Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-23-55209/USCOURTS-ca9-23-55209-0/pdf.json

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

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

KAWEAH DELTA HEALTH CARE 

DISTRICT, DBA Kaweah Delta 

Medical Center; ANTELOPE 

VALLEY HEALTHCARE 

DISTRICT, DBA Antelope Valley 

Hospital; COUNTY OF SAN 

BERNARDINO; HEART HOSPITAL 

OF BK, LLC, DBA Bakersfield Heart 

Hospital; BEVERLY COMMUNITY 

HOSPITAL ASSOCIATION, DBA 

Beverly Hospital; CASA COLINA 

HOSPITAL AND CENTERS FOR 

HEALTHCARE, DBA Casa Colina 

Hospital; CHINESE HOSPITAL 

ASSOCIATION, DBA Chinese 

Hospital; CMCM, INC., DBA College 

Hospital Costa Mesa; CHLB, LLC, 

DBA College Medical Center; 

COMMUNITY MEMORIAL 

HEALTH SYSTEM, DBA 

Community Memorial Hospital San 

Buenaventura; COMMUNITY 

HOSPITAL OF THE MONTEREY 

PENINSULA; COUNTY OF 

CONTRA COSTA, DBA Contra 

Costa Regional Medical Center; 

DAMERON HOSPITAL 

Nos. 23-55157 

23-55209

D.C. No. 

2:20-cv-06564-

CBM-SP 

OPINION

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2 KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA

ASSOCIATION, DBA Dameron 

Hospital; EISENHOWER MEDICAL 

CENTER; EL CAMINO HOSPITAL; 

CITY OF EL CENTRO, DBA El 

Centro Regional Medical Center; 

ENLOE MEDICAL CENTER; GOOD 

SAMARITAN HOSPITAL, a 

California Limited Partnership; SAN 

BENITO HEALTH CARE 

DISTRICT, DBA Hazel Hawkins 

Memorial Hospital; HENRY MAYO 

NEWHALL MEMORIAL 

HOSPITAL, DBA Henry Mayo 

Newhall Hospital; CHA 

HOLLYWOOD MEDICAL 

CENTER, L.P., DBA Hollywood 

Presbyterian Medical Center; 

PASADENA HOSPITAL 

ASSOCIATION, LTN, DBA 

Huntington Hospital, AKA Huntington 

Memorial Hospital; KERN COUNTY 

HOSPITAL AUTHORITY, DBA 

Kern Medical Center; LOMPOC 

VALLEY MEDICAL CENTER; 

AMERICAN HOSPITAL 

MANAGEMENT CORPORATION, 

DBA Mad River Community Hospital; 

MADERA COMMUNITY 

HOSPITAL; MARIN GENERAL 

HOSPITAL, DBA MarinHealth 

Medical Center; MARSHALL 

MEDICAL CENTER; MARTIN 

LUTHER KING JR.- LOS ANGELES 

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KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA 3

MLK-LA HEALTHCARE 

CORPORATION, DBA Martin Luther 

King, Jr. Community Hospital; 

METHODIST HOSPITAL OF 

SOUTHERN CALIFORNIA; 

DEANCO HEALTHCARE, LLC, 

DBA Mission Community Hospital; 

COUNTY OF MONTEREY, DBA 

Natividad Medical Center; 

NORTHBAY HEALTHCARE 

GROUP, DBA Northbay Medical 

Center; OAK VALLEY HOSPITAL 

DISTRICT; OROVILLE HOSPITAL; 

PACIFICA OF THE VALLEY 

CORPORATION, DBA Pacifica 

Hospital of the Valley; PIONEERS 

MEMORIAL HEALTHCARE 

DISTRICT; POMONA VALLEY 

HOSPITAL MEDICAL CENTER; 

REDLANDS COMMUNITY 

HOSPITAL; COUNTY OF 

RIVERSIDE, AKA Riverside County 

Regional Medical Center, DBA 

Riverside University Health Systems -

Medical Center; SALINAS VALLEY 

MEMORIAL HEALTH CARE 

SYSTEM, DBA Salinas Valley 

Memorial Hospital; SAN ANTONIO 

REGIONAL HOSPITAL, INC., DBA 

San Antonio Regional Hospital; SAN 

GORGONIO MEMORIAL 

HEALTHCARE DISTRICT, DBA 

San Gorgonio Memorial Hospital; 

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4 KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA

COUNTY OF SAN MATEO, DBA 

San Mateo Medical Center; COUNTY 

OF SANTA CLARA, DBA O'Connor 

Hospital, DBA Santa Clara Valley 

Medical Center, DBA St. Louise 

Regional Hospital; SIERRA VIEW 

LOCAL HEALTH CARE DISTRICT, 

DBA Sierra View Local Health Care 

District; SOMONA VALLEY 

HEALTH CARE DISTRICT, DBA 

Somona Valley Hospital; SAINT 

AGNES MEDICAL CENTER; TRICITY HOSPITAL DISTRICT, DBA 

Tri-City Medical Center; VALLEY 

PRESBYTERIAN HOSPITAL; 

WASHINGTON TOWNSHIP 

HEALTH CARE DISTRICT, DBA 

Washington Hospital; 

WATSONVILLE HOSPITAL 

CORPORATION, DBA Watsonville 

Community Hospital; COUNTY OF 

VENTURA, doing business as 

Ventura County Medical Center, 

Plaintiffs-Appellees / 

Cross-Appellants, 

 v. 

XAVIER BECERRA, United States 

Department of Health and Human 

Services, in his official capacity, 

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 KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA 5 

Defendant-Appellant / 

 Cross-Appellee. 

Appeal from the United States District Court

for the Central District of California

Consuelo B. Marshall, District Judge, Presiding 

Argued and Submitted February 16, 2024 

Pasadena, California

Filed December 11, 2024 

Before: Danny J. Boggs,* Jacqueline H. Nguyen, and 

Kenneth K. Lee, Circuit Judges. 

Opinion by Judge Lee; 

Dissent by Judge Nguyen 

SUMMARY**

Medicare

The panel affirmed the district court’s holding that the 

Secretary of Health and Human Services (HHS) lacked the 

authority to implement its low-wage-index policy—which 

boosted the wage index, and thus the Medicare 

* The Honorable Danny J. Boggs, United States Circuit Judge for the U.S. 

Court of Appeals for the Sixth Circuit, sitting by designation.

** This summary constitutes no part of the opinion of the court. It has 

been prepared by court staff for the convenience of the reader.

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6 KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA

reimbursement rate, for lower-wage hospitals—and vacated 

the district court’s decision to remand the case back to the 

agency without vacating the policy.

Medicare reimburses hospitals based on a standardized 

rate for medical services, except that the rate must be 

adjusted for regional wage differences. Congress directed 

HHS to establish a “wage index” that reflects area wage 

differences and to adjust Medicare payment rates 

accordingly. In 2020, HHS adjusted the wage index by 

inflating the Medicare payment rates for the lowest quartile 

of hospitals, and paid for it by reducing payments to all 

hospitals by a small percentage.

The parties agreed that this court had jurisdiction to hear 

HHS’s appeal, which challenged the district court’s order 

holding that the agency lacked authority to issue the lowwage-index policy. The panel held that it also had 

jurisdiction over the hospitals’ cross-appeal challenging the 

district court’s decision to remand without vacatur because 

appellate jurisdiction extends to the district court’s entire 

decision.

The panel held that the Secretary lacked statutory 

authority to manipulate the wage-index values for lowerwage hospitals to advance the policy objective of recruiting 

and retaining medical staff in lower-income 

communities. The low-wage-index policy violates the plain 

language of the Wage Index Provision. In addition, the 

Exceptions and Adjustments Provision cannot 

independently authorize the low wage index policy. An 

artificially inflated wage-index for lower-wage hospitals 

does not “reflect” regional wage differences, as required by 

the statute. Neither the Secretary’s good intentions nor 

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 KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA 7 

pressing policy problems can substitute for an agency’s lack 

of statutory authority to act. 

