Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-14-05125/USCOURTS-caDC-14-05125-0/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 February 6, 2015 Decided August 14, 2015

No. 14-5125

ANNA JACQUES HOSPITAL, ET AL.,

APPELLANTS

v.

SYLVIA MATHEWS BURWELL,

APPELLEE

Appeal from the United States District Court

for the District of Columbia

(No. 1:13-cv-00053)

Keith D. Barber argued the cause for appellants. With 

him on the briefs were N. Kent Smith and Amy L. Brown.

Katherine T. Allen, Attorney, U.S. Department of Justice, 

argued the cause for appellee. On the brief were Ronald C. 

Machen, Jr., U.S. Attorney at the time the brief was filed, and 

Michael S. Raab, Attorney. Samantha L. Chaifetz, Attorney, 

and R. Craig Lawrence, Assistant U.S. Attorney, entered 

appearances.

Before: KAVANAUGH, MILLETT and WILKINS, Circuit 

Judges.

Opinion for the Court filed by Circuit Judge MILLETT. 

USCA Case #14-5125 Document #1567844 Filed: 08/14/2015 Page 1 of 34
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MILLETT, Circuit Judge: The Medicare Act, 42 U.S.C. 

§§ 1395 et seq., established a nationwide, federally funded 

health insurance program for the elderly and individuals with 

disabilities. Unsurprisingly, reimbursing hospitals for 

Medicare services provided to patients across the entire 

United States is a complicated business. One reason is that 

the cost of providing such care can vary significantly 

depending on where a hospital is located. An influential

factor in that variation is the wages paid to hospital 

employees, which fluctuate based on the cost of living in 

different geographic areas. To help compensate for those 

disparities, the Medicare Act charges the Secretary of Health 

and Human Services with computing annually a “wage index”

that compares hospital wages within defined geographic areas 

to a national average, and adjusts Medicare reimbursements 

accordingly.

This case arises from the Secretary’s decision in 2005 to 

change the boundaries of the geographic areas used to 

compute those regional wage indices. The new lines fell in a 

way that left three multi-campus hospitals straddling different 

geographic areas. One is the Southcoast Hospital Group, 

which found itself with campuses in both the Boston-Quincy, 

Massachusetts region and in the neighboring Providence-New 

Bedford-Fall River (“Providence”) region.1

 Consistent with 

longstanding agency regulations, the Secretary factored all of 

Southcoast’s wages into the Boston-Quincy index because 

that is where its principal campus with the group’s Medicare

provider and reporting number was situated. Concerned that 

the inclusion of wages from the Providence-area campuses 

lowered their wage index and thus their Medicare 

reimbursements, a group of hospitals challenged the 

 1

 Providence is in Rhode Island; New Bedford and Fall River are in 

Massachusetts.

USCA Case #14-5125 Document #1567844 Filed: 08/14/2015 Page 2 of 34
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Secretary’s decision to include wage data from Southcoast 

campuses outside the Boston-Quincy area in calculating the 

index for that area for fiscal years 2006 and 2007. 

We uphold the Secretary’s decision. The Secretary’s 

treatment of Southcoast hewed to the existing administrative 

treatment of such multi-campus hospital groups. And 

reasonably so—there were substantial informational and 

operational obstacles to implementing a different 

computational method quickly in 2006 or retroactively now. 

Moreover, appellants admit that the temporary effect of 

Southcoast’s multi-campus data on the wage index was a 

“one-off” occurrence arising from “unusual circumstances” 

that apparently did not affect any other multi-campus hospital 

group’s treatment. Oral Arg. Tr. 52–53. Nothing in the 

Medicare Act or established principles of administrative 

review mandate that the Secretary individually tailor one 

hospital’s reporting treatment to fit plaintiffs’ preferred 

computational outcome.

I 

Statutory and Regulatory Framework

As has oft been noted, Medicare is a “complex and highly 

technical regulatory program.” Thomas Jefferson University 

v. Shalala, 512 U.S. 504, 512 (1994) (citation omitted). The 

Medicare program is administered by the Centers for 

Medicare and Medicaid Services (“Centers”), a division of the 

Department of Health and Human Services, under the 

executive management of the Secretary of Health and Human 

Services. St. Elizabeth’s Medical Center of Boston, Inc. v. 

Thompson, 396 F.3d 1228, 1230 (D.C. Cir. 2005). As part of 

the program, health care providers are reimbursed for certain 

costs that they incur in treating Medicare beneficiaries. 

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Methodist Hospital of Sacramento v. Shalala, 38 F.3d 1225, 

1227 (D.C. Cir. 1994). 

