Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-18-05264/USCOURTS-caDC-18-05264-0/pdf.json

Nature of Suit Code: 151
Nature of Suit: Overpayments under the Medicare Act
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 25, 2019 Decided February 11, 2020

No. 18-5264

BAYSTATE FRANKLIN MEDICAL CENTER, ET AL.,

APPELLANTS

v.

ALEX MICHAEL AZAR, II, AS SECRETARY OF THE 

DEPARTMENT OF HEALTH AND HUMAN SERVICES,

APPELLEE

Appeal from the United States District Court

for the District of Columbia

(No. 1:17-cv-00819)

Rachel M. Wertheimer argued the cause and filed the 

briefs for appellants. 

Edward Himmelfarb, Attorney, U.S. Department of 

Justice, argued the cause for appellee. With him on the brief 

was Alisa B. Klein, Attorney.

Before: MILLETT and KATSAS, Circuit Judges, and 

SENTELLE, Senior Circuit Judge.

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Opinion for the Court filed by Senior Circuit Judge

SENTELLE.

SENTELLE, Senior Circuit Judge: Appellants, Baystate 

Franklin Medical Center, Baystate Medical Center, Baystate 

Noble Hospital, and Baystate Wing Hospital (collectively, 

“Baystate”), brought suit against the Secretary of the 

Department of Health and Human Services (“HHS”) related to 

his promulgation of a final rule calculating the wage index for

hospital reimbursements in 2017. Baystate claimed that the 

final rule was unreasonable and arbitrary and capricious 

because the Secretary failed to comply with the statutory 

requirement to calculate a wage index that reflected the actual 

wage levels in Massachusetts, relied on data that he knew to be 

false, and entirely failed to consider an important aspect of the 

problem. Both parties moved for summary judgment. The 

district court held that the final rule reflected a permissible 

construction of the Medicare statute, and the decision was not 

arbitrary and capricious. Accordingly, the district court 

granted summary judgment in favor of the Secretary. Baystate 

filed the present appeal.

For the following reasons, we affirm the decision of the 

district court.

I. BACKGROUND

A. Statutory and Regulatory Background

Medicare is a federally funded health insurance program 

available to the elderly and individuals with disabilities. See 

42 U.S.C. § 1395 et seq. Under the current Medicare program,

the Secretary uses a Prospective Payment System (“PPS”) to 

reimburse certain hospitals for treating Medicare beneficiaries. 

See Medicare Program; Hospital Inpatient Prospective 

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Payment Systems for Acute Care Hospitals and the Long-Term 

Care Hospital Prospective Payment System and Policy 

Changes and Fiscal Year 2017 Rates, 81 Fed. Reg. 56,762, 

56,776 (Aug. 22, 2016) (“FY2017 PPS Final Rule”). The PPS

requires the Secretary to reimburse hospitals at a 

“predetermined, specific rate[] for each hospital discharge,” 

id., rather than assessing the actual costs incurred by the 

provider for each patient, see Anna Jacques Hosp. v. Burwell, 

797 F.3d 1155, 1158 (D.C. Cir. 2015). 

The PPS payments are broken down into two components: 

a labor-related share and a nonlabor-related share. See FY2017 

PPS Final Rule, 81 Fed. Reg. at 56,776. The statute requires

the Secretary to adjust the labor-related share of the payments

to account for geographic variations in hospital wage expenses. 

See 42 U.S.C. § 1395ww(d)(3)(E)(i); see also Anna Jacques 

Hosp., 797 F.3d at 1158. To do so, the Secretary must calculate 

a “factor . . . reflecting the relative hospital wage level in the 

geographic area of the hospital compared to the national 

average hospital wage level.” 42 U.S.C. 