The panel vacated the district court’s decision to remand 

the case back to the agency without vacating the policy itself 

because when an agency cannot issue the challenged policy 

in another way, the only appropriate remedy is vacatur. 

Judge Nguyen dissented because the low wage index 

policy is fully consistent with the statutory text. The court 

should not toss out the Secretary’s plausible interpretation, 

and the majority’s unnecessary rejection of the Secretary’s 

policy will have drastic repercussions for vulnerable 

communities.

COUNSEL

Lloyd A. Bookman (argued), Hooper Lundy & Bookman 

PC, Los Angeles, California; David J. Vernon and Rachel L. 

Zacharias, Hooper Lundy & Bookman PC, Washington, 

D.C.; for Plaintiffs-Appellees.

David L. Peters (argued) and Abby C. Wright, Attorneys, 

Appellate Staff, Civil Division; Brian M. Boynton, Principal 

Deputy Assistant Attorney General; Garrett F. Mannchen, 

Attorney, United States Department of Health and Human 

Services; Susan M. Lyons, Deputy Associate General 

Counsel; Janice L. Hoffman, Associate General Counsel; 

Samuel R. Bagenstos, General Counsel; United States 

Department of Justice, Washington, D.C.; for DefendantAppellant. 

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8 KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA

OPINION

LEE, Circuit Judge:

Medicare reimburses hospitals based on a standardized 

rate for medical services—except that the rate must be 

adjusted for regional wage differences. Not surprisingly, 

hospitals’ labor costs—e.g., salaries for doctors, nurses, and 

other staff—can vary among geographic regions. Congress 

thus directed the Secretary of the U.S. Department of Health 

and Human Services (HHS) to establish a “wage index” that 

“reflects” area wage differences and to adjust the Medicare

payment rates accordingly. So a hospital in a higher wage 

area receives a higher reimbursement rate for its services 

than one in a lower wage area. 

In 2020, the Secretary tinkered with the wage index by

inflating the Medicare payment rates for the lowest quartile 

of hospitals—and paid for it by reducing payments to all the 

hospitals by a small percentage. The Secretary believed that 

boosting the wage index (and thus the payment rate) for 

lower-wage hospitals would help them recruit and retain 

medical staff in lower-income, and often rural, communities. 

But the Secretary lacks statutory authority to manipulate the 

wage-index values for lower-wage hospitals to advance this 

policy objective. Simply put, an artificially inflated wage 

index for lower-wage hospitals does not “reflect” regional 

wage differences, as required under the statute. While the 

Secretary may have had a laudable goal in tilting the wage 

index in favor of the lower-wage hospitals, Congress did not 

empower him to do so. And under our system of separation 

of powers, neither good intentions nor pressing policy 

problems can substitute for an agency’s lack of statutory 

authority to act. 

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KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA 9

We thus affirm the district court’s holding that the 

Secretary exceeded his statutory authority in establishing the 

2020 wage index. But we vacate the district court’s decision 

to remand the case back to the agency without vacating the 

policy itself. When an agency cannot issue the challenged 

policy in another way, the only appropriate remedy is 

vacatur.

BACKGROUND

A. The Medicare System’s Prospective Payment 

System

Congress charged HHS with administering Medicare, a 

sprawling federal health-insurance program for seniors and 

younger people with certain disabilities. Anna Jacques 

Hosp. v. Burwell, 797 F.3d 1155, 1157 (D.C. Cir. 2015). As 

one can imagine, this is not a simple task. This case is about

only “Part A” of Medicare, which covers a person’s

“inpatient” care (the care that a person receives at a hospital 

or in a skilled nursing facility). Parts of Medicare, 

Medicare.gov, available at 

https://www.medicare.gov/basics/get-started-withmedicare/medicare-basics/parts-of-medicare.

Medicare originally paid hospitals the “reasonable costs” 

of providing care. Anna Jacques, 797 F.3d at 1157. 

Congress eventually realized that the reasonable-cost 

framework lacked adequate incentives for hospitals to 

operate efficiently. So, in 1983, Congress enacted the 

Prospective Payment System as the main method of paying 

for care. Se. Ala. Med. Ctr. v. Sebelius, 572 F.3d 912, 914 

(D.C. Cir. 2009).

The goal of the Prospective Payment System is simple: 

“reform the financial incentives hospitals face and promote 

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10 KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA

efficiency in the provision of services.” Anna Jacques, 797 

F.3d at 1158 (cleaned up). Under the new system, a

hospital’s payments are tied to the national average cost of 

treating a patient in a particular “diagnosis-related group”

(DRG) according to a preestablished formula, regardless of 

the actual costs incurred by the hospital in treating that 

patient. 42 U.S.C. § 1395ww(d). Put in simple terms, the 

agency sets a flat sum for a particular medical service based 

in part on the national average cost, and then pays hospitals 

that amount for the service. 

But Congress also recognized that the average cost of 

treating a patient varies across the country because hospitals 

in more expensive areas typically have higher wage-related

costs. See Anna Jacques, 797 F.3d at 1157–58. For 

example, a hospital in northern Virginia likely pays higher 

salaries to doctors, nurses, and other staff than a hospital in 

a small town in West Virginia does. To account for these 

cost disparities, the statute requires HHS to calculate a 

“wage index” that compares hospital wages within defined 

geographic areas to a national average and to adjust 

Medicare payments accordingly. Id. at 1158;

§ 1395ww(d)(3)(E)(i). Thus, hospitals in high-wage areas 

receive larger payments than those in low-wage areas. An 

area with a wage level equal to the national average wage 

has a wage-index value of one; lower-wage areas have a 

value of less than one; and higher-wage areas have a value 

of greater than one. Anna Jacques, 797 F.3d at 1159. 

B. The Wage Index Provision and the Exceptions and 

Adjustments Provision

There are two relevant Medicare statutory provisions at 

issue that we will describe as the “Wage Index Provision” 

and the “Exceptions and Adjustments Provision.” 

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 KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA 11

1. The Wage Index Provision 

The Wage Index Provision directs the Secretary how to

calculate the wage index each year: 

[T]he Secretary shall adjust the proportion, 

(as estimated by the Secretary from time to 

time) of hospitals’ costs which are 

attributable to wages and wage-related costs, 

of the DRG [Diagnosis-Related Group] 

prospective payment rates computed under 

subparagraph (D) for area differences in 

hospital wage levels by a factor (established 

by the Secretary) reflecting the relative 

hospital wage level in the geographic area of 

the hospital compared to the national average 

hospital wage level. Not later than October 1, 

1990, and October 1, 1993 (and at least every 

12 months thereafter), the Secretary shall 

update the factor under the preceding 

sentence on the basis of a survey conducted 

by the Secretary (and updated as appropriate) 

of the wages and wage-related costs of 

subsection (d) hospitals in the United States. 

42 U.S.C. § 1395ww(d)(3)(E)(i). HHS creates the wage 

index through annual notice-and-comment rulemaking. 

Southeast Alabama, 572 F.3d at 914. All adjustments to the 

wage index must be budget neutral, meaning that if some 

hospitals get a bump upward in the reimbursement rate, then 

other hospitals must have their rates reduced to pay for it. 42 

U.S.C. § 1395ww(d)(3)(E)(i).

Although § 1395ww(d)(3)(E) is “hardly a paragon of 

clarity, the bottom line is as follows: The statute first 

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12 KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA

requires HHS to determine the Proportion of the DRG 

reimbursement that is attributable to wages and wage-related 

costs.” Southeast Alabama, 572 F.3d at 915. Then, HHS 

must “adjust that Proportion by a Factor reflecting the 

relative hospital wage level in the hospital’s geographic area 

as compared to the national average hospital wage level.” Id. 