Originally, health care providers were reimbursed for the 

“reasonable costs” of services furnished to Medicare patients. 

Methodist Hospital, 38 F.3d at 1227. In 1983, Congress 

substantially revised that payment regime and created the 

Prospective Payment System. See Social Security 

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

149; see also Methodist Hospital, 38 F.3d at 1227. The 

Prospective Payment System reimburses hospitals for medical 

care requiring at least one night’s stay on the basis of a preestablished formula, regardless of the actual costs incurred by 

the hospital. 42 U.S.C. § 1395ww(d); see generally Anna 

Jaques Hospital v. Sebelius, 583 F.3d 1, 2 (D.C. Cir. 2009). 

The payment rates are tied to the national average cost of 

treating a patient’s particular ailment. See 42 U.S.C. 

§ 1395ww(d). Congress intended for those rates to “reform 

the financial incentives hospitals face [and] promot[e] 

efficiency in the provision of services[.]” Methodist Hospital, 

38 F.3d at 1227 (quoting H.R. Rep. No. 25, 98th Cong., 1st

Sess. 132 (1983)). 

In calculating those standard payments, the Secretary is 

required to adjust the “proportion” of the payment attributable 

to “wages and wage-related costs” for “area differences in 

hospital wage levels[.]” 42 U.S.C. § 1395ww(d)(3)(E)(i). To 

ensure uniformity in the adjustment process, the statute 

requires the Secretary to compute a “factor” that “reflect[s]

the relative hospital wage level in the geographic area of the 

hospital compared to the national average[.]” Id. That

“factor” is commonly referred to as “the wage index.” 

Southeast Alabama Medical Center v. Sebelius, 572 F.3d 912, 

914–915 (D.C. Cir. 2009); see also Changes to the Hospital 

Inpatient Prospective Payment Systems and Fiscal Year 2006 

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Rates (“Final 2006 Rules”), 70 Fed. Reg. 47,278, 47,281 

(Aug. 12, 2005) (“The base payment rate is comprised of a 

standardized amount that is divided into a labor-related share 

and a nonlabor-related share. The labor-related share is 

adjusted by the wage index applicable to the area where the 

hospital is located[.]”). 

The wage index must be updated each year “on the basis 

of a survey” of the wage-related costs for hospitals in the 

United States. 42 U.S.C. § 1395ww(d)(3)(E)(i). The 

Secretary collects annual cost reports from each hospital, see

Anna Jaques, 583 F.3d at 3; 42 C.F.R. § 413.20(b), and she 

publishes a manual to guide hospitals through the reporting 

process, see Centers for Medicare & Medicaid Services, 

Medicare Provider Reimbursement Manual (“Reimbursement 

Manual”), Part 2, Chapter 1 §§ 100 et seq.

2

 Generally, each 

hospital or facility that has been assigned its own Medicare

provider number must file its own report. Id. § 112 (“Each 

provider in a chain organization or other group of providers, 

except as noted below, must file a separate, individual cost 

report.”).

3

 

A different rule applies, however, for multi-campus 

hospitals. A multi-campus hospital is an organization with 

multiple facilities that operates as a single institution with 

 2 Available at http://www.cms.gov/Regulations-andGuidance/Guidance/Manuals/Paper-Based-ManualsItems/CMS021935.html (last visited Aug. 11, 2015).

3

 Each entity that has been certified to participate in the Medicare 

program is assigned a unique numerical identifier for use in the full 

range of Medicare filings and transactions. See generally HIPAA 

Administrative Simplification: Standard Unique Health Identifier 

for Health Care Providers, 69 Fed. Reg. 3434 (Jan. 23, 2004).

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integrated finances, administration, and organization. See 

Centers for Medicare & Medicaid Services, Medicare State 

Operations Manual (“Operations Manual”), Chapter 2

§§ 2024, 2779F; 42 C.F.R. §§ 413.65(d)-(e).4

 A multicampus hospital may submit only one cost report each year 

under its “principal provider” number. See Reimbursement 

Manual, Part 2, Chapter 1 § 112 (“Institutions which have 

multiple facilities but only one provider number * * * are 

required to submit one cost report under that principal

provider number[.]”). 

Multi-campus hospitals often form as the result of a 

hospital merger or joint venture. After such a change, the 

relevant state agency and the Centers regional office ascertain 

whether the hospitals have the extensive legal, financial, 

organizational, and administrative integration that is required 

to be certified to operate as a single institution. See 42 C.F.R. 