§ 1395ww(d)(3)(E)(i). This factor is known as the “wage 

index,” and it must be updated annually. Anna Jacques Hosp., 

797 F.3d at 1158.

For purposes of calculating the wage index, the geographic 

area of a hospital is determined by reference to the 

“Metropolitan Statistical Area[s]” defined by the Office of 

Management and Budget. 42 U.S.C. § 1395ww(d)(2)(D). Any 

hospital not within a Metropolitan Statistical Area is designated 

as in a “rural area.” Id. The wage index for any given hospital 

in a state cannot be lower than the wage index applicable to the 

rural hospitals in that state. Balanced Budget Act of 1997, Pub. 

L. No. 105-33, § 4410(a), 111 Stat. 251, 402 (42 U.S.C. 

§ 1395ww note). This is referred to as the “rural floor.” 

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The Centers for Medicare and Medicaid Services (“CMS”) 

is the component of HHS that is responsible for calculating the 

wage index each year. To start the process, CMS requires 

hospitals to submit cost reports to Medicare administrative 

contractors (“MACs”). 42 C.F.R. § 413.20(b). The MACs and 

the hospitals then review and revise the data through an 

iterative process, which is outlined in a timetable published by 

CMS. App. at 49–53; see also 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 

2017 Rates, 81 Fed. Reg. 24,946, 25,073 (proposed Apr. 27, 

2016) (“FY2017 PPS Proposed Rule”) (“We created the 

processes previously described to resolve all substantive wage 

index data correction disputes before we finalize the wage and 

occupational mix data for the FY 2017 payment rates.”). CMS 

uses this data to calculate an average hourly wage rate for every 

geographic area. Anna Jacques Hosp., 797 F.3d at 1159. Then, 

it calculates the national average hourly wage rate and divides 

each geographic area’s wage rate by the national average wage 

rate to determine each geographic area’s wage index. Id.

By design, “each hospital’s wage data affects the ultimate 

wage index for all hospitals in the area, and thus data errors or 

omissions by one hospital can [decrease] (or increase) PPS 

rates for other hospitals in its area.” Dignity Health v. Price, 

243 F. Supp. 3d 43, 46 (D.D.C. 2017). Similarly, because CMS 

must calculate a national average wage rate to develop the 

wage index, and because changes in the wage index must be 

budget neutral, 42 U.S.C. § 1395ww(d)(3)(E)(i), “a change in 

any single wage index can affect the reimbursement rate of 

each hospital in the country.” Methodist Hosp. of Sacramento 

v. Shalala, 38 F.3d 1225, 1228 (D.C. Cir. 1994). 

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For the 2017 wage index, CMS released its preliminary

wage data files on May 15, 2015. CMS expected to use the 

data in those files to develop the 2017 wage index. Hospitals 

were required to notify MACs of any “revisions to the wage 

index data as reflected in the preliminary files” by September 

2, 2015. App. at 49. The wage index development process 

provided no opportunity for third-party hospitals to review or 

contest any other hospital’s wage data. Following several 

rounds of review and revision between the hospitals and the 

MACs, the proposed rule was expected to be published for 

notice and comment in April or May 2016. The final rule was 

then expected to be published on August 1, 2016. 

B. Factual and Procedural History

The Baystate hospitals are located in Massachusetts. The

only rural hospital in Massachusetts is Nantucket Cottage 

Hospital (“Nantucket”). Nantucket accordingly sets the rural 

floor for all hospitals in the state. The data that Nantucket 

submitted to CMS to calculate the 2017 wage index allegedly 

contained several errors that deflated Nantucket’s hourly wage 

rate. On April 4, 2016, nearly seven months after the deadline 

to request revisions to the preliminary wage data had passed, 

Nantucket notified CMS by letter of the errors and sought to 

correct them. App. at 40–46. The hospital estimated that the 

corrections would “increase [its] average hourly wage from 

$43.78 to $60.50.” App. at 45. 

On April 27, 2016, the Secretary published the proposed

2017 wage index in the Federal Register before responding to 

Nantucket’s letter. See FY2017 PPS Proposed Rule, 81 Fed. 