In other words, the agency must first isolate the wage cost

portion of the Medicare reimbursement, and then adjust that 

amount based on the area’s hospital-wage level compared to 

the national level. 

To adjust the Medicare payment rate based on regional 

wage differences, HHS first conducts an annual survey of 

hospitals’ wages and wage-related costs. It compiles wage 

data from cost reports submitted by hospitals and uses that 

data as the basis for the wage index. But because of the time 

it takes to collect, verify, and analyze the data, HHS typically 

uses three-year-old data to create the wage index. This data 

lag means that increases in an area’s relative wages will not 

be reflected in that area’s wage-index factor until four years 

later. 

2. The Exceptions and Adjustments Provision. 

This provision allows the Secretary to provide “by 

regulation for such other exceptions and adjustments to such 

payment amounts under this subsection as the Secretary 

deems appropriate.” 42 U.S.C. § 1395ww(d)(5)(I)(i). 

Courts have blessed the use of this section to make relatively 

minor changes to payment amounts. See, e.g., Shands 

Jacksonville Med. Ctr. v. Burwell, 139 F. Supp. 3d 240, 259–

60 (D.D.C. 2015) (collecting cases showing adjustments are 

acceptable so long as they are minor enough to be fairly 

characterized as only “adjustments”). The provision, 

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KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA 13

however, “does not give the Secretary carte blanche to 

override the rest of the Act.” Id.

C. The 2020 Wage Index

In 2020, HHS proposed its “low wage index policy.” 

The policy adjusts the lowest quartile of wage index values 

upward to the point halfway between their actual value and 

the 25th percentile value. To take HHS’s example:

If the wage index value for a given hospital 

would be 0.6663, and the 25th percentile 

wage index value for FY 2020 is 0.8482, then 

half the difference between the otherwise 

applicable wage index value and the 25th 

percentile wage index value is 0.0910 (that is, 

(0.8482 - 0.6663)/2). Under the proposal, the 

wage index value for the hospital would then 

be .7573 (that is, 0.6663 + 0.0910).

In this example, the low wage index policy would essentially

boost a hospital’s wage-related payment by about 13.6% 

(that is, 0.0910/0.6663). But the policy always maintains the 

rank order of wage-index values—meaning that a hospital 

with a higher wage level will always receive a larger 

payment than a hospital with a lower wage level.

HHS maintains that the low-wage-index policy is

necessary to address “growing disparities between low and 

high wage index hospitals.” These disparities, according to 

HHS, were purportedly caused by the wage index’s data lag,

which “create[d] barriers to hospitals with low wage index 

values from being able to increase employee compensation.” 

In real-life terms, hospitals in low-wage areas face

headwinds recruiting and retaining medical staff because 

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14 KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA

they must compete with hospitals in higher wage regions that 

offer more lucrative compensation, according to HHS. And 

the agency crafted the low-wage-index policy to combat this 

problem. 

To maintain budget neutrality after bumping up the 

reimbursement rate for the low-wage hospitals, HHS 

reduced payments to all hospitals by 0.2016%. Plaintiffs—

a group of 53 California hospitals—allege that their 

Medicare payments were reduced by around $3.8 million. 

D. Procedural History

Plaintiffs administratively challenged HHS’s authority 

to implement the low-wage-index policy, particularly its 

budget-neutrality adjustment that led to lower payment rates. 

After the Provider Reimbursement Review Board granted 

expedited judicial review, the hospitals sued in district court 

under the Administrative Procedure Act, alleging (among 

other things) that the low-wage-index policy: (1) violates the 

relevant statutory provisions; (2) is arbitrary and capricious; 

(3) results from a faulty administrative procedure, and (4) is 

unsupported by evidence in the record. HHS responded that 

the low-wage-index policy is independently authorized by 

either the Wage Index Provision or the Exceptions and 

Adjustments Provision. 

The district court denied HHS’s motion for summary 

judgment, granted the hospitals’ motion for summary 

judgment, and remanded the matter to the Secretary “for 

further proceedings consistent with [its] Order.” The court 

held that HHS lacked authority to implement the low-wageindex policy under either the Wage Index Provision or the 

Exceptions and Adjustments Provision. It also held that the 

policy was procedurally defective to the extent that HHS 

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KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA 15

rested its policy on the Exceptions and Adjustments 

Provision.

Despite these fundamental issues, the district court 

declined to vacate the low-wage-index policy because 

“vacatur . . . creates a serious risk of disruption to the 

Medicare Prospective Payment System and operation of 

hospitals.” HHS timely appealed, and the hospitals timely 

cross-appealed. 

DISCUSSION

A. We have jurisdiction over the hospitals’ crossappeal.

Although both parties agree that this court has 

jurisdiction to hear HHS’s appeal under 28 U.S.C. § 1291, 

they dispute whether we have appellate jurisdiction to 

review the hospitals’ cross-appeal challenging the district 

court’s decision to remand without vacatur.

We agree that HHS can appeal the district court’s order 

holding that the agency lacked authority to issue the lowwage-index policy. That order is final and immediately 

appealable because “agencies compelled to refashion their 

own rules face the unique prospect of being deprived of 

review altogether.” Alsea Valley All. v. Dep’t of Com., 358 

F.3d 1181, 1184 (9th Cir. 2004); see also Crow Indian Tribe 

v. United States, 965 F.3d 662, 675–76 (9th Cir. 2020)

(applying Alsea Valley); Cmty. Hosp. of Monterey Peninsula 

v. Thompson, 323 F.3d 782, 789 (9th Cir. 2003) (reviewing

a district court’s order finding that the agency exceeded its 

authority under the Medicare statute and remanding for 

further proceedings).

We also have jurisdiction over the hospitals’ crossappeal because our jurisdiction extends to the district court’s 

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16 KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA

entire decision. We have held that if “both the plaintiff and 

the relevant agency” seek “review of the district court’s 

remand order,” the order is final for both parties’ appeals. 

Pit River Tribe v. U.S. Forest Serv., 615 F.3d 1069, 1076 

(9th Cir. 2010) (citing City of Santa Clara v. Andrus, 572 

F.2d 660, 663 (9th Cir. 1978)); see also NAACP v. U.S. 

Sugar Corp., 84 F.3d 1432, 1436 (D.C. Cir. 1996) (“[W]hat 

matters for the purposes of our appellate jurisdiction is 

whether the district court’s decision—and not any particular 

party challenging it—is properly before us, which it is as a 

result of the [Agency’s] appeal.”); Cnty. of Los Angeles v. 

Shalala, 192 F.3d 1005, 1012 (D.C. Cir. 1999) (explaining 

that the appellate court had “jurisdiction to review the 

Secretary’s appeal [of a remand order] under § 1291” and 

therefore “may also consider the Hospitals’ cross-appeal”). 

That is the case here. 

B. The low-wage-index policy violates the plain 

language of the Wage Index Provision.

To defend its 2020 low-wage-index policy, HHS relies 

on an argument that agencies often invoke to justify their 

exercise of expansive power: “discretion.” The agency 

claims that the statute gives it “discretion in determining the 

nature and extent to which the wage index must approximate 

relative regional wage differences.” 

But HHS is not relying on its discretion; rather, it is 

exercising authority beyond what Congress gave it. 

Nowhere does the Wage Index Provision empower HHS to 

manipulate the wage index so that the index no longer 

reflects area differences in wage levels.

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 KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA 17

1. The low-wage-index policy does not “reflect” area 

differences in hospital wage levels. 

The Wage Index Provision requires that HHS adjust the 

wage index “by a factor (established by the Secretary) 

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)

(emphasis added). The central issue is this: What does 

“reflect” require of HHS, and how flexible is this statutory 

command? Does “reflect,” as HHS argues, permit the 

agency to manipulate the wage index so long as the index

roughly resembles the real world by maintaining the rank 

order of the hospitals? Or does “reflect” require that the 

wage index hew more closely to real-world wage levels? 