§ 413.65(d)–(e) (listing criteria to qualify as a single 

institution); Operations Manual, Chapter 2 § 2024 (“When 

two or more hospitals merge,” the agency must decide 

“whether to continue to certify the hospitals separately or 

certify them as a single hospital (i.e., hospital with a main 

campus and an additional location).”). If any of the

integration criteria is not met, the campuses are treated as 

“[f]ree-standing facilit[ies],” see 42 C.F.R. § 413.65(a)(2), 

and each must operate under its own Medicare provider 

number and submit, inter alia, its own cost reports, see

Reimbursement Manual, Part 2, Chapter 1 § 112. 

If certified as a single institution, the hospital must 

designate a “main campus,” and that campus’s Medicare 

provider number is adopted by the hospital for common use 

 4 Available at http://www.cms.gov/Regulations-andGuidance/Guidance/Manuals/Downloads/som107c02.pdf (last 

visited Aug. 11, 2015). 

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by all of its facilities. See generally Operations Manual,

Chapter 2 § 2779F. The provider numbers that correspond to 

the other campuses, if any, are retired. See id. § 2779F. 

Multi-campus hospitals also operate under a single provider 

agreement with Medicare, id., through which they may bill for 

services provided to Medicare beneficiaries as long as they

comply with all program requirements, 42 C.F.R. § 489.3. 

Multi-campus hospitals’ subordinate campuses have 

“provider-based” status that entitles them to operate under the 

multi-campus hospital’s number and agreement. Id. 

§ 413.65(a)(2). 

After collecting cost reports from each hospital or 

hospital group, the Secretary removes data that fails to meet 

set criteria for reasonableness, including data that is 

“incomplete[,] inaccurate * * *, or otherwise aberrant[.]” 

Anna Jaques, 583 F.3d at 3 (quoting Changes to the Hospital 

Inpatient Prospective Payment Systems and Fiscal Year 2005 

Rates (“Final 2005 Rules”), 69 Fed. Reg. 48,916, 49,049–

49,050 (Aug. 11, 2004)). Because of the extensive amount of 

time required to verify, scrub, and process the data, the 

Secretary calculates each year’s wage index using data from 

cost reports collected three years earlier. See Final 2005 

Rules, 69 Fed. Reg. at 49,049. 

In calculating a proposed wage index, the Secretary first 

determines the regional average hourly wage rate for hospitals 

in the defined geographic area, then calculates the national 

average hourly wage rate, and finally divides the former by 

the latter. See Final 2006 Rules, 70 Fed. Reg. at 47,373–

47,374. The closer the wage index for an area is to 1.0, the 

closer that area’s wage costs are to the national average. 

The Secretary publishes the proposed wage indices and 

solicits comments from the public. 42 C.F.R. § 412.8. The 

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Secretary then promulgates the final wage indices as part of 

the Inpatient Prospective Payment System rules and policies 

for that year. 42 U.S.C. § 1395ww(d)(6). The index for each 

geographic area will be used for one year to adjust the wage 

portion of the prospective reimbursement payment for 

treatment provided in that area. See Southeast Alabama 

Medical Center, 572 F.3d at 915.

Of course, before any relevant wage data can be collected

or indices calculated, the Secretary must assign Medicare 

hospitals to appropriate geographic regions. For the first two 

decades of the Prospective Payment System, the Secretary 

utilized the Office of Management and Budget’s Metropolitan 

Statistical Areas to delineate the geographic areas for each

wage index. See Prospective Payments for Medicare 

Inpatient Hospital Services, 48 Fed. Reg. 39,752, 39,766 

(Sept. 1, 1983). 

In December 2000, the Office of Management and 

Budget announced that it would adopt a new standard for 

demarcating metropolitan areas, known as Core-Based 

Statistical Areas. See Final 2005 Rules, 69 Fed. Reg. at 

49,027 (citing Standards for Defining Metropolitan and 

Micropolitan Statistical Areas, 65 Fed. Reg. 82,228, 82,238 

(Dec. 27, 2000)). After years of study, the Secretary 

determined that, beginning in fiscal year 2005, she would use 

those new Core-Based Statistical Areas to calculate the wage 

indices. Final 2005 Rules, 69 Fed. Reg. at 49,027. The 

Secretary recognized that this change would have 

considerable impact on hospitals. Id. at 49,026–49,034. To 

mitigate those effects, the Secretary implemented various

transitional provisions that, among other things, allowed 

affected hospitals to be temporarily reimbursed on the basis of 

other areas’ wage indices. See id.

