term
4
1886(d)(8)(E) is referred to as the “rural
reclassification” provision and was added by Congress in the
Balanced Budget Refinement Act of 1999 (“BBRA”). Pub. L. No.
106-113, Title IV § 401, 113 Stat 1501A-323, 1501A-369, (as
codified at 42 U.S.C. § 1395ww(d)(8)(E) (2009)). The Secretary
incorporated this provision at 42 C.F.R. § 412.103.
5
“rural area” means any area outside such an area or
similar area...
42 U.S.C. § 1395ww(d)(2)(D)(ii).
1886(d)(8)(E):
(i) For purposes of this subsection, not later than 60 days
after the receipt of an application . . . from a subsection
(d) hospital described in clause (ii), the Secretary shall
treat the hospital as being located in the rural area (as
defined in paragraph (2)(D)) of the State in which the
hospital is located.
(ii) For purposes of clause (i), a subsection (d) hospital
described in this clause is a subsection (d) hosptial that
is located in an urban area (as defined in paragraph (2)(D))
and satisfies any of the following criteria:
(I) The hospital is located in a rural census tract of
a metropolitan statistical area . . .
42 U.S.C. § 1395ww(d)(8)(E).5
Thus, a hospital such as plaintiff that is located in a
rural census tract of a metropolitan statistical area (“MSA”) is
not defined as a rural hospital pursuant to 1886(d)(2)(D), it is
deemed to be a rural hospital pursuant to 1886(d)(8)(E). The
parties dispute whether plaintiff is considered “rural” for
purposes of CRNA pass-through reimbursement. Plaintiff argues
that Congress, when referring to “section 1886(d)” for the
definition of rural for purposes of the CRNA pass-through
provision, referenced all portions of 1886(d), including Section
5
The provision contains other circumstances under which a
hospital may be reclassified as rural; however, none of those are
at issue here. 42 U.S.C. § 1395(d)(8)(E).
6
1886(d)(8)(E). Defendant, on the other hand, argues that only
the original definition in 1886(d)(2)(D) applies.
D. Critical Access Hospitals
In 1997, concerned that rural hospitals would be negatively
impacted by the PPS, Congress created the Medicare Rural Hospital
Flexibility Program.6 42 U.S.C. § 1395i-4(c)(2)(B). Under that
program, States could designate certain hospitals as CAHs. Id.7
Designation as a CAH allows a hospital to be exempt from the PPS
and reimbursed based on its reasonable rates. See 42 U.S.C. §
1395l(a)(1). The CAH statute states, in relevant part:
A. Criteria for designation as a critical access hospital
- A State may designate a facility as a critical access
hospital if the facility –
1. is a hospital that is located in a county (or
equivalent unit of local government) in a rural
area (as defined in section 1395ww(d)(2)(D) of
this title) or is treated as being located in a
rural area pursuant to section 1395ww(d)(8)(E) of
this title. . .
42 U.S.C. § 1395i-4(c)(2)(B).
6
This program expanded the existing Essential Access
Community Hospital Program. See 58 Fed. Reg. 30,630, 30,665 (May
26, 1993); see also 62 Fed. Reg. 45,966 (Aug. 29, 1997).
7
The original statute passed in 1997 utilized the
definition of “rural” at 1886(d)(2)(D). 42 U.S.C. § 1395i-
4(c)(2)(B). The BBRA created the reclassification provision at
1886(d)(8)(E) and section 401(b)(2) of the BBRA made a conforming
change to the CAH criteria, adding the reclassification provision
to the definition of “rural.” Pub. L. No. 106-113, Title IV §
401, 113 Stat 1501A-323, 1501A-369, (as codified at 42 U.S.C. §
1395ww(d)(8)(E) (2009)).
7
Plaintiff is designated as a CAH because, though it is not
located in a rural area pursuant to 42 U.S.C. § 1395(d)(2)(D), it
is treated as being in a rural area pursuant to 42 U.S.C. §
1395(d)(8)(E) due to its location in a rural census tract of an
MSA.
E. Administrative and Judicial Review
At the close of a fiscal year, a provider of services must
submit to its intermediary a “cost report” showing both the costs
incurred by it during the fiscal year and the appropriate share
of those costs to be apportioned to Medicare. 42 C.F.R. §
413.24(f). The intermediary is required to analyze and audit the
cost report and inform the provider of a final determination of
the amount of Medicare reimbursement through a notice of program
reimbursement. Id. § 405.1803.