We review de novo a district court’s statutory 

interpretation, Fournier v. Sebelius, 718 F.3d 1110, 1117–18 

(9th Cir. 2013) (citation omitted), and generally interpret 

statutory terms according to “their ordinary, everyday 

meanings.” Scalia and Garner, Reading Law: The 

Interpretation of Legal Texts at 69 (2012) (describing the 

ordinary-meaning rule as “the most fundamental semantic 

rule of interpretation”). To “reflect” ordinarily means “to 

give back or exhibit as an image, likeness, or outline,” to 

“mirror.” Reflect, Merriam-Webster Dictionary, available at 

https://www.merriam-webster.com/dictionary/reflect. In 

other words, a reasonable person would ordinarily 

understand “reflect” to mean closely representing an image, 

data, or other item. For example, when someone says, “our 

backyard pool budget reflects the costs of supply and labor,” 

we understand that budget to include those two items—and 

not, say, swim safety lessons, as important as they may be. 

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18 KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA

HHS’s low-wage-index policy—and its resulting 

payment increase for the bottom quartile hospitals—does not 

“reflect” area differences in hospital-wage levels. Rather, 

the manipulated index reflects HHS’s policy goal—however 

well-intentioned it may be—of helping hospitals in lowwage areas increase their ability to retain and recruit 

employees. The very nature of that boost in payment reflects 

something other than the regional wage differences. 

Consider this analogy: No one would say that a grocery 

receipt “reflects” the price of groceries if the store gives, say, 

a 13.6% discount to shoppers in the lowest quartile by 

income. Some may believe that it perhaps constitutes good 

public policy but the manipulated prices in that receipt do 

not “reflect” real-life grocery prices. Quite the opposite—

they deliberately deviate from real-life prices. Here, too, we 

cannot say that an artificial bump in payment to the lowwage hospitals “reflects” regional hospital-wage 

differences. Indeed, both the purpose and effect of HHS’s

low-wage index-policy are to deviate from—and not 

reflect—the actual wage-level differences. 

HHS contends that it ensured the wage index reflected 

real-world wage levels by maintaining the rank order of 

hospital areas. But merely maintaining the rank order of 

hospital wage-levels does not satisfy the statutory 

provision’s requirement that the wage index “reflect” area 

differences in hospital-wage levels. A simple example 

clarifies why the meaning of “reflect” is not so pliable. Say 

there are three hospitals: Hospital A pays an average wage 

of $50,000 a year; Hospital B pays $100,000 a year; and 

Hospital C pays $150,000 per year. The average of these 

three hospitals’ wages is $100,000, and their simplified

wage-index values would thus be: 0.5 for Hospital A, 1 for 

Hospital B, and 1.5 for Hospital C. HHS contends that, 

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KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA 19

under the Wage Index Provision, HHS could—for 

redistributive reasons—inflate Hospital A’s wage index 

value to .99 and reduce Hospital C’s wage index value to 

1.01. This would maintain the rank order of the hospitals

because Hospital A still receives less money than 

Hospital B, which, in turn, receives less than Hospital C. 

But such a distorted index hardly “reflects” the real 

differences in the wage levels among the hospitals. 

To be sure, HHS correctly notes that the Wage Index 

Provision does not require mathematical exactitude—and 

we do not read “reflect” to mean the same as “equal,” 

contrary to the dissent’s suggestion. Dissent at 35. For 

example, HHS can enforce deadlines for data collection even 

though those deadlines may lead to a wage index based on 

imperfect data. See Baystate Franklin Med. Ctr. v. Azar, 950 

F.3d 84, 93 (D.C. Cir. 2020) (HHS may “balance accuracy 

against finality and efficiency.”). It can also make minor 

technical changes to reflect more accurate data or enhance 

the index’s administrability. See, e.g., Anna Jacques Hosp. 

v. Sebelius, 583 F.3d 1, 5–6 (D.C. Cir. 2009) (permitting 

HHS to remove data from its survey that is incomplete, 

inaccurate, or otherwise aberrant); Anna Jacques, 797 F.3d

at 1157 (permitting HHS to change the geographic areas 

used to calculate the wage index and to treat multi-campus 

hospitals as if they only had one main campus). 

In sum, a reasonable and ordinary understanding of the 

statutory term “reflect” does not require exact numerical 

precision, but it cannot be so elastic as to smuggle in a costly 

policy goal not authorized by the statutory provision—no 

matter how worthwhile that goal may be. Going back to our 

grocery analogy, a shopper who agrees to round up to the 

nearest dollar will still likely say that the receipt “reflects” 

the true cost of groceries (e.g., a grocery bill of $79.80 being 

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20 KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA

rounded up to $80). But as noted earlier, a reasonable person 

would not believe a receipt “reflects” the true price of 

groceries if a shopper receives a substantial discount to 

promote the policy of making groceries more affordable for 

some people. 

We thus hold that the Wage Index Provision requires that 

the wage index “reflect” HHS’s best estimate of the relative 

wage levels of hospitals across the country—free from other 

policy goals that distort, rather than reflect, the regional 

wage differences. The Secretary here stretched and twisted

the plain meaning of the statutory text to pursue a policy 

objective not permitted under the statute. Congress, not the 

agency, has the power to bless the use of a wage index to

seek the laudable goal of helping lower-wage hospitals 

recruit and retain medical staff. And to fix this policy 

problem, Congress must do its job—we cannot let an agency 

seize power it does not have. See THE FEDERALIST NO. 47, 

at 301 (James Madison) (Clinton Rossiter ed., 1961) (“[T]he 

preservation of liberty requires that the three great 

departments of power should be separate and distinct.”); cf. 

James Kerr, How Bill Belichick’s ‘Do Your Job’ Mantra 

Applies to Leadership, INC., Jan. 26, 2015, 

https://www.inc.com/james-kerr/how-do-your-job-can-bea-difference-maker-for-your-company.html (last visited 

Dec. 2, 2024). 

2. HHS’s selective adjustment of the wage index does 

not reflect a predictive judgment of regional wage 

differences. 

Perhaps recognizing that its policy-driven justification 

for its 2020 wage index is unmoored from the statutory text, 

HHS offers an argument more rooted in the statutory goal of 

considering regional wage differences: It argues that the pay 

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bump was necessary because it has “discretionary authority

. . . to make predictive judgments regarding whether historic 

data adequately captures current and future regional wage 

disparities.” As noted earlier, it takes HHS three years to 

collect, verify, and analyze data for creating the wage index. 

HHS thus claims that the wage index is essentially outdated

(by four years) and that it was using its “predictive 

judgment” to calculate a more accurate wage index that in 

fact reflects current regional hospital-wage differences.

Even if the Wage Index Provision were to permit such 

predictive judgments, the low-wage-index policy does not 

calculate a more accurate or reflective wage index. As HHS 

admits, the data lag by definition affects all hospitals, not 

just the bottom-quartile hospitals, because the wage index is 

based on historical data for all hospitals. The data lag thus 

harms any hospital that raises wages because that hospital’s 

wage-index factor is based on years-old data. And on the 

flip side, the data lag helps any hospital that recently 

decreased its wages because that decrease is also not 

contemporaneously reflected in its Medicare payments. Yet 

HHS’s low-wage-index policy selectively corrects the data 

lag for only 25% of hospitals, undermining its claim that it 

is exercising its predictive judgment of regional wage 

differences. Thus, this preferential adjustment of the data 

lag for only some hospitals does not “reflect” nationwide 

area differences in hospital-wage levels, as mandated by the 

statute. 

3. The wage index must be calculated uniformly. 

Lastly, HHS’s argument violates the statutory 

requirement of a single wage index that applies to all 

hospitals and betrays an equal-treatment principle inherent 

in the text of the statute. See Atrium Med. Ctr. v. U.S. Dep’t

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22 KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA

of Health & Hum. Servs., 766 F.3d 560, 569 (6th Cir. 2014). 