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The Secretary later learned that, in three instances, the 

new geographic lines ran through multi-campus hospital 

groups, leaving them straddling the borders of more than one 

Core-Based Statistical Area. Final 2006 Rules, 70 Fed. Reg. 

at 47,444; Changes to the Hospital Inpatient Prospective 

Payment Systems and Fiscal Year 2008 Rates (“Final 2008 

Rules”), 72 Fed. Reg. 47,130, 47,318 (Aug. 22, 2007) (noting 

that only three hospitals were affected). 

That posed a unique problem for the Secretary: Although 

Medicare deemed those multi-campus hospitals to be “merged 

facilities operat[ing] as a single institution,” and thus applied 

their combined wage data to the wage index for the main 

provider’s geographic area, reimbursement for Medicare 

services would be based on the wage index of the area in 

which the patient was discharged. See Final 2006 Rules, 70 

Fed. Reg. at 47,444; 42 C.F.R. § 412.64(b)(5). That meant 

that services provided at certain campuses might be 

reimbursed at a lower rate than services provided at others 

within the same institution. 

Normally, the Secretary can rectify such unfairness in the 

reimbursement process through reclassification, a process by 

which hospitals and hospital facilities can be certified to 

receive payments based on the wage index of a different 

geographic area when their cost reports reflect comparable 

wage costs and proximity to that area. See 42 C.F.R. 

§ 412.230. Such reclassification was not an option for the 

campuses of multi-campus hospitals, however, because they 

submitted “a single cost report * * * [which did] not 

differentiate between merged facilities in a single wage index 

area or in multiple wage index areas.” Final 2006 Rules, 70 

Fed. Reg. at 47,444; see also Final 2008 Rules, 72 Fed. Reg. 

at 47,317 (“[T]he Medicare cost report, in its current form, 

does not enable [] multicampus hospital[s] to separately report 

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[their] costs by location” because they are “integrated 

institution[s] with one accounting structure.”). 

In response, the Secretary proposed that individual 

campuses manually report campus-specific wage data through 

a supplemental form. Final 2006 Rules, 70 Fed. Reg. at 

47,444. That would allow the Secretary to determine whether 

that specific campus’s wage costs better approximated those 

of its physical situs or of the main provider’s reporting area. 

Id. 

Although the Secretary was focused on the patientreimbursement-rate problem, one commenter suggested that, 

if the Secretary obtained this supplemental campus-based 

data, she should also use it to calculate the average hourly 

wage of the geographic area in which a campus was located, 

rather than the geographic area of the main campus. Final 

2006 Rules, 70 Fed. Reg. at 47,445 (Secretary should “modify 

[her] policy and include only salaries and hours of the 

workforce attributable to the campus or campuses in the area

in order to calculate an area wage index.”). Put simply, the 

commenter suggested that a wage index should be based on 

data solely from campuses within the geographic area, and not 

from campuses situated in another Core-Based Statistical 

Area. 

After studying the issue and the public comments, 

however, the Secretary rejected the collection of such 

supplemental campus-based data at that time as infeasible. 

Final 2006 Rules, 70 Fed. Reg. at 47,445–47,446. Based on 

her analysis, she concluded that any benefit that would arise 

from requiring supplemental data—whether for calculating 

the wage index or for Medicare-reimbursement 

reclassification applications—had not yet been shown to 

justify the substantial administrative burden it would impose

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on hospitals, fiscal intermediaries, and the Secretary. Id. As 

the Secretary explained, calculating the wage index based on 

the geography of individual campuses rather than that of main 

providers “presents certain logistical challenges that [she] 

would like to consider in the context of possible permanent 

cost report changes to accommodate the electronic reporting 

of separate wage data by individual campus,” and she 

anticipated “having a full discussion of these issues as part of 

a future rulemaking.” Final 2006 Rules, 70 Fed. Reg. at 

47,446. 

Many of the Secretary’s concerns overlapped with the 

problems of requiring supplemental data generally. Multicampus hospitals might not have readily available campusspecific information because of their complete financial and 

operational integration, as well as the fact that employees 

commonly worked at multiple campuses. See Final 2008 

Rules, 72 Fed. Reg. at 47,318–47,319. Furthermore, 

whatever information could be collected would have to be 

audited, a process that normally takes three years—far too 

long to permit timely remediation of the problem for 2006 and 

2007. 

And even if reliable calculations could be timely made

and timely audited, the Secretary determined that 

supplemental campus-based data would be of limited value. 

Because those groups that qualify as multi-campus hospitals, 

by definition, have integrated finances, the average hourly 

wage for each campus would be expected to approximate or 

be nearly identical to the average wage of the entire 

institution. Final 2006 Rules, 70 Fed. Reg. at 47,445.