Providers under Medicare are permitted to appeal fiscal
intermediaries’ final determinations to the Provider
Reimbursement Review Board (“PRRB”) pursuant to 42 U.S.C. §
1395oo(a) and 42 C.F.R. § 405.1835. The PRRB is “an
administrative review panel that has the power to conduct an
evidentiary hearing and affirm, modify, or reverse the
intermediary’s [reimbursement] determination.” Your Home
Visiting Nurse Servs., Inc. v. Shalala, 525 U.S. 449, 451 (1999).
The CMS Administrator may reverse, affirm, or modify the decision
issued by the PRRB. 42 U.S.C. § 1395oo(f). A provider then has
8
the right to obtain judicial review of any final decision of the
PRRB, or any reversal, affirmance, or modification of the PRRB’s
decision by the Secretary. Id; 42 C.F.R. § 405.1877. This Court
has jurisdiction to review a decision of the Administrator
pursuant to 42 U.S.C. § 1395oo(f) and the APA, 5 U.S.C. §§ 551-
559, 701-706.
II. Factual and Procedural Background
Plaintiff is a 14-bed acute care facility located in
Anahuac, Texas. See Am. Compl. ¶¶ 5, 26. Anahuac is located in
Chambers County, Texas, which is physically located within the
Houston, Texas metropolitan statistical area. AR at 149.
Plaintiff was designated as a CAH in 2001 because of its location
in a rural census tract of an MSA, pursuant to Sections
1820(c)(2)(B) and 1886(d)(8)(E) of the Social Security Act. Am.
Compl. ¶ 27; AR at 94; 42 U.S.C. §§ 1395i-4(c)(2)(B),
1395ww(d)(8)(E).
Plaintiff notified its intermediary of its request to
receive reasonable cost reimbursement for the services of CRNAs
obtained under arrangement for fiscal years 2002, 2003, and 2004,
pursuant to 42 C.F.R. § 412.113(c). AR at 97, 150. The
intermediary denied plaintiff’s request on the basis that, while
deemed to be located in “a rural area for the purpose of
qualifying for the CAH designation,” the Hospital is in fact
located in an urban area as defined in 42 C.F.R. §
9
412.113(c)(2)(A), and thus the CRNA exemption did not apply. AR
at 97. The intermediary determined that designation as a CAH
under 1886(d)(8)(E) has “no bearing on whether [hospitals] are
‘rural’ for purposes of § 412.113(c)[2](A) [the CRNA pass-through
regulation].” AR at 97. Plaintiff timely appealed this
denial to the PRRB, pursuant to 42 C.F.R. § 405.1835. AR at 204.
The PRRB held a hearing on this issue, reversed the
intermediary’s denial, and concluded that the Hospital should be
reimbursed for CRNA services pursuant to the pass-through
methodology set forth at 42 C.F.R. § 412.113(c). AR at 20-25.
The PRRB found that the term “rural” has the same meaning in the
CRNA statute as it does in section 1886(d) of the Act, because
the CRNA statute adopts the language in the Act. Id. The PRRB
stated that “Congressional intent was that urban hospitals that
are redesignated and treated as rural hospitals would receive
‘all categories and designations available to rural hospitals’
which would include pass-through payments for CRNA services” and
that CMS’s rationale for denial of pass-through reimbursement
“would frustrate the intent of Congress as well as that expressed
by CMS in its own regulations.” H.R. Rep. No. 106-479, at Title
IV § 401 (1999)(Conf. Rep.); AR at 24, 121.
The CMS Administrator overturned the PRRB’s decision, on the
basis that the hospital is “not physically located in a rural
10
area as defined in the regulations at 42 C.F.R. § 412.62(f).”
Am. Compl. ¶ 30; AR at 4, 7-8. The Administrator found that:
while the Provider may have been allowed to become
a CAH under section 1886(d)(8)(E) of the Act and
the implementing regulations at 42 [§] CFR
412.103, neither the statute nor regulation
specify that this designation for purposes of
qualifying under section 1820 of the Act [the CAH
provision] impacts the determination of its
location for the purposes of receiving reasonable
cost payment for CRNA services.
AR at 7. The Administrator further held that “the CRNA
reasonable cost reimbursement payment provision is outside the
scope of section 1886(d) of the Act[,]” and that “hospitals
reclassified under 1886(d)(8)(E) are not considered rural for
purposes of the CRNA reasonable cost payment.” AR at 8.
Having exhausted its administrative remedies, plaintiff then
brought the instant action in accordance with its rights under 42
U.S.C. § 1395oo(f) and 42 C.F.R. § 405.1877. The parties filed
cross-motions for summary judgment, which were referred to the
Magistrate Judge. The Magistrate Judge concluded that the
Secretary’s decision should be reversed and that plaintiff was
“rural” for purposes of CRNA reasonable cost reimbursement.
Defendant timely filed an objection to the Report and
Recommendation pursuant to Local Rule 72.3(b).