Congress consistently used “the singular—‘the proportion’ 

and ‘a factor’—indicat[ing] that the wage index must be 

uniformly determined and applied.” Id. (citing Sarasota 

Mem’l Hosp. v. Shalala, 60 F.3d 1507, 1513 (11th Cir. 

1995)). HHS thus must create a “uniform picture” of wage 

levels and a “uniform index” to calculate hospitals’ 

payments. Sarasota Memorial, 60 F.3d at 1513. For 

example, if HHS classifies a certain compensation as a 

“fringe benefit” and thus excludes it from the wage index for 

one hospital, then HHS must do the same for all hospitals. 

Id.

The Wage Index Provision thus requires that HHS 

establish “the” national average hospital-wage level and use 

that average as the baseline from which to create the wage

index. See Bridgeport Hosp. v. Becerra, 589 F. Supp. 3d 1, 

11 (D.D.C. 2022). The provision’s use of the phrase “‘the

relative hospital wage level’” further “indicates that 

Congress intended that there would be a single wage index—

determined on the basis of data gleaned from a survey” that 

applies to all hospitals. Id. (quoting 42 U.S.C. 

§ 1395ww(d)(H)).

Here, HHS calculated the uniform wage index and then 

manipulated that calculation for the bottom 25% of hospitals

only. This manipulation effectively creates two separate 

wage indexes: one index for the bottom quartile of hospitals 

and another for everyone else. As the D.C. Circuit 

recognized in a parallel challenge to the low-wage-index 

policy, such distortion—besides violating the statute’s 

requirement that the wage index reflect area wage 

differences—violates the statutory requirement of a single 

wage index. See Bridgeport Hosp. v. Becerra, No. 22-5249, 

2024 WL 3504407, at *3–4 (D.C. Cir. July 23, 2024). 

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C. The Exceptions and Adjustments Provision cannot 

authorize the low wage index policy.

HHS alternatively argues that the Exceptions and 

Adjustment Provision independently authorizes the lowwage-index policy. That provision states: “The Secretary 

shall provide by regulation for such other exceptions and 

adjustments to such payment amounts under this subsection 

as the Secretary deems appropriate.” 42 U.S.C. 

§ 1395ww(d)(5)(I)(i). Relying on this provision, HHS 

maintains that the Secretary found it “appropriate” to 

“adjust” the Medicare payment rate for the bottom quartile 

hospitals.

HHS’s argument founders on both statutory-construction 

and separation-of-power grounds.

First, under a well-established canon of statutory 

construction, specific statutory provisions control general 

ones. See Varity Corp. v. Howe, 516 U.S. 489, 511 (1996) 

(“This court has understood the present canon (‘the specific 

governs the general’) as a warning against applying a general 

provision when doing so would undermine limitations 

created by a more specific provision.”). This is especially 

the case “when the two [provisions] are interrelated and 

closely positioned.” HCSC-Laundry v. United States, 450 

U.S. 1, 6 (1981) (per curiam).

The broadly worded Exceptions and Adjustment 

Provision cannot swallow up the more specific Wage Index 

Provision. The Wage Index Provision specifically addresses 

how to calculate the wage index, and (as discussed above) it 

does not permit HHS to promulgate the low-wage-index 

policy. § 1395ww(d)(3)(E)(i). HHS thus cannot rely on the 

more general Exceptions and Adjustments Provision—

which does not set out in any detail the boundaries of the 

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24 KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA

Secretary’s authority—to undermine the specific 

requirements of the Wage Index Provision. See UFCW 

Local 1500 Pension Fund v. Mayer, 895 F.3d 695, 700 (9th 

Cir. 2018) (quoting Varity Corp., 516 U.S. at 519). We thus 

agree with the D.C. Circuit that HHS may not use the 

Exceptions and Adjustments Provision to sweep aside the 

“detailed reimbursement scheme” that Congress set out in

the exceptionally detailed Medicare statute. Bridgeport 

Hosp., 2024 WL 3504407, at *6.

Second, HHS’s reading of the statutory provision would 

conflict with the nondelegation doctrine if the Secretary 

could make adjustments and exceptions based on an 

amorphous “as appropriate” standard. A “statutory 

delegation is constitutional as long as Congress ‘lay[s] down 

by legislative act an intelligible principle to which the person 

or body authorized to [exercise the delegated authority] is

directed to conform.’” Gundy v. United States, 588 U.S. 

128, 135 (2019) (quoting Mistretta v. United States, 488 U.S. 

361, 372 (1989)). Although the standard is “not 

demanding,” United States v. Melgar-Diaz, 2 F.4th 1263, 

1267 (9th Cir. 2021), it is not meaningless either. When 

Congress has “failed to articulate any policy or standard to 

confine discretion,” the delegation of authority is 

unconstitutional. Gundy, 588 U.S. at 146 (cleaned up).

HHS’s interpretation of the Exceptions and Adjustments 

Provision lacks an intelligible principle. The provision 

merely requires that the Secretary do what he or she “deems 

appropriate.” 42 U.S.C. § 1395ww(d)(5)(I)(i). To “deem” 

something is to “to have an opinion.” The statute essentially 

tells the Secretary to do whatever he or she thinks is right,

which does not provide an intelligible principle delineating 

the scope of the statutory discretion. Cf. Gundy, 588 U.S. at 

146 (allowing delegations of authority that instruct the 

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KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA 25

agency to regulate in the “public interest” and “to protect the 

public health”). 

Such an amorphous standard—basically, do what you 

think is right—does not amount to a proper delegation of 

power. Rather, when interpreted as HHS does, it represents 

an abdication of responsibility by Congress and tantamount 

to a blank check to the executive branch. See Gundy, 588 

U.S. at 169 (Gorsuch, J., dissenting) (failing to uphold the 

separation of powers “would serve only to accelerate the 

flight of power from the legislative to the executive branch, 

turning the latter into a vortex of authority that was 

constitutionally reserved for the people’s representatives in

order to protect their liberties.”). Although we recognize 

that the Secretary was, in good faith, addressing a pressing 

problem here, such unrestricted power may be abused in the 

future—and that is why we enforce the limitations imposed 

by our system of separation of powers. As James Madison 

warned, “It may be a reflection on human nature” that 

separation-of-powers is “necessary to control the abuses of 

government.” THE FEDERALIST NO. 51, at 319 (Clinton

Rossiter ed., 1961). Indeed, we do not even need to rely on 

the wisdom of the Framers to understand this point—we 

know this intuitively: In our personal lives, we would 

hesitate to give a blank checkbook to even a trusted friend

with no guidance or limits (and, if we do, we may regret it 

later). 

The Exceptions and Adjustments Provision thus cannot 

authorize the low-wage-index policy.1

1 Because we determine that Section 1395ww(d)(5)(I)(i) does not 

authorize the low-wage-index policy, we need not decide whether the 

Secretary promulgated the low-wage-index policy “by regulation.” 

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D. The district court erred in not vacating the lowwage-index policy. 

The district court remanded this matter to HHS for 

further proceedings without vacating the low-wage-index 

policy. The district court reasoned that “while the Secretary 

committed serious error by adopting the Low Wage Index 

policy which exceeded his authority under the Medicare Act 

in violation of the APA, vacatur of the policy creates a 

serious risk of disruption to the Medicare Prospective 

Payment System and operation of hospitals.” But because 

HHS has not argued that it could re-issue the low-wageindex policy through any other means, remand without 

vacatur is inappropriate.

Section 706(2) of the APA states that if a reviewing court 

finds that an agency action is “in excess of statutory 

jurisdiction, authority, or limitations, or short of statutory 

right” then the court “shall . . . hold unlawful and set aside” 

that agency action. 5 U.S.C. § 706(2)(C) (emphasis added). 

We, and other courts, permit remand without vacatur only in 

“limited circumstances.” Pollinator Stewardship Council v. 