The Secretary, in short, “reasonably believe[d] that the 

added precision” that might come from collecting the data on 

a campus-specific basis “would not justify the added 

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complication.” ParkView Medical Associates, LP v. Shalala, 

158 F.3d 146, 149 (D.C. Cir. 1998); accord Atrium Medical 

Center v. Department of Health and Human Services, 766 

F.3d 560, 570 (6th Cir. 2014) (“[T]he Medicare Act allows 

the Secretary to sacrifice complete accuracy for 

‘administrative simplicity.’”) (citation omitted); Adventist 

GlenOaks Hospital v. Sebelius, 663 F.3d 939, 945 (7th Cir. 

2011); see also Final 2006 Rules, 70 Fed. Reg. at 47,446; 

Changes to the Hospital Inpatient Prospective Payment 

Systems and Fiscal Year 2007 Rates (“Final 2007 Rules”), 71 

Fed. Reg. 47,870, 48,067 (Aug. 18, 2006). 

The Secretary, however, encouraged additional input on 

how the issue should be handled going forward. Final 2006 

Rules, 70 Fed. Reg. at 47,446. In August 2007, that 

continued study bore fruit, and the Secretary partially revised 

her view. Specifically, she concluded that “allocation of a 

multicampus hospital’s wages and hours across different labor 

markets” could increase the precision of the wage index. 

Final 2008 Rules, 72 Fed. Reg. 47,130, 47,317. She 

accordingly proposed to change course in calculating the 

wage indices starting in fiscal year 2008. Id. 

The Secretary, however, still considered the collection of 

campus-specific wage data from multi-campus hospitals to be 

logistically impracticable, so she sought an alternative means 

of reliably attributing wage costs to individual campuses. 

Final 2008 Rules, 72 Fed. Reg. at 47,317–47,318. The 

Secretary considered three potential proxies for wage data: (i) 

the number of beds in each campus, (ii) the number of 

discharged patients in each campus, or (iii) the number of 

full-time staff in each campus. Id. 

Each approach had problems. Neither the number of 

beds nor the number of discharges bore any logical 

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correlation to wage costs. Final 2008 Rules, 72 Fed. Reg. at 

47,317–47,318. And commenters explained that providing 

information about the full-time employees at each campus 

would be extremely burdensome because of the fully 

integrated structure of multi-campus hospitals. Id. In 

particular, one multi-campus hospital noted that “over half of 

the organization’s employees have responsibilities at two and 

three of its campuses[,] * * * some types of employees * * * 

spend time at all three campuses[,] and nurses move from 

facility to facility depending on need.” Id. 

The least problematic approach, the Secretary 

determined, would be to use the number of full-time 

employees to allocate the hospital’s wage-cost data to 

individual campuses. Final 2008 Rules, 72 Fed. Reg. at 

47,319. If that information were not available due to 

difficulties in accurately assigning employees to campuses, 

Medicare discharge data would be used. Id. Once she had 

allocated cost report data by campus, the Secretary would use 

that data to calculate the average hourly wage for the 

geographic area in which the campus was located. Id. at 

47,317–47,319.

Factual and Procedural Background

In 1996, three hospitals in southeastern Massachusetts—

Tobey Hospital, St. Luke’s Hospital, and Charlton Memorial 

Hospital—merged to form Southcoast Hospital Group. 

Southcoast chose Tobey Hospital as its main campus for 

Medicare purposes, and Southcoast operates as a unified 

hospital under a single Medicare provider agreement and 

provider number. From 1996 until 2005, all of Southcoast’s 

campuses were in the Boston-Quincy geographic area. 

However, when the Secretary switched to Core-Based 

Statistical Areas in fiscal year 2005, Tobey Hospital remained 

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in the Boston-Quincy area, but St. Luke’s and Charlton 

Memorial fell within the Providence area. Because Tobey 

Hospital is Southcoast’s main campus and holds the Medicare 

provider number under which Southcoast operates, 

Southcoast continued to provide its multi-campus wage data 

in a single report, which the Secretary then applied to the 

wage index calculation for the Boston-Quincy area. When, in 

2008, the Secretary switched to using Southcoast’s Medicare 

discharge data to allocate the previously submitted and 

audited wage costs to individual campuses, the BostonQuincy wage index increased by .0147. See Final 2008 Rule, 

72 Fed. Reg. at 47318. 

Forty-one other Medicare provider hospitals from 

Massachusetts, Rhode Island, and Vermont (“Providers”), 

which are located in or were reclassified into the BostonQuincy area, filed a complaint with the Centers’ Provider 

Reimbursement Review Board challenging the Secretary’s 

inclusion of Southcoast’s wage data in the wage index for 

fiscal years 2006 and 2007. The Board concluded that it did 

not have the authority to decide the validity of the Secretary’s 

rules, and permitted the Providers to proceed directly to 

judicial review. 42 U.S.C. § 1395oo(f)(1); 42 C.F.R. 