III. Standard of Review
In her Report and Recommendation, the Magistrate Judge
concluded that plaintiff is “rural” for purposes of the CRNA
11
pass-through provision. Accordingly, the Magistrate Judge
recommended that defendant’s motion for summary judgment be
denied and plaintiff’s motion for summary judgment be granted.
Defendant objects to the Report and Recommendation and argues
that the decision was within the discretion of the Secretary and
is in accordance with the relevant statutes.8
“When a party files written objections to any part of the
magistrate judge’s recommendation with respect to a dispositive
motion, the Court considers de novo those portions of the
recommendation to which objections have been made, and ‘may
accept, reject, or modify the recommended decision[.]’” Robinson
v. Winter, 457 F. Supp. 2d 32, 33 (D.D.C. 2006) (quoting Fed. R.
Civ. P. 72(b)).
Judicial review of the Secretary’s decision is governed by
the APA. 42 U.S.C. § 1395oo(f)(1); 5 U.S.C. § 706. The Court
may set aside the Board’s decision only if it is “‘arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with law,’ or unsupported by substantial record
evidence.” HCA Health Servs. of Oklahoma, Inc. v. Shalala, 27
F.3d 614, 616 (D.C. Cir. 1994) (citing 5 U.S.C. § 706(2)(A) &
(E)). “[T]o the extent [the Board's interpretation is] based ...
8
The Court notes that defendant objects to the Report and
Recommendation in its entirety on the grounds that it fails to
adequately address the Secretary’s contentions in support of its
summary judgment motion. Because the Court considers defendant’s
motion de novo, those contentions will be addressed fully herein.
12
on the language of the Medicare [statute] itself,” the Court will
examine the decision with the appropriate deference due to an
agency that has been charged with administering the statute. Id.
at 617 (quoting Marymount Hosp., Inc. v. Shalala, 19 F.3d 658,
661 (D.C. Cir. 1994)).
As the D.C. Circuit has explained, “[i]n examining the
Secretary’s interpretation of a statute that she administers, the
court applies the familiar methodology of Chevron U.S.A., Inc. v.
Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct.
2778, 81 L.Ed.2d 694 (1984).” Methodist Hosp. of Sacramento v.
Shalala, 38 F.3d 1225, 1229 (D.C. Cir. 1994). The court’s first
question must be “whether Congress has directly spoken to the
precise question at issue.” Chevron, 467 U.S. at 842. “If the
intent of Congress is clear, that is the end of the matter; for
the court, as well as the agency, must give effect to the
unambiguously expressed intent of Congress.” Id. at 842-43.
The court moves to the second step of Chevron only “if the
statute is silent or ambiguous with respect to the specific
issue.” Id. at 843. Under those circumstances, the court must
consider whether the agency’s interpretation “is based on a
permissible construction of the statute.” Id. If so, then the
court “must defer to the Secretary’s” interpretation. Methodist
Hosp. of Sacramento, 38 F.3d at 1229.
13
Finally, “in framing the scope of review, the court takes
special note of the tremendous complexity of the Medicare
statute. That complexity adds to the deference which is due to
the Secretary’s decision.” Id. (giving heightened deference to
the Secretary’s policy of denying retroactive effect to a revised
wage index); see also Robert Wood Johnson Univ. Hosp. v.
Thompson, 297 F.3d 273, 282 (3d Cir. 2002) (“The broad deference
of Chevron is even more appropriate in cases that involve a
‘complex and highly technical regulatory program,’ such as
Medicare, which “require[s] significant expertise and entail[s]
the exercise of judgment grounded in policy concerns.’” (quoting
Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994)
(additional citations omitted))).
IV. Analysis
The issue in this case is whether the Secretary was
arbitrary and capricious in determining that plaintiff was not
entitled to reasonable cost reimbursement pursuant to the CRNA
pass-through provision. Plaintiff argues that it is entitled to
reasonable cost reimbursement for CRNA services because of: 1)
the plain language of the statutes and evidence of Congressional
intent; and 2) the Secretary’s inconsistent statements and
decisions relating to reasonable cost reimbursement under the
CRNA statute.
14
1. The Plain Language of the Relevant Statutes and
Evidence of Congressional Intent
Pursuant to the language of the CRNA pass-through provision,
“rural” is defined at Section 1886(d). Family Support Act of
1988. Plaintiff’s position is that when Section 1886(d)(8)(E)
was added to the Act, it expanded the definition of rural found
at 1886(d)(2)(D). 42 U.S.C. § 1395ww(d)(8)(E). Plaintiff argues
that this expanded concept of rural applies to all purposes for
which 1886(d) is used as the definition for “rural,” including
the CRNA pass-through provision, which states that rural will be
considered “as defined in 1886(d).” Family Support Act of 1988.