U.S. EPA, 806 F.3d 520, 532 (9th Cir. 2015) (citation 

omitted); see also Allied-Signal, Inc. v. U.S. Nuclear Regul. 

Comm’n, 988 F.2d 146, 150–51 (D.C. Cir. 1993). In such 

cases, the district court must weigh the seriousness of the 

agency’s errors against the disruptive impact of an interim 

change. Pollinator Stewardship, 806 F.3d at 532 (citation 

omitted). For example, we sometimes remand without 

vacatur where the agency committed procedural error in its

notice-and-comment rulemaking, allowing the agency to

correct the issue and then (re)enact the same policy.

But to remand without vacatur, we must first find that the 

agency can correct the error on remand. See North Carolina 

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v. EPA, 531 F.3d 896, 929 (D.C. Cir. 2008) (concluding that 

the EPA’s rule “must” be vacated because “fundamental 

flaws” prevented the EPA from promulgating the same rule 

on remand). Here, HHS cannot correct its error on remand

because the agency lacks statutory authority to promulgate 

the low-wage-index policy. See Bridgeport Hosp., 2024 WL 

3504407, at *7 (holding that the low-wage-index policy 

must be vacated). We thus vacate the district court’s 

decision to remand without vacatur. 

CONCLUSION

We affirm in part, vacate in part, and remand to the 

district court for further proceedings consistent with this 

opinion. 

NGUYEN, Circuit Judge, dissenting: 

Just because in this Loper Bright new world we are free 

to ignore an agency’s statutory interpretation doesn’t mean 

that we should.1 To address the longstanding budgetary 

struggles of rural hospitals, the Secretary of Health and 

Human Services (“HHS”) adjusted the intricate formula for 

calculating hospital reimbursements based on his reasonable 

reading of the Medicare statute. The majority, despite 

lacking the agency’s expertise in implementing this complex 

statute, jettisons HHS’s carefully designed policy based on 

its own doubtful interpretation. Because the majority 

improperly constrains the agency’s ability to address a 

serious structural problem, with dire consequences for the 

1 See Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244, 2273 (2024) 

(“[C]ourts . . . may not defer to an agency interpretation of the law 

simply because a statute is ambiguous.”).

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rural communities that will lose access to health care, I 

respectfully dissent.

I.

A.

The Medicare program reimburses hospitals for the costs 

of providing inpatient healthcare services to Medicare 

beneficiaries. See 42 U.S.C. § 1395ww(d). To incentivize 

hospitals to provide efficient levels of service, Medicare 

pays them a fixed rate per diagnosis for treating each covered 

patient, “regardless of the hospital’s actual costs.” Becerra 

v. Empire Health Found. ex rel. Valley Hosp. Med. Ctr., 597 

U.S. 424, 429 (2022) (citing 42 U.S.C. § 1395ww(d)(1)–

(4)). In theory, the rates “reflect the amounts an efficiently 

run hospital, in the same region, would expend to treat a 

patient with the same diagnosis.” Id. In practice, however, 

the system for many years has perpetuated and exacerbated 

disparities between hospitals based on regional labor costs. 

See Medicare Hospital Inpatient Prospective Payment 

Systems Proposed Policy Changes and Fiscal Year 2020 

Rates (“2020 Proposed Rule”), 84 Fed. Reg. 19158, 19162 

(proposed May 3, 2019).

The root of these disparities lies in the methodology for 

calculating reimbursement rates. The Secretary sets rates 

prospectively before each fiscal year. See 42 U.S.C. 

§ 1395ww(d)(3). As a starting point, the Secretary takes the 

“standardized amount,” which is essentially hospitals’ 

average nationwide treatment cost for each discharged 

patient, calculated in a base year and updated annually for 

inflation. See id. § 1395ww(b)(3)(B)(i), (d)(2), 

(d)(3)(A)(iv)(II); Cape Cod Hosp. v. Sebelius, 630 F.3d 203,

205 (D.C. Cir. 2011). To ensure that hospitals are not 

penalized for their patient mix, the standardized amount is 

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weighted by the relative cost of treating a particular 

diagnosis. See 42 U.S.C. § 1395ww(d)(4).

At issue here, the standardized amount is also adjusted 

to account for regional variations in the cost of labor. See id.

§ 1395ww(d)(3)(E)(i). This adjustment has two 

components. Because the standardized amount comprises 

both labor and nonlabor costs, the Secretary must first 

determine “the proportion . . . of hospitals’ costs which are 

attributable to wages and wage-related costs.” Id. The 

Secretary then adjusts this proportion for hospitals in each 

region pursuant to a wage index of relative labor costs. See

id.

The wage index adjustment to the standardized amount 

must be budget neutral—i.e., “made in a manner that assures 

that the aggregate payments . . . in the fiscal year are not 

greater or less than those that would have been made in the 

year without such adjustment.” Id. Thus, when some 

hospitals receive more than the standardized amount because 

of their region’s relatively high labor costs, other hospitals 

must receive less.

The wage index calculation is just the starting point in 

adjusting reimbursement amounts based on wage 

differentials and other localized concerns. In recognition of 

the complex factors driving healthcare costs, Congress 

provided for various regional- and hospital-specific rate 

adjustments. See, e.g., 42 U.S.C. § 1395ww(d)(3)(E)(ii)–

(iv); see also Empire Health Found., 597 U.S. at 429. 

Congress further directed the Secretary to “provide by 

regulation for such other exceptions and adjustments to such 

payment amounts . . . as the Secretary deems appropriate.” 

Id. § 1395ww(d)(5)(I)(i). Collectively, these exceptions 

distort the wage index. See Medicare Payment Advisory 

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30 KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA

Commission (“MedPAC”), Report to the Congress: 

Promoting Greater Efficiency in Medicine 131 (June 15, 

2007), https://perma.cc/LD32-ZFWN.

B.

While the Secretary calculates the wage index 

prospectively, the data driving the calculation is dated. The 

Secretary conducts an annual survey of hospitals’ wages and 

wage-related costs, see id. § 1395ww(d)(3)(E)(i), but it takes 

HHS three years or more to collect, verify, and analyze this 

data for use in the wage index. See, e.g., 2020 Final Rule, 

84 Fed. Reg. at 42304 (using data from October 2015 

through September 2016 for the 2020 wage index update); 

see also Medicare Changes to the Hospital Inpatient 

Prospective Payment Systems and Fiscal Year 2005 Rates, 

69 Fed. Reg. 48916, 49049 (Aug. 11, 2004) (explaining that 

“hospitals’ wage data are always 3 to 4 years old” because 

of the time needed for hospitals to complete and submit cost 

reports; fiscal intermediaries to perform a detailed review of 

the data and submit it to the agency; and the agency to 

compile a complete set of wage data from a common fiscal 

year period).

The lag between data collection and wage index 

calculation (the “data lag”) impedes hospitals in low wage 

areas from increasing employee compensation because they 

must wait several years for their additional costs to translate 

into a higher reimbursement rate. See 2020 Proposed Rule, 

84 Fed. Reg. at 19394–95. Hospitals in higher wage areas, 

“by virtue of higher Medicare payments,” can afford to pay 

wages that maintain or improve their area’s high wage index 

value notwithstanding that they are also affected by the data 

lag. Id. Over time, this has led to “growing disparities 

between low and high wage index hospitals, including rural 

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hospitals that may be in financial distress and facing 

potential closure.”2 Id. at 19395.

The data lag is exacerbated by the “condition of 

circularity” that results from the Secretary’s exclusive 

reliance on hospital cost reports to calculate regional wage 

differences. Id. at 19394. When a hospital successfully 

restrains wage increases relative to the national average, its 

wage index value decreases. MedPAC, supra, at 130. The 

lower wage index value leads to lower reimbursement 

amounts, creating even more pressure to reduce costs. Id.; 

see 2020 Proposed Rule, 84 Fed. Reg. at 19394.