§ 405.1842(f)(1)(ii). 

The Providers then filed suit in the United States District 

Court for the District of Columbia. See 42 U.S.C. 

§ 1395oo(f). They argued that the Secretary’s inclusion of 

Southcoast’s unified wage data in calculating the BostonQuincy wage index for fiscal years 2006 and 2007 violated 

the statutory requirement that the wage index “reflect[] the 

relative hospital wage level in the geographic area of the 

hospital compared to the national average hospital wage 

level,” 42 U.S.C. § 1395ww(d)(3)(E)(i), and was arbitrary and

capricious. 

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The district court granted summary judgment for the 

Secretary. Anna Jaques Hospital v. Sebelius, 33 F. Supp. 3d 

47 (D.D.C. 2014). The court held that the statutory text, 42 

U.S.C. § 1395ww(d)(3)(E)(i), “expressly leaves the wage 

index calculation to the agency,” and that index “is not 

required to reflect the exact wage differences among 

geographic areas; it is only required to approximate those 

differences.” 33 F. Supp. 3d at 54. The court further held 

that the Secretary reasonably determined that Southcoast was 

a single hospital, and reasonably continued to treat Southcoast 

as a single hospital in the Boston-Quincy area, where its main 

Medicare provider was located. Id. at 55–57.5 

II

Analysis

We review the district court’s grant of summary 

judgment de novo, applying the familiar standards of the 

Administrative Procedure Act, which require us to set aside 

an agency’s decision only if it is arbitrary, capricious, an 

abuse of discretion, or otherwise not in accordance with law. 

5 U.S.C. § 706(2); see also St. Luke’s Hospital v. Thompson, 

355 F.3d 690, 693–694 (D.C. Cir. 2004). 

We review the lawfulness of the Secretary’s transitional 

method of calculating the wage index under the Chevron two-

 5

 The district court’s decision refers to the lead plaintiff in this case 

as “Anna Jaques Hospital,” see Anna Jaques Hospital v. Sebelius, 

33 F. Supp. 3d 47 (D.D.C. 2014), as did we in an earlier litigation, 

Anna Jaques Hospital v. Sebelius, 583 F.3d 1 (D.C. Cir. 2009). 

However, the original complaint and all of the parties’ submissions 

to this court, including the notice of appeal, spell the name as 

“Anna Jacques Hospital.” We will follow the Appellants’ chosen 

spelling.

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step framework, Chevron, U.S.A. Inc. v. Natural Resources 

Defense Council, Inc., 467 U.S. 837 (1984). See also Anna 

Jaques, 583 F.3d at 5; Southeast Alabama Medical Center, 

572 F.3d at 916. When “Congress has directly spoken to the 

precise question at issue[,] * * * that is the end of the 

matter[.]” Chevron, 467 U.S. at 842–843. If the statute is 

“silent or ambiguous with respect to the specific issue,” we 

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

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

Chevron Step One

It bears noting, at the outset, that the Providers do not 

challenge the Secretary’s adoption of the Core-Based 

Statistical Areas. Nor do they dispute the propriety of the 

Secretary’s decade-long treatment of Southcoast as a unified 

hospital with its wages from all three campuses submitted in a 

single, consolidated cost report within the Boston-Quincy 

area. The question at Chevron step one, then, is whether the 

Medicare Act forbade the Secretary, when calculating the 

Boston-Quincy wage index for 2006 and 2007, from 

continuing for a two-year transitional period to rely upon 

Southcoast’s consolidated cost report, filed under the unified 

hospital’s single, Boston-Quincy-area Medicare provider

number. 

We see nothing in the statutory text that mandated the 

selective deconsolidation of Southcoast’s wage data while 

other Medicare reporting and operations remained 

consolidated under the main provider and Medicare reporting 

number. Quite the opposite, the statutory text expressly 

affords the Secretary flexibility and discretion in compiling 

data and calculating the wage index.