Reg. 24,946. The Secretary stated that “[i]f a hospital wished 

to request a change to its data as shown in May 15, 2015 wage 

data files and May 15, 2015 occupational mix data files, the 

hospital was to submit corrections along with complete, 

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detailed supporting documentation to its MAC by September 

2, 2015.” Id. at 25,072. The Secretary also emphasized that 

“[h]ospitals were notified of this deadline and of all other 

deadlines and requirements, including the requirement to 

review and verify their data as posted in the preliminary wage 

index data files.” Id. 

During the notice-and-comment period, many 

Massachusetts hospitals submitted comments to the Secretary 

urging him to accept Nantucket’s corrected wage data because 

failure to do so would result in a major reduction in 

reimbursements for hospitals across the state. This precise 

problem is acute in Massachusetts because, unlike most states, 

Nantucket’s wage index, which alone sets the rural floor in 

Massachusetts, is typically significantly higher than the wage 

index for other geographic areas in the state. See, e.g., Baystate 

Franklin Med. Ctr. v. Azar, 319 F. Supp. 3d 514, 522 (D.D.C. 

2018). For example, Baystate Health’s public comment 

estimated that “the impact of the data errors alone is a loss of 

$115 million in Medicare inpatient and outpatient 

reimbursement to 39 Massachusetts hospitals in 2017.” App.

at 99. Conversely, other commenters suggested that if the 

Secretary modified the rule based on Nantucket’s late filing, it 

“would establish a ‘troubling’ precedent by disregarding CMS 

rules and regulations, which provide ample opportunity to 

correct wage data through the agency’s normal review process 

and deadlines.” FY2017 PPS Final Rule, 81 Fed. Reg. at

56,920. 

Ultimately, the Secretary enforced the deadline and 

refused to accept Nantucket’s proposed revisions in calculating 

the final wage index. Id. The Secretary explained, “It is our 

intent to ensure that the wage index is calculated from the best 

available data, consistent with our wage index policies and 

development timeline.” Id. He emphasized that the deadlines 

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“play[] an important role in maintaining the integrity and 

fairness of the wage index calculation.” Id. He further noted 

that CMS has “consistently stated in annual [In-Patient] PPS 

rulemaking that hospitals that do not meet the procedural 

deadlines set forth in the [In-Patient] PPS rule will not be 

afforded a later opportunity to submit wage index data 

corrections or to dispute the MAC’s decision with respect to 

requested changes.” Id.; see also FY2017 PPS Proposed Rule, 

81 Fed. Reg. at 25,073 (noting that a hospital cannot later seek 

“to revise another hospital’s data that may be affecting the 

requesting hospital’s wage index”). 

After exhausting the administrative appeals process, 

Baystate filed a complaint in the district court alleging that the 

wage index as calculated would cost Baystate approximately 

$19,907,000 in Medicare reimbursements. Baystate argued 

that relying on flawed data prevented CMS from calculating a 

wage index that actually reflected the wage level for Nantucket, 

contravening the Medicare statute and rendering the action 

arbitrary and capricious. Further, Baystate claimed that the 

final rule was also arbitrary and capricious because the 

Secretary failed to consider an important aspect of the problem: 

one hospital’s erroneous data affected the wage index for every 

other hospital in the state, but those third-party hospitals had

no opportunity to review or contest the flawed data until after 

the deadline to request revisions had already passed. 

Both parties moved for summary judgment, which the 

district court granted in favor of the Secretary. The district 

court determined that the statute grants the Secretary “broad 

discretion” in administering the PPS program and held that 

“[t]he Secretary’s decision to enforce longstanding PPS 

program deadlines and use Nantucket’s uncorrected data was 

reasonable and based on a permissible reading of the Medicare 

statute.” Baystate Franklin Med. Ctr., 319 F. Supp. 3d at 521. 