Defendant argues that, for purposes of the CRNA pass-through
provision, the reference to rural “as defined in 1886(d)” refers
only to the original definition at 1886(d)(2)(D), which was in
place at the time the CRNA pass-through provision was passed.
Based on the language in 1886(d)(8)(E) that the reclassification
is “for purposes of this subsection,” defendant contends that
1886(d)(8)(E) only applies within 1886(d) - in other words,
hospitals in urban areas are only reclassified as rural for
purposes of: 1) payment under inpatient PPS; 2) payment under the
Medicare outpatient PPS; and 3) becoming a CAH. Def.’s Mot. for
Summ. J. (“Def.’s Mot.”) 5 (citing 42 U.S.C. § 1395ww(d)(8)(E);
42 U.S.C. § 1395l(t)(16)(A); 42 U.S.C. § 1395i-4(c)(2)(B)).9
9
Congress specifically incorporated Section 1886(d)(8)(E)
into the statutes for payment under the Medicare outpatient PPS:
15
The third instance cited by defendant, however, is
1886(d)(8)(E) itself, which allows for certain hospitals to
qualify as rural for purposes of inpatient PPS (subsection
1886(d)). As defendant concedes, in creating 1886(d)(8)(E),
Congress explicitly stated that it was to apply “for purposes of
this subsection [1886(d)].” Def.’s Reply 4. In the CRNA pass-
through provision, Congress stated its intent that rural be
applied “as defined in 1886(d),” which necessarily includes the
(d)(8)(E) expansion of subsection (d). Family Support Act of
1988.
Defendant questions why, if Congress intended for hospitals
under 1886(d)(8)(E) to qualify as rural for the CRNA pass-through
provision, it did not explicitly direct that such hospitals are
entitled to reimbursement, either in 1886(d)(8)(E) itself or
through a conforming change to the CRNA pass-through law, similar
to the conforming changes Congress made for outpatient PPS and
CAHs. As plaintiff points out, however, such an explicit
direction was not necessary to make the CRNA pass-through
provision apply to hospitals reclassified under 1886(d)(8)(E),
“If a hospital is being treated as being located in a rural area
under section 1886(d)(8)(E), that hospital shall be treated under
this subsection as being located in that rural area.” 42 U.S.C.
§ 1395l(t)(16)(A); and becoming a CAH: “A State may designate a
facility as a critical access hospital if the facility . . . is a
hospital that is located in a county . . . in a rural area (as
defined in section 1395ww(d)(2)(D) of this title) or is treated
as being located in a rural area pursuant to section
1395ww(d)(8)(E) of this title.” 42 U.S.C. § 1395i-4(c)(2)(B).
16
because the reclassification provision is already incorporated in
1886(d).10 In contrast, outpatient PPS and CAHs do not base
their definition on 1886(d) and thus, it was necessary to
explicitly state that 1886(d)(8)(E) would apply to those
provisions.
Defendant further argues that 1886(d)(8)(E) is a deeming
provision, not a definitional one, and that Congress did not
intend for it to alter the definition of rural in 1886(d)(2)(D).
Defendant asserts that Congress only intended for the Secretary
to treat a hospital qualifying under 1886(d)(8)(E) as rural for a
“specific limited purpose.” (That being for purposes of inpatient
PPS under 1886(d) itself.) Def.’s Reply 6. Plaintiff notes that
this would result in hospitals that are deemed rural being
treated inconsistently: rural for the purpose of qualifying as a
CAH, but urban for purposes of CRNA reimbursement. Pl.’s Mot.
for Summ. J. (Pl.’s Mot.) 31-32.
Defendant argues that a hospital qualifying under
1886(d)(8)(E) is only “treated” as if it were rural, but is still
not physically located in a rural area. Defendant’s position is
that the regulations at 42 C.F.R. § 412.113(c)(2)(A) limit the
application of CRNA pass-through to a “hospital or CAH that is
located in a rural area as defined in § 412.62(f).” AR at 8
10
As stated previously the CRNA pass-through provision
considers hospitals rural “as defined in 1886(d);” therefore, all
of 1886(d), including (d)(8)(E), is referenced in the provision.
Family Support Act of 1988.
17
(quoting C.F.R. § 412.113(c)(2)(A)). Thus, defendant argues
that the actual physical location of the hospital is
determinative under the CRNA regulations.
It is true that the physical location of the hospital does
not change; however, Congress has directed that a hospital
qualifying under 1886(d)(8)(E) be treated as if it were in a
rural location. The purpose of this is to overcome the actual
physical location and cause a hospital to qualify as rural.