The text of the Medicare Act largely leaves the process of 

defining geographic boundaries and computing the wage 

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index to the Secretary’s reasoned judgment. The Act requires 

the Secretary to adjust the standard prospective payment rate 

by “a factor (established by the Secretary)” that “reflect[s]”

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

compared to the national average hospital wage level.” 42 

U.S.C. § 1395ww(d)(3)(E)(i). The statute provides some 

general guidance as to how the Secretary must calculate the 

wage “factor,” by requiring that the wage index be updated at 

least annually “on the basis of a survey conducted by the 

Secretary (and updated as appropriate) of the wages and 

wage-related costs of [participating] hospitals in the United 

States.” Id. In addition, any adjustment “shall be made in a 

manner that assures that the aggregate payments * * * are not 

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

year without the adjustment.” Id.

That is it. On all other aspects of the wage-index 

calculation, the statute is silent. It says nothing about the 

treatment of unified hospitals with multiple campuses 

working under a single Medicare provider agreement and 

number. Nor does the statute say how the geographic lines 

should be drawn or how to transition changes in those 

boundaries. “[T]he statute leaves considerable ambiguity as 

to the term ‘geographic area,’ which, based only on the literal 

language of the provision, could be as large as a several-state 

region or as small as a city block.” Bellevue Hospital Center

v. Leavitt, 443 F.3d 163, 175 (2d Cir. 2006). The statute 

“merely requires the Secretary to develop a mechanism to

remove the effects of local wage differences”; it “does not 

specify how the Secretary should construct the index” and, in 

fact, “Congress through its silence delegated these decisions 

to the Secretary.” Methodist Hospital, 38 F.3d at 1230. That 

is the antithesis of a Chevron step one statutory directive. 

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The Providers argue that the Secretary violated the text of 

the statute by creating a wage index for Boston-Quincy that 

“reflect[ed]” the wage level of hospitals from outside of the 

Boston-Quincy area. But that argument overlooks that, for 

purposes of the Medicare program, Southcoast is a single 

“hospital” with a single Medicare agreement and single 

Medicare provider number tied to Tobey Hospital, which sits 

squarely in the Boston-Quincy area. 

Notably, the Medicare statute defines “hospital” as an 

“institution” that provides a number of medical services. 42 

U.S.C. § 1395x(e). Other provisions of the statute, which 

refer to individual campuses of a hospital, make clear that a 

“hospital” can encompass institutions with multiple campuses 

and facilities. See, e.g., 42 U.S.C. § 1395nn(h)(7)(B) 

(referring to “the facilities on the main campus of the 

hospital”) (emphasis added); 42 U.S.C. § 1395nn(i)(3)(D) 

(“Any increase in the number of operating rooms * * * may

only occur in facilities on the main campus of the applicable 

hospital.”) (emphasis added); see also Community Hospital of 

Chandler, Inc. v. Sullivan, 963 F.2d 1206, 1212 (9th Cir. 

1992). For statutory purposes, then, Southcoast with all of its 

campuses is one hospital situated in Wareham, Massachusetts 

(Tobey Hospital’s location), which is within the BostonQuincy area. 

The Secretary’s use of Southcoast’s wages to calculate 

the Boston-Quincy wage index thus fully comported with the 

statutory requirement that the wage index reflect wage costs 

“in the geographic area of the hospital,” 42 U.S.C. 

§ 1395ww(d)(3)(E)(i). Beyond that, the question of how to 

deal with the fact that new boundaries placed campuses in a 

different geographic area than their main campus is precisely 

the type of interstitial question of implementation that the 

statute leaves in the Secretary’s administrative hands. See 

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Methodist Hospital, 38 F.3d at 1230 (the statute “does not 

specify how the Secretary should construct the index * * * 

[so] Congress through its silence delegated these decisions to 

the Secretary”); Bellevue, 443 F.3d at 175; cf. Adirondack 

Medical Center v. Burwell, 782 F.3d 707, 710 (D.C. Cir. 

2015) (rejecting challenge to “the precise methodology used 

by the Secretary” in calculating budget neutrality adjustments 

to reimbursement rates, noting “the wide discretion afforded 

the Secretary to implement the Medicare reimbursement 

formula”); Zuni Pub. Sch. Dist. No. 89 v. Department of 

Educ., 550 U.S. 81, 90 (2007) (statutory “calculation method 

* * * is the kind of highly technical, specialized interstitial 

matter that Congress often does not decide itself, but 

delegates to specialized agencies to decide”).

Requiring that the wage index “reflect[]” the wage rate in

the relevant geographic area, 42 U.S.C. § 1395ww(d)(3)(E)(i), 

indicates that the Secretary is not required to calculate the 

wage index with scientific “exactitude,” Atrium Medical 

Center, 766 F.3d at 569. We, in fact, have held that the 

Secretary can make “reasonable approximations” based on the 

“most reliable data available” at the time of publication. 