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Additionally, the district court held that the Secretary’s action 

was not arbitrary and capricious. Because Nantucket missed 

the relevant deadline to request revisions, the most reliable 

evidence available to the Secretary was the data that the MACs

had already reviewed, not the revised data presented in April 

2016. See id. at 523. Accordingly, the Secretary’s decision to 

reject the requested revisions was reasonable. Further, the 

district court held that the Secretary sufficiently considered the 

effect of his decision on third-party hospitals. Id. Baystate 

objects to each of these conclusions on appeal.

II. DISCUSSION

We review the district court’s grant of summary judgment 

de novo. Anna Jacques Hosp., 797 F.3d at 1163. First, we 

address Baystate’s arguments that the Secretary failed to 

calculate a wage index that accurately reflected the wage level 

in Massachusetts and ignored an important aspect of the 

problem when he enforced the deadline against third-party 

hospitals, rendering his action arbitrary and capricious. Then 

we turn to Baystate’s argument that the Secretary’s 

interpretation of his authority to ignore the revised data 

contravened the Medicare statute’s command to calculate a 

wage index that reflects the wage level in Massachusetts. 

Although Baystate does not cite Chevron, U.S.A., Inc. v. 

Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), 

and argues almost entirely in terms of Administrative 

Procedure Act (“APA”) review, the gist of its argument 

challenges the Secretary’s interpretation of his authority under 

the Medicare statute, which, as discussed below, triggers a 

Chevron analysis. We hold that the Secretary’s interpretation 

of his authority under the statute was lawful and his action was 

not arbitrary and capricious. Accordingly, we affirm the 

district court’s grant of summary judgment.

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A. Arbitrary and Capricious Review

Under the familiar standards of the APA, we must “set 

aside agency action” that is “arbitrary, capricious, an abuse of 

discretion, or otherwise not in accordance with law.” 5 U.S.C. 

§ 706(2)(A). We will uphold the agency’s action if the agency 

“examine[d] the relevant data and articulate[d] a satisfactory 

explanation for its action including a ‘rational connection 

between the facts found and the choice made.’” Motor Vehicle 

Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 

U.S. 29, 43 (1983) (quoting Burlington Truck Lines v. United 

States, 371 U.S. 156, 168 (1962)). An agency’s action is 

arbitrary and capricious “if the agency has relied on factors 

which Congress has not intended it to consider, entirely failed 

to consider an important aspect of the problem, offered an 

explanation for its decision that runs counter to the evidence 

before [it], or is so implausible that it could not be ascribed to 

a difference in view or the product of agency expertise.” Id. 

“The scope of review under the ‘arbitrary and capricious’ 

standard is narrow and a court is not to substitute its judgment 

for that of the agency.” Id.

i. Secretary’s Decision to Enforce the 

Deadline

Baystate argues that the Secretary’s decision to enforce the 

deadline and reject Nantucket’s revised data was arbitrary and 

capricious because the Secretary relied on facts that he knew to 

be false when calculating the final wage index. However, 

instead of demonstrating that the Secretary’s decision to reject 

the revised data was an unreasonable one, Baystate offers 

examples of different ways to structure the wage index 

development process to produce a more accurate wage index. 

See Appellants’ Reply Br. at 9–10. 

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To start, it is difficult to divine exactly how the Secretary’s 

decision to enforce a deadline that is established well in 

advance through rulemaking is arbitrary and capricious. More 

importantly, however, under the narrow standard of arbitrary 

and capricious review, the court accepts the Secretary’s 

decision as long as he has provided a reasonable explanation. 

State Farm Mut. Auto Ins. Co., 463 U.S. at 43. It would defy 

that standard of review to invalidate the Secretary’s decision 

simply because there are alternate methods by which to 

calculate the wage index, even if those alternatives might 

ultimately produce a more accurate wage index.