Thus, the deeming provision does impact the definition of rural
at 1886(d). A regulation does not override a clearly stated
statute. See ACLU v. FCC, 823 F.2d 1554 (D.C. Cir. 1987); see
also Aerolineas Argentinas v. U.S., 77 F.3d 1564, 1575 (Fed. Cir.
1996) (“[A] regulation can not override a clearly stated
statutory enactment.”).
In ACLU, the court analyzed the FCC’s adoption of a
definition of the term “basic cable service” that differed
materially from the definition provided by statute. ACLU, 823
F.2d at 1565-67. The FCC argued that, while the adopted
definition did contradict the plain language of the statute, it
effectuated Congressional intent more effectively than the
statutory definition. Id. The Court, however, held that the
agency definition was contrary to law and the original statutory
definition must be applied “in all circumstances.” Id. at 1569.
18
A similar reasoning applies here because the statute is clear and
the regulation cannot overcome the statute.
Moreover, plaintiff’s argument in the instant case is even
stronger than in ACLU, because in ACLU there was some indication
that the legislative history supported the defendant’s
alternative definition. Id. at 1567-68. The ACLU court declined
to turn to the legislative history, reasoning that the clear
language of the statute met the standards of the first step of
Chevron and thus, there was no need to look to the legislative
history for interpretation of Congressional intent. Id. (citing
Chevron, 467 U.S. at 843). Similarly, the statutory language in
the instant case is clear and unambiguous; therefore, the first
step of Chevron is met and it is not necessary to delve into
legislative history in order to interpret that meaning. In
contrast to ACLU, however, the legislative history in the instant
case only serves to bolster plaintiff’s argument because Congress
supported the statutory language with its statement that the
reclassification provision was to apply “for all categories and
designations.” See H.R. Rep. No. 106-479, at Title IV § 401
(1999)(Conf. Rep.); AR at 121.
Defendant further contends that if plaintiff’s assertions
are true, “one of Congress’s explicitly enumerated uses of
section 1886(d)(8)(E), that of becoming a CAH under 42 U.S.C. §
1395i-4(c)(2)(B), would be unnecessary because deemed rural
19
status would apply for all purposes, including becoming a CAH.”
Def.’s Reply 8. This argument, however, does not acknowledge
that the CAH provision applies to a hospital that is “in a rural
area (as defined in section 1395ww(d)(2)(D) of this title) or is
being treated as being located in a rural area pursuant to
section 1395ww(d)(8)(E) of this title...” 42 U.S.C. § 1395i-
4(c)(2)(B). Thus, unlike the CRNA provision, the CAH provision
specifically cites the definition of rural at 1886(d)(2)(D).11
It is, therefore, necessary for the CAH designation to also
specifically include the reclassification provision at
1886(d)(8)(E). In other words, the CAH statute specifically
refers to (d)(2)(D), then adds (d)(8)(E), unlike CRNA, which
refers to (d) generally. Congress’s explicit clarification that
the CAH statute would apply to hospitals under both the original
definition of rural and the new one added by (d)(8)(E) does not
negate the fact that the CRNA provision continues to rely on the
overall subsection 1886(d) definition, which merely includes both
definitions captured by the CAH statute.
In further support of its position, plaintiff points to the
legislative history of the reclassification provision, where
Congress stated that “hospitals qualifying under this section
shall be eligible to qualify for all categories and designations
11
As discussed supra, the CRNA provision relies on the
definition of rural at 1886(d) as a whole.
20
available to rural hospitals...” See H.R. Rep. No. 106-479, at
Title IV § 401 (1999)(Conf. Rep.); AR at 121. While in the
Court’s view the first step of Chevron deference is already met
because the language in the statute is clear, analysis of the
legislative history only serves to further support this
conclusion.
Defendant asserts that Congress could not have intended
for CRNA pass-through payments to apply to CAHs reclassified as
rural under 1886(d)(8)(E) because 1886(d)(8)(E) was passed in
1999, after Congress indefinitely extended CRNA pass-through
payments in 1988. Congress, however, clearly stated its intent
that, for purposes of the pass-through provision, rural was to be
considered as defined in 1886(d). Family Support Act of 1988.
Therefore, when Congress added 1886(d)(8)(E) to 1886(d), Congress
expressed its intent to include hospitals reclassified as rural
in the overall 1886(d) definition. The Court “assumes Congress
is aware of existing law when it passes legislation.” Miles v.
Apex Marine Corp., 498 U.S. 19, 32 (1990). Therefore, the Court
assumes that Congress was aware of the CRNA pass-through
provision when it added 1886(d)(8)(E) to the Act and the logical
effect that the reclassification provision would have on CRNA
pass-through reimbursement.