Methodist Hospital, 38 F.3d at 1230; see also Atrium Medical 

Center, 766 F.3d at 569 (“[T]he Secretary need only 

‘estimate[]’ the proportion of labor costs and the resulting 

wage index need only ‘reflect’ the relative area wage 

levels.”). 

In sum, the Providers do not challenge the Secretary’s 

decision to treat Southcoast as a single hospital for other 

Medicare purposes; they just want a carve-out for wage 

calculation. Nothing in the statute compels that.

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Chevron Step Two

Even though the statute does not dictate the Providers’ 

desired solution to Southcoast’s wage data for 2006 and 2007, 

the Providers nevertheless contend that the Secretary’s 

decision does not qualify for deference under Chevron step 

two at all because the decision to treat Southcoast as a single 

wage-reporting hospital is embodied in the Provider 

Reimbursement Manual, an informal guidance document. 

Providers’ Br. 15. We disagree because the wage index was 

promulgated through notice-and-comment proceedings, and 

the treatment of Southcoast as a unified hospital for Medicare 

reporting is the product of published regulations. 

Administrative interpretations of statutory provisions 

qualify for Chevron deference when “it appears that Congress 

delegated authority to the agency generally to make rules 

carrying the force of law, and that the agency interpretation 

claiming deference was promulgated in the exercise of that 

authority.” United States v. Mead Corp., 533 U.S. 218, 226–

227 (2001). Congress has expressly delegated to the 

Secretary the authority and discretion to create the wage 

index, 42 U.S.C. § 1395ww(d)(3)(E)(i), and the Providers do 

not argue otherwise. 

In addition, the Secretary’s calculation of the wage 

indices for 2006 and 2007 went through notice–and-comment

rulemaking, a procedure ensuring the kind of deliberation that 

typically triggers Chevron deference. See Mead, 533 U.S. at 

226. On top of that, Southcoast’s status as a single hospital

for Medicare reporting purposes—the administrative basis for 

the Secretary’s decision to collect a single cost report—is also 

the product of numerous formal regulations. 42 C.F.R. 

§ 413.65(d) (requiring integrated finances, administration, and 

operational control); id. § 413.65(e) (requiring common 

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ownership, supervision, and physical proximity). The 

Reimbursement Manual’s explanation that single-reporting 

status under Medicare does not evaporate for cost reports 

simply clarifies a status already accorded by formal 

regulations. Therefore, we afford the Secretary’s decision 

the same Chevron deference that we and other courts have 

repeatedly given her calculation of the wage index in the past. 

See, e.g., Atrium Medical Center, 766 F.3d at 573 (noting the 

“exceptional breadth of Congress’s delegation to the 

Secretary to establish and administer the wage index”); Anna 

Jaques, 583 F.3d at 5; Southeast Alabama Medical Center, 

572 F.3d at 271; Bellevue Hospital Center, 443 F.3d at 175 

(Secretary has the discretion to interpret the term “geographic 

area”); Methodist Hospital, 38 F.3d at 1230.

Looking through the lens of Chevron deference, the 

question is whether the Secretary acted reasonably in using

Southcoast’s unified wage data to calculate the hourly wage 

in the geographic area of its main campus and its 

administrative site for Medicare reporting purposes. See 

Illinois Public Telecommunications Ass’n v. FCC, 752 F.3d 

1018, 1023 (D.C. Cir. 2014) (“[O]ne of the first principles of 

administrative law is that ‘if the statute is silent or ambiguous 

with respect to the specific issue,’ the only question for the 

court is whether the agency’s interpretation of that statute is 

reasonable.”) (citation omitted). In making that 

determination, the Secretary effectively made two decisions: 

(1) for 2006 to 2007, she was not yet prepared to calculate the 

wage index on the basis of campus-specific data, and given 

that, (2) she would treat Southcoast as if it were located “in” 

the geographic area of its main provider. Both of those 

actions fell within the range of reasonableness afforded the 

Secretary in calculating the wage index. 

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(1) Campus-specific data

In first addressing how to handle the three multi-campus 

hospitals that were split by the transition to Core-Based 

Statistical Areas, the Secretary decided that, for 2006 and 

2007, she would maintain the status quo of single-hospital 

reporting and not calculate the wage index based on campusspecific data. That judgment was reasonable. 

To begin with, the Secretary reasonably concluded that 

the regulatory requirements of operating as a single hospital 

and the realities of employee fluidity between campuses 

ensured that