To address this “systemic issue,” the Secretary proposed 

a “low wage index policy” that, beginning in 2020, would 

adjust the lowest quartile of wage index values upward to the 

point halfway between their normally calculated value and 

the 25th percentile value. 2020 Proposed Rule, 84 Fed. Reg. 

at 19395. In other words, the policy would boost the lowest 

wage index values while preserving the rank order of all 

wage index values. It thus “would provide certain low wage 

index hospitals with an opportunity to increase employee 

compensation without the usual lag in those increases being 

reflected in the calculation of the wage index.” Id.

2 The majority rejects the agency’s factual findings and asserts, based on 

no evidence, that the data lag does not affect low wage hospitals 

disproportionately simply because it “affects all hospitals.” Maj. Op. at 

21. But we are bound by an agency’s well-supported factual findings on 

a matter within the scope of its expertise. See G.C. v. Garland, 109 F.4th 

1230, 1239 (9th Cir. 2024) (“The court reviews the agency’s fact-finding 

‘under the highly deferential substantial evidence standard,’ which treats 

an agency’s findings of fact as conclusive unless ‘any reasonable 

adjudicator would be compelled to conclude to the contrary.’” (quoting 

Rodriguez-Zuniga v. Garland, 69 F.4th 1012, 1016 (9th Cir. 2023))).

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The Secretary envisioned that the policy would last at 

least four years “to allow employee compensation increases 

implemented by [low wage] hospitals sufficient time to be 

reflected in the wage index calculation.” Id. at 19395. He 

“intend[ed] to revisit the issue of the duration of the policy 

in future rulemaking” after gaining experience. Id. The 

Secretary anticipated that “there may be no need for the 

continuation of the policy” after the “increased employee 

compensation is reflected in the wage data” because he 

“expect[ed] the resulting increases in the wage index” values 

to persist. 2020 Final Rule, 84 Fed. Reg. at 42328.

Ultimately, the Secretary adopted the low wage index 

policy with one change. See id. at 42332. To maintain 

budget neutrality, the Secretary had proposed making a 

downward adjustment to the top quartile of wage index 

values. See 2020 Proposed Rule, 84 Fed. Reg. at 19396. 

Instead, the Secretary imposed “a budget neutrality 

adjustment to the national standardized amount for all 

hospitals.” 2020 Final Rule, 84 Fed. Reg. at 42332. In 2020, 

this budget neutrality adjustment decreased the standardized 

amount by just 0.2%. See id. at 42338.

II.

A.

Subject to exceptions not at issue here, the wage index 

provision directs that:

the Secretary shall adjust the [wage-related 

portion of the standardized amount] for area 

differences in hospital wage levels by a factor 

(established by the Secretary) reflecting the 

relative hospital wage level in the geographic 

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KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA 33

area of the hospital compared to the national 

average hospital wage level.

42 U.S.C. § 1395ww(d)(3)(E)(i). In other words, the 

Secretary must establish “a factor” for each geographic area, 

and it must reflect the area’s wage ratio—the area’s relative 

wage level vis-à-vis the national average.

As the Secretary points out, this language “affords [him] 

discretion in determining the nature and extent to which the 

wage index must approximate relative regional wage 

differences.” It is replete with words that suggest a 

relationship between—but not necessarily identity of—a 

hospital’s wage index factor and its wage ratio.

The critical word, as majority recognizes, is “reflecting.” 

To “reflect” ordinarily means “to give back or exhibit as an 

image, likeness, or outline,” i.e., to “mirror.” Reflect, 

Merriam-Webster Dictionary, https://www.merriamwebster.com/dictionary/reflect [https://perma.cc/89PV6K3E] (last updated Jan. 16, 2024). But the image, likeness, 

or outline need not recreate the original in its exact 

proportions; the quintessential element of “reflect” is 

ordinal—not proportional—replication.3

3 For example, both mirrors and maps “reflect” their source material 

despite sometimes compressing certain data points more than others. 

The convexity in a car’s passenger-side rearview mirror increases the 

driver’s field of vision—thus, “Objects in Mirror Are Closer Than They 

Appear,” 49 C.F.R. § 571.111(S5.4.2)—and the image can be distorted 

by up to 12.5%, see id. § 571.111(S5.4.1). A map of former U.S. Route 

66 may narrow from south to north, depending on the projection, but 

regardless of its precise shape, the map will always reflect that the 

highway “winds from Chicago to LA” through St. Louis, Joplin, 

Oklahoma City, Amarillo, Gallup, Flagstaff, Winona, Kingman, 

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The Secretary expressly designed the low wage index 

policy to preserve hospitals’ rank order, which was a 

“critical aspect” of the policy. 2020 Final Rule, 84 Fed. Reg. 

at 42327. In adopting the final rule, the Secretary rejected 

alternative proposals, such as a wage index floor or a policy 

applicable to all hospitals that met specified criteria, that 

would have disrupted the rank order. See id. at 42326, 

42327. The Secretary found that “the rank order generally 

reflects meaningful distinctions between the employee 

compensation costs faced by hospitals in different 

geographic areas.” Id. at 42326.

Other words in the wage index provision similarly 

suggest imprecision. While the word “relative” could mean 

“expressed as the ratio of the specified quantity . . . to the 

mean of all the quantities involved,” Relative, MerriamWebster Dictionary, https://www.merriam-webster.com/

dictionary/relative [https:// perma.cc/F7SY-GGFZ] (last 

updated Jan. 19, 2024), that would render it superfluous to 

“compared to.” The ratio would be the same if it were 

“the . . . hospital wage level in the geographic area of the 

hospital compared to the national average hospital wage 

level.” For “relative” to do any work, it must mean that a 

region’s wage index factor is “not [an] absolute” reflection 

of the ratio that follows, id., but one that preserves its order 

among the ratios of other regions.

The indefinite article “a” before “factor” likewise 

suggests discretion. If Congress had intended a specific 

wage index value for each region, it would have directed the 

Secretary to apply “the” factor reflecting the area’s 

comparative wage level. See McFadden v. United States, 

Barstow, and San Bernardino—in that order. The King Cole Trio, (Get 

Your Kicks On) Route 66 (Capitol Records 1946).

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576 U.S. 186, 191 (2015) (“When used as an indefinite 

article, ‘a’ means ‘[s]ome undetermined or unspecified 

particular.’” (quoting A, Webster’s New International 

Dictionary 1 (2d ed. 1954))); see also United States v. 

Merrell, 37 F.4th 571, 578 (9th Cir. 2022) (Boggs, J., 

dissenting) (“The use of the indefinite article in ‘a sentence’ 

indicates a non-specific, rather than a particular, sentence.”).

Lastly, if the Secretary had no discretion when setting 

the wage index values, it was odd for Congress to 

parenthetically specify that the adjustment be by a factor 

“established by the Secretary.” If Congress intended the 

Secretary to mechanically apply a formula, there would be 

no need for the Secretary to “establish” anything.4

B.

The majority reads the wage index provision as if 

Congress had used the phrase “equal to” rather than 

“reflecting.” But Congress was surely aware of the 

semantical difference. After all, some form of the word 

4 “[L]egislative history confirms that Congress intended to grant the 

Secretary exceptionally broad discretion to determine the wage index—

the relevant conference report simply stated that ‘[n]o particular 

methodology for developing the indices is specified.’” Atrium Med. Ctr. 

v. U.S. Dep’t of Health & Human Servs., 766 F.3d 560, 568 (6th Cir. 

2014) (quoting H.R. Rep. No. 100-495, at 521 (1987) (Conf. Rep.)). 