21
2. The Secretary’s Previous Statements and Decisions
Relating to the CRNA Provision
As further support for its position that the Secretary’s
determination in this case is incorrect, plaintiff points to
several instances in which the Secretary has taken a position
that is inconsistent with defendant’s position in this case that
plaintiff is not entitled to reasonable cost reimbursement for
CRNA services.
First, plaintiff points to a similarly situated hospital
located in California. Pl.’s Mot. 32. Like the plaintiff
hospital, this hospital is a CAH located in a rural census tract
of an MSA. Id. The California hospital, however, was determined
to be entitled to CRNA reasonable cost reimbursement. Id.Defendant acknowledges this inconsistency, but notes that it
has since reversed that decision. Def.’s Mot. 20; Ex. A.
(stating that the fiscal intermediary “reversed its earlier
decision, concluding that ‘[a]fter further review and
consultation with CMS, we believe those approvals were made in
error and are not consistent with the correct interpretation of
the relevant regulations per 42 C.F.R. [§] 412.113’”).12
12
Plaintiff asserts that this treatment is a violation of
its Equal Protection rights under the Fourteenth Amendment,
requiring that “no State shall deny to any person within its
jurisdiction the equal protection of the laws, which is
essentially a direction that all persons similarly situated
should be treated alike.” City of Cleburne v. Cleburne Living
Ctr., 473 U.S. 432, 439 (1985) (citation omitted). Because the
Court has determined that plaintiff is entitled to reasonable
22
Defendant relies in part on Thomas Jefferson University for
the proposition that conflicting decisions by the Secretary do
not require less deference. 512 U.S. at 517. The court in
Thomas Jefferson University, however, held that the decisions
were, in fact, not contradictory, but noted that “an agency’s
interpretation of a statute or regulation that conflicts with a
prior interpretation is ‘entitled to considerably less deference’
than a consistently held agency view.” Id. at 515 (quoting INS
v. Cardoza-Fonseca, 480 U.S. 421, 446 n.30 (1987) (additional
quotations omitted)). While defendant cites a statement made in
dictum in response to the dissent that “even if petitioner could
show that such allowance was approved by-or even brought to the
attention of-the Secretary or her designate at the time, ‘[t]he
Secretary is not estopped from changing a view she believes to
have been grounded upon a mistaken legal interpretation.” Id. at
517 (quoting Good Samaritan Hosp. v. Shalala, 508 U.S. 402, 417
(1993)). This statement indicates that the Secretary may not be
estopped from making a conflicting decision; however, where, as
here, the decision made was directly contradictory and only
reversed as a result of litigation, that decision may be afforded
less deference than a “consistently held view.” Id. at 515.
Defendant also cites Washington Hospital Center v. Bowen,
795 F.2d 139, 144 n.5 (D.C. Cir. 1986) and St. Francis Hospital
cost reimbursement, there is no need to reach this argument.
23
v. Heckler, 714 F.2d 872, 874 (7th Cir. 1983), in support of her
assertion that conflicting decisions by the Secretary do not
require less deference. In Washington Hospital Center, however,
the inconsistency resulted from two different sets of
regulations; thus the conflicting findings were not in direct
opposition. 795 F.2d at 144 n.5. In contrast, the decisions
made by the Secretary in the instant case result in the exact
opposite decision when applying the same statutory and regulatory
framework to two identically situated hospitals. Furthermore,
St. Francis Hospital involved a reversal by the Secretary of the
PRRB’s decision. 714 F.2d at 874. The St. Francis Hospital
court rejected plaintiff’s argument that the Secretary’s decision
was entitled to less deference because it contradicted the PRRB.
Id. That is not plaintiff’s argument in this case.
While defendant may be correct that the Court should not
find the Secretary’s initial decision to be determinative of an
inconsistency, the fact that the Secretary’s decisions regarding
these two hospitals are directly contradictory is troubling,
particularly where it appears the decision with respect to the
California hospital was only reversed after this litigation was
commenced and plaintiff’s counsel notified the defendant of the
inconsistency. Pl.’s Mot. 32-33; Def.’s Mot. 19-20. Moreover,
the fact that defendant initially reached the opposite decision
in relation to the California hospital further supports
24
plaintiff’s position that it is a “rural” hospital for purposes
of the CRNA pass-through provision and, therefore, that the
Secretary’s decision regarding the plaintiff hospital is not in
accordance with law.
Second, plaintiff argues that the Secretary’s treatment of
hospitals falling under the “deeming” provisions of 1886(d)(8) is
inconsistent with the defendant’s position advanced in this case.