In any event, the Secretary provided an entirely reasonable 

explanation for his decision to reject the revised data. As 

previously noted, the Secretary explained that CMS’s intent is 

to calculate the wage index “from the best available data, 

consistent with [the] wage index policies and development 

timeline.” FY2017 PPS Final Rule, 81 Fed. Reg. at 56,920. He 

emphasized that the deadlines are critical “in maintaining the 

integrity and fairness of the wage index calculation.” Id. That 

was reasonable because the wage index must be computed on 

a nationwide basis that is budget neutral, so that an increase for 

hospitals in one area would necessitate a decrease in the wage 

index for other hospitals in other areas. See Bellevue Hosp. 

Ctr. v. Leavitt, 443 F.3d 163, 169 (2d Cir. 2006) (“These 

adjustments must be cost neutral, so that any increase in one 

hospital’s wage factor must be offset by a decrease in 

another’s.”). He also pointed to prior statements that indicated 

“that hospitals that do not meet the procedural deadlines . . . 

will not be afforded a later opportunity to submit wage index 

data corrections.” FY2017 PPS Final Rule, 81 Fed. Reg. at 

56,920. Accordingly, the Secretary offered a reasonable 

explanation for his decision that is sufficient to survive 

arbitrary and capricious review.

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Moreover, this is not a situation in which the Secretary 

previously granted relief from this deadline and is now 

changing his policy without a reasoned explanation. See, e.g., 

Children’s Hosp. Ass’n of Tex. v. Azar, 933 F.3d 764, 773 

(D.C. Cir. 2019) (“An ‘unexplained inconsistency’ with an 

earlier position renders a changed policy arbitrary and 

capricious.” (quoting Encino Motorcars, LLC v. Navarro, 136 

S. Ct. 2117, 2126 (2016))); Centra Health, Inc. v. Shalala, 102 

F. Supp. 2d 654, 660 (W.D. Va. 2000) (finding that it was 

arbitrary and capricious for the Secretary to claim that 

excluding data was infeasible because the Secretary had 

excluded that same data in the past and had not “adequately 

explained” the difference in treatment.). 

In fact, Baystate has not pointed to any examples in which 

the Secretary granted relief from a deadline in similar 

situations. At oral argument, Baystate’s counsel pointed to the 

Secretary’s inclusion of “improved data” from eleven hospitals 

in the final rule. FY2017 PPS Final Rule, 81 Fed. Reg. at 

56,915. But that revision did not involve errors that a hospital 

discovered in its preliminary data after the deadline to request 

revisions had passed. Rather, those errors were identified 

during the review conducted by the MACs. Id. (“Since the 

development of the FY 2017 proposed wage index, as a result 

of further review by the MACs and the April and May appeals 

processes, we received improved data for 11 hospitals.”). The 

2017 wage index development timetable anticipated exactly 

that type of revision, unlike the revisions that Baystate now 

seeks. Additionally, Baystate’s counsel suggested that the 

revisions in Methodist Hospital of Sacramento v. Shalala, 38 

F.3d 1225 (D.C. Cir. 1994), were similar to the revisions 

sought in this case. Although Methodist Hospital did involve 

the PPS, the specific errors in that case “occurred prior to the 

creation of the PPS.” Id. at 1228. 

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Nor has Baystate shown that the Secretary’s decision was 

otherwise arbitrary and capricious. Baystate cites a concurring 

opinion in this Court to argue that “it would seem to be the very 

definition of arbitrary and capricious for HHS to knowingly use 

false facts when calculating hospital reimbursements.” St. 

Francis Med. Ctr. v. Azar, 894 F.3d 290, 298 (D.C. Cir. 2018) 

(Kavanaugh, J., concurring). The majority in that case, 

however, did not address whether the Secretary’s action was 

arbitrary and capricious. See id. at 297 (majority opinion). 

Moreover, that case involved the Secretary’s refusal to 

consider challenges to statistics from 1981 that the Secretary 

was continuing to use for “ongoing calculations of 

reimbursements for open cost years.” Id. at 298 (Kavanaugh, 

J., concurring). The concurrence suggested that it would have 

been reasonable for the Secretary to decline to “reopen closed 

cost years” given “the agency’s interest in finality,” but argued 

that the finality interests fell away for ongoing calculations. Id. 