When adding the wage index provision, see Social Security 

Amendments of 1983, Pub. L. No. 98-21, § 601(e), 97 Stat. 65, 156, 

Congress stated only that “the Secretary would adjust the part of the 

payment which reflects wage and wage-related costs to reflect 

differences between those costs in the area of the hospital and those costs 

in hospitals in the United States generally.” H.R. Rep. No. 98-25, at 

153–54 (1983). Congress later added a wage survey requirement. See

Omnibus Budget Reconciliation Act of 1987, Pub. L. No. 100-203, 

§ 4004(a), 101 Stat. 1330, 1330-47.

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“equal” appears in § 1395ww no less than 148 times. See, 

e.g., 42 U.S.C. § 1395ww(d)(5)(B)(ii) (“For purposes of 

clause (i)(II), the indirect teaching adjustment factor is equal 

to cx

(((1+r) to the nth power)-1), where ‘r’ is the ratio of the 

hospital’s full-time equivalent interns and residents to beds 

and ‘n’ equals .405. Subject to clause (ix), for discharges 

occurring . . . on or after October 1, 2007, ‘c’ is equal to 

1.35.”). When Congress demanded precision, it used 

“equal.”

Congress used the word “reflect” in other parts of the 

statute as well, but those instances only confirm that 

Congress used the word to convey discretion. See, e.g., 42 

U.S.C. § 1395ww(d)(4)(A)–(C)(i) (“The Secretary shall 

establish a classification of inpatient hospital discharges by 

diagnosis-related groups and a methodology for classifying 

specific hospital discharges within these groups. For each 

such diagnosis-related group the Secretary shall assign an 

appropriate weighting factor which reflects the relative 

hospital resources used with respect to discharges classified 

within that group compared to discharges classified within 

other groups. The Secretary shall adjust the classifications 

and weighting factors . . . to reflect changes in treatment 

patterns, technology . . . , and other factors which may 

change the relative use of hospital resources.”).

Congress used “equal to” and “reflecting” differently, 

and it did so throughout the statute. The Secretary’s 

understanding of “reflecting” is consistent with this 

distinction. See Bare v. Barr, 975 F.3d 952, 968 (9th Cir. 

2020) (“It is a well-established canon of statutory 

interpretation that the use of different words or terms within 

a statute demonstrates that Congress intended to convey a 

different meaning for those words.” (quoting SEC v. 

McCarthy, 322 F.3d 650, 656 (9th Cir. 2003))).

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KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA 37

The majority acknowledges that the wage index 

provision “does not require mathematical exactitude,” Maj. 

Op. at 19, and suggests that the wage index need only “hew 

more closely to real-world wage levels” to survive scrutiny, 

id. at 17. Yet by holding that the Secretary must use his “best 

estimate of the relative wage levels of hospitals across the 

country” without “distort[ion],” id. at 20, the majority 

precludes the Secretary from establishing any factor other 

than the precise regional wage ratio.5

In addition, the majority erroneously faults the 2020 

wage index for not being “uniformly determined and 

applied.” Id. at 22 (quoting Atrium Med. Ctr., 766 F.3d at 

569). This confuses the need for uniform application of the 

rules—which equal protection plainly requires—with a need 

for uniform rules. “The Equal Protection Clause does not 

forbid classifications,” Wright v. Incline Vill. Gen. 

Improvement Dist., 665 F.3d 1128, 1140 (9th Cir. 2011) 

(quoting Nordlinger v. Hahn, 505 U.S. 1, 10 (1992)), and it 

permits the government to treat individuals differently 

5 Even if the majority opinion could be read to allow for some discretion, 

the majority provides the Secretary no guidance on its exercise. If some 

distortion is allowed, then how much is too much? Take the majority’s 

three-hospital example with relative wage ratios of 0.5, 1.0, and 1.5. The 

majority posits that compressing these values 98% of the way to the 

average wage (to values of 0.99, 1.00, and 1.01) would be too much 

distortion, see Maj. Op. at 18–19, but the Secretary did nothing so 

dramatic. What about—more analogous to the actual policy—a 12% 

compression (to values of 0.56, 1.00, and 1.44)? The majority opines 

that a grocer’s policy of “round[ing] up to the nearest dollar” would 

accurately reflect “the true cost of groceries,” id. at 19, but if items cost 

$0.50, $1.00, and $1.50, the grocer will charge $1 for the first two and 

$2 for the third—far more distortion than in the three-hospital example. 

The majority forces the Secretary to guess from these inconsistent results 

how much distortion, if any, would be tolerated.

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according to economic need so long as the policy is 

“extended to all who are similarly situated.” W.C. Peacock 

& Co. v. Pratt, 121 F. 772, 777 (9th Cir. 1903).

The Secretary did not apply the rules in an arbitrary way; 

he promulgated the low wage index policy to address a 

specific problem as part of the overall methodology for 

calculating the wage index, and he “utilized that rule 

consistently and evenhandedly for all hospitals,” Anna 

Jacques Hosp. v. Burwell, 797 F.3d 1155, 1172 (D.C. Cir. 

2015). While only a quarter of the hospitals benefitted from 

it, the policy was designed to address a problem that affected 

any similarly situated hospital. Cf. id. at 1162–63, 1172–73 

(upholding wage index policy designed to address issue 

affecting three hospitals nationwide and impacting only 

hospitals in the Boston-Quincy region). If a hospital 

successfully raises wages to the extent that it no longer falls 

into the lowest wage quartile in a subsequent year, it would 

stop benefitting from the policy, and the hospital replacing it 

in the lowest quartile would see its wage index factor 

boosted. There is no evidence that the Secretary was 

targeting specific hospitals for special benefits—as opposed 

to any hospital that meets specific criteria.

III.

Although the Secretary’s policy goals are irrelevant to 

the statutory analysis, see Dep’t of Com. v. New York, 588 

U.S. 752, 781 (2019), they highlight why, in close cases, 

courts should not dismiss an agency’s reasonable 

interpretation of the statute it administers. “[A]lthough an 

agency’s interpretation of a statute ‘cannot bind a court,’ it 

may be especially informative ‘to the extent it rests on 

factual premises within the agency’s expertise.’” Loper 

Bright, 144 S. Ct. at 2267 (cleaned up) (quoting Bureau of 

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KAWEAH DELTA HEALTH CARE DISTRICT V. BECERRA 39

Alcohol, Tobacco and Firearms v. FLRA, 464 U.S. 89, 98 

n.8 (1983)). In the Secretary’s decades of experience 

administering the wage index provision, he has observed it 

wreak havoc on rural hospitals.

Prior to 2020, “wage index policies create[d] barriers to 

hospitals with low wage index values from being able to 

increase employee compensation.” 2020 Final Rule, 84 Fed. 

Reg. at 42326. Many of these hospitals struggled to stay 

solvent. More than a third of those in the lowest quartile of 

wage index values had negative profit margins in 2016, the 

most recent year for which data was available at the time. 

See HHS Off. of Inspector Gen., Data Brief No. A-01-20-

00502, The Centers for Medicare & Medicaid Services 

Could Improve Its Wage Index Adjustment for Hospitals in 

Areas with the Lowest Wages 11 (Dec. 2020), 

https://perma.cc/5T3S-C6SK. As a result of this financial 

stress, 129 rural hospitals closed between 2010 and 2020. 

See Univ. of N.C. Cecil G. Sheps Ctr. for Health Servs. 

Rsch., Rural Hospital Closures, 

https://www.shepscenter.unc.edu/programs-projects/ruralhealth/rural-hospital-closures [https://perma.cc/N5HEDT24] (last visited Nov. 17, 2024). By requiring the 

Secretary to return to these failed policies, the majority 

ensures that rural communities will continue to lose access 

to health care.

The low wage index policy is fully consistent with the 

statutory text, whereas the majority interprets “reflecting” to 

have an unnaturally restrictive meaning. But even if the 

majority’s reading were plausible, we should not toss out the 

agency’s equally plausible interpretation. Because the 

majority’s unnecessary rejection of the Secretary’s policy 

will have drastic repercussions for vulnerable communities, 

I dissent.

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