See Pl.’s Reply 9-10.13 In a final rule announcement revising
the CRNA fee schedule, the Secretary addressed the application of
CRNA pass-through payment to hospitals that are in the exact
opposite position as plaintiff: those that are rural hospitals
that have been reclassified as urban under 1886(d)(8)(B).14 The
Secretary stated that:
[s]ince for purposes of payment under section 1886(d)
of the Act, these [rural-to-urban] hospitals are no
longer classified as rural, we proposed that these
hospitals also would not qualify as rural hospitals
under section 9320(k) of Public Law 99-509 [i.e., the
13
Defendant asserts that this argument is moot because it
was not raised during administrative appeals or in the
plaintiff’s moving brief. See Def.’s Reply 11. While the
Court’s decision does not rest on this argument and, therefore,
the Court need not analyze the mootness argument, the Court does
find the discussion useful in analyzing the Secretary’s position.
14
Section 1886(d)(8)(B) of the Act contains a provision
allowing certain hospitals otherwise located in a rural area to
be considered located in an urban area for purposes of the
inpatient PPS. 42 U.S.C. § 1395ww(d)(8)(B). This provision is
essentially the counter provision to the one at issue in this
case: hospitals that qualify under 1886(d)(8)(B) are physically
located in rural areas, but are treated as urban for payment
purposes. Id.
25
CRNA pass-through law] and would not be eligible to
continue to receive payment on a reasonable cost basis
for CRNA services...
57 Fed. Reg. at 33,882.
This conclusion by the Secretary reached essentially the
same conclusion as in the instant case: that the hospital is not
entitled to CRNA pass-through reimbursement. That reasoning,
however, applies the exact opposite logic as the Secretary
applies in the instant case: that the physical location of a
hospital is overcome by qualification under the reclassification
provisions under 1886(d)(8). Defendant counters that these
decisions, while applying opposite reasoning, are consistent with
the intent behind CRNA pass-through payment: to “provide small
rural hospitals with low surgical volumes with relief from the
difficulties they might otherwise have in furnishing CRNA
services for their patients.” Def.’s Reply 12; AR at 3, 24. The
Court agrees with plaintiff that defendant’s position is
inconsistent in that it takes a logically opposite position with
respect to the same statutory construction and results in
hospitals under both provisions being denied CRNA reimbursement.
These inconsistent approaches support plaintiff’s argument that
the Secretary’s decision was arbitrary and capricious.
Plaintiff also argues that the Secretary’s current
interpretation of the CRNA pass-through provision is inconsistent
with the Secretary’s past statements made about the provision. A
26
court shall “defer to the Secretary’s interpretation unless an
‘alternative reading is compelled by the regulation’s plain
language or by other indications of the Secretary’s intent at the
time of the regulation’s promulgation.’” Thomas Jefferson Univ.,
512 U.S. at 512 (quoting Gardebring v. Jenkins, 485 U.S. 415, 430
(1988)). The Secretary’s current position is that the CRNA
provisions only apply to a hospital or CAH located in a rural
area as defined in § 412.62(f), but “[does] not include rural
designations under § 412.103.”15 AR at 8 (citing 42 C.F.R. §
412.113(c)(2)(A)). The Secretary therefore contends that the
original definition of rural at § 412.63(f) must be applied for
purposes of determining CRNA status.
In a final rule statement discussing eligibility for CRNA
pass-through reimbursement, however, the Secretary stated that “a
rural area would be defined in the same way it is defined for
purposes of the inpatient hospital prospective payment system (in
accordance with section 1886(d) of the Act)...” 57 Fed. Reg. at
33,882. The language of § 412.62(f) tracks the language of
1886(d); therefore, the Secretary acknowledged that the
definition in the regulations is intended to be the same for both
purposes. The Secretary’s statements indicate her intent that
the term rural as defined in the regulations should conform to
15
42 C.F.R. § 412.103 was amended by the Secretary to
incorporate the “deemed rural” provisions of section
1886(d)(8)(E) of the Act.
27
the definition found in 1886(d), which was expanded to include
1886(d)(8)(E). This indication of the Secretary’s intent at the
time the regulation was promulgated further supports the Court’s
conclusion that the Secretary’s decision to deny reasonable cost
reimbursement to plaintiff is not entitled to deference.
V. Conclusion
Congress passed the Family Support Act to allow rural
hospitals to be reimbursed for the costs associated with
attracting CRNAs to a rural location. Family Support Act of 1988
§ 608. In so doing, Congress stated that “rural” was to be
considered “as defined in 1886(d).” Id. CMS acknowledged this
when it stated that “[t]he purpose of the pass-through
legislation is to provide small rural hospitals with low surgical
volumes with relief from the difficulties they might otherwise
have in furnishing CRNA services for their patients.” 66 Fed.