The Secretary’s decision to enforce his deadline here is akin to 

declining to reopen a closed cost year to consider new data. 

Baystate’s reliance on the concurrence in Saint Francis 

Medical Center is thus misplaced.

For similar reasons, we disagree with Baystate’s assertion 

that the Secretary ignored the “most reliable evidence 

available” in the first place. Appellants’ Br. at 15. Because the 

Secretary retained discretion to set and enforce a deadline, the 

availability of evidence is measured from the date of the 

deadline, not the promulgation of the final rule. Nantucket did 

not present new evidence until seven months after the deadline 

had passed. In order to ensure the accuracy of this data, CMS 

would be required to return to the beginning of the wage index 

development process to vet the hospital’s new data. Indeed, 

the Secretary never conceded that Nantucket’s revised data was 

the most reliable data available, emphasizing that the 

information had not yet been vetted by CMS or its contractors. 

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Accordingly, the most reliable evidence available was the 

evidence that the Secretary used to calculate the final wage 

index, and the Secretary’s decision was not arbitrary and 

capricious. 

ii. Secretary’s Consideration of Important 

Aspects of the Problem

Baystate further contends that the Secretary’s decision was 

arbitrary and capricious because he failed to consider an 

important aspect of the problem—namely, that other hospitals 

in Massachusetts had no opportunity to review or revise faulty 

data that adversely affected their wage indexes. Again, we 

disagree.

In summarizing the comments to the proposed rule, the 

Secretary noted that several commenters “believed it would be 

‘sound public policy’ for CMS to use the most accurate data 

available in order to prevent one hospital’s data errors from 

having a negative effect on Medicare payments of other 

hospitals.” FY2017 PPS Final Rule, 81 Fed. Reg. at 56,920. 

He also highlighted that some commenters suggested that “the 

effects of not correcting the data error would be significant for 

hospitals in Massachusetts.” Id. Those summaries reflect the 

Secretary’s awareness that his decision to enforce the deadline 

necessarily affected all hospitals in Massachusetts. Even 

though he did not address the effects to Nantucket and thirdparty hospitals separately, the summary is sufficient to 

illustrate his consideration of that aspect of the problem. 

Therefore, we conclude that the decision to enforce the 

deadline against third-party hospitals was not arbitrary or

capricious.

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B. Chevron Analysis

As mentioned above, although Baystate does not cite 

Chevron, U.S.A., Inc. v. Natural Resources Defense Council, 

Inc., 467 U.S. 837 (1984), and frames its arguments in terms of 

APA review, see Appellants’ Br. at ii (“The Secretary’s 

decision to base the FY 2017 Wage Index on data he knew to 

be inaccurate was arbitrary and capricious.”); Appellants’ 

Reply Br. at i (“The Secretary’s calculation of the FY 2017 

Wage Index and application of the rural floor were arbitrary 

and capricious.”), much of its argument focuses on the 

Secretary’s statutory authority to enforce the deadline and 

reject the revised data under the Medicare statute. 

Specifically, Baystate argues that “the Secretary ignored 

Congress’s clear mandate to calculate a wage index that 

‘reflect[s] the relative hospital wage level in the geographic 

area of the hospital compared to the national average.’” 

Appellants’ Br. at 15 (quoting 42 U.S.C. 