Reg. 39,922. CMS went on to state that “CAHs are by definition
limited-service facilities located in rural areas and, as such,
they serve a population much like those served by hospitals
eligible for the pass-through payments.” Id. As the PRRB
pointed out in its decision, no distinction was made between CAHs
that are located in rural areas and those that are being treated
as rural. AR at 24.
When the CRNA pass-through law was passed in 1988, rural was
defined within 1886(d) at 1886(d)(2)(D) as “any area outside such
28
an area [urban or large urban] or a similar area.” 42 U.S.C. §
1395ww(d)(2)(D). In 1999, however, the BBRA added 1886(d)(8)(E)
to the Act. Pub. L. No. 106-113, Title IV § 401, 113 Stat 1501A-
323, 1501A-369, (as codified at 42 U.S.C. § 1395ww(d)(8)(E)
(2009)). In so doing, Congress crafted 1886(d)(8)(E) to state
that:
[f]or purposes of this subsection [1886(d)], not
later than 60 days after the receipt of an
application . . . from a subsection (d) hospital .
. . the Secretary shall treat the hospital as being
located in the rural area (as defined in paragraph
(2)(D)) of the State in which the hospital is
located.
42 U.S.C. § 1395ww(d)(8)(E).
“This subsection” refers to subsection 1886(d), which
includes both the original definition at 1886(d)(2)(D) and the
expanded meaning at 1886(d)(8)(E). Therefore, Congress intended
for rural hospitals eligible for CRNA pass-through to be those
hospitals defined as rural in 1886(d); Congress did not specify
the specific definition at subsection 1886(d)(2)(D). Thus, when
1886(d) was expanded to include hospitals located in rural census
tracts of MSAs, the concept of “rural” under 1886(d) was expanded
to include hospitals such as the plaintiff.
Section 1886(d)(8)(E) directs that “the Secretary shall
treat the hospital as being located in the rural area” for
purposes of 1886(d). 42 U.S.C. § 1395ww(d)(8)(E). Therefore,
because plaintiff hospital is qualified under 1886(d)(8)(E) it
29
must be treated as rural for all purposes to which 1886(d)
applies. This includes CRNA pass-through reimbursement because
Congress relied on the definition of rural as stated in 1886(d)
when drafting the CRNA provisions. To ignore the portion of
1886(d) added in 1886(d)(8)(E) would be contrary to Congress’s
clear intent in creating it. The D.C. Circuit has held that
“[i]n making the threshold determination under Chevron, ‘a
reviewing court should not confine itself to examining a
particular statutory provision in isolation.’” Cement Kiln
Recycling Coal. v. EPA, 493 F.3d 207, 223 (D.C. Cir. 2007)
(quoting FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120,
132 (2000)). When examined as a whole, the statutory framework
clearly indicates that hospitals reclassified as rural under
1886(d)(8)(E) are included in the reimbursement provisions of the
CRNA pass-through law.
There is, therefore, no ambiguity: the statute clearly
states that, for purposes of CRNA pass-through payments, rural is
“as defined in 1886(d).” Any potential ambiguity, however, was
further clarified by Congress in the legislative history of the
law when it stated that “hospitals qualifying under this section
shall be eligible to qualify for all categories and designations
available to rural hospitals...” See H.R. Rep. No. 106-479, at
Title IV § 401 (1999)(Conf. Rep.); AR at 121 (emphasis added).
Thus, Congress has “directly spoken to the precise question at
30
issue.” Chevron, 467 U.S. at 842. The intent of Congress is
clear; both within the wording of the statue itself, and in the
legislative history of the statute. As the Supreme Court stated
in Chevron,
[t]he judiciary is the final authority on issues of
statutory construction and must reject administrative
constructions which are contrary to clear congressional
intent. If a court, employing traditional rules of
statutory construction, ascertains that Congress had an
intention on the precise question at issue, that
intention is the law and must be given effect.
Chevron, 467 U.S. at 843 n.9 (internal citations omitted).
Congress’s statements, along with the language of the
statutes at issue, indicate its intent that hospitals such as
plaintiff be considered rural under 1886(d) and this Court “must
give effect to the unambiguously expressed intent of Congress.”
Id. at 843. The Court, therefore, agrees with the Report and
Recommendation and concludes that plaintiff hospital is “rural”
for purposes of the CRNA pass-through provision and is entitled
to reasonable cost reimbursement.
31
Accordingly, for the reasons stated herein, the Court adopts
the Report and Recommendation, GRANTS plaintiff’s motion for
summary judgment, and DENIES defendant’s motion for summary
judgment. An appropriate Order accompanies this Memorandum
Opinion.
SO ORDERED.
Signed: Emmet G. Sullivan
United States District Judge
September 30, 2009
32