§ 1395ww(d)(3)(E)(i)). Further, Baystate asserts that, “[w]hile 

the Secretary undoubtedly has discretion in developing the 

process for calculating the wage index, that discretion does not 

permit him to disregard the requirements of the Wage Index 

Statute.” Id. at 18. Arguments related to an agency’s

interpretation of its authority to act under a statute are the 

principal concern of Chevron. See Arent v. Shalala, 70 F.3d 

610, 615 (D.C. Cir. 1995). To be sure, “[w]e recognize that, in 

some respects, Chevron review and arbitrary and capricious 

review overlap at the margins.” Id. But it is under Chevron, 

not the APA arbitrary and capricious standard, that a court 

considers “whether the agency’s construction of the statute is 

faithful to its plain meaning, or, if the statute has no plain 

meaning, whether the agency’s interpretation ‘is based on a 

permissible construction of the statute.’” Id. (quoting Chevron,

467 U.S. at 843). 

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Under the Chevron two-step framework, we first consider 

“whether Congress has directly spoken to the precise question 

at issue.” Chevron, U.S.A., Inc., 467 U.S. at 842. If Congress’s 

intent is clear, “the court, as well as the agency, must give effect 

to the unambiguously expressed intent of Congress.” Id. at 

842–43. If “Congress has not directly addressed the precise 

question at issue,” however, we proceed to step two and will 

uphold the Secretary’s interpretation if it is “based on a 

permissible construction of the statute.” Id. at 843.

The Medicare statute requires the Secretary to compute a 

wage index that “reflect[s] the relative hospital wage level in 

the geographic area of the hospital compared to the national 

average hospital wage level.” 42 U.S.C. 

§ 1395ww(d)(3)(E)(i). We have previously rejected 

constructions of the statute that would require the Secretary to 

calculate the wage index with “scientific exactitude.” Anna 

Jacques Hosp., 797 F.3d at 1165; see Methodist Hosp., 38 F.3d 

at 1230 (allowing the Secretary to make “reasonable 

approximations” based on the “most reliable data available”). 

Those decisions emphasize that the Secretary may balance

accuracy against “finality and administrative efficiency.” 

Methodist Hosp., 38 F.3d at 1235; see also Anna Jacques 

Hosp., 797 F.3d at 1169. 

Baystate contends that the wage index statute requires the 

Secretary to calculate a wage index that reflects the actual, 

relative wage levels around the country. Likewise, Baystate 

argues that the rural floor statute requires the Secretary “to give 

hospitals like the Appellants the benefit of a wage index 

reflective of the relative wage levels in the state’s rural labor 

market.” Appellants’ Br. at 17. Baystate asserts that, because 

the Secretary relied on faulty data to calculate Nantucket’s 

wage index, it necessarily did not reflect the actual wage level 

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in rural Massachusetts. Thus, Baystate argues, the Secretary’s 

refusal to accept Nantucket’s untimely request exceeded his 

authority under the Medicare statute, depriving the 

Massachusetts hospitals of the wage index to which they were 

statutorily entitled. Baystate concedes that the Secretary is 

entitled to great discretion in calculating the wage index, and 

we agree. Accordingly, we will uphold the agency’s 

interpretation as long as it is a permissible construction of the 

statute. 

In this case, the Secretary exercised his statutory discretion 

to enforce a deadline and reject new data submitted by a 

hospital seven months after the deadline to request revisions to 

that data passed. As noted previously, had the Secretary 

accepted the revised data to calculate the final wage index, he 

would have been required to return to the beginning of the wage 

index development process to ensure the accuracy of the 

hospital’s data. Allowing the Secretary to enforce the deadline 

for revising data is thus consistent with our decisions 

permitting the Secretary to balance accuracy against finality 

and efficiency. To hold otherwise would effectively render the 

Secretary’s deadline a nullity because he would be required to 

waive compliance with the deadline anytime a hospital 

submitted revised data, even well after the relevant deadline 

passed. 

While we agree with Baystate that the Secretary’s 

discretion must be bound by some outer limits, we conclude 

that, whatever those outer limits may be, the Secretary’s 

interpretation of his authority to enforce a deadline in 

calculating the wage index falls squarely within them. 

Accordingly, we hold that the Secretary’s interpretation was a 

permissible construction of the statute.

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III. CONCLUSION

For the foregoing reasons, we affirm the district court’s 

grant of summary judgment in favor of the Secretary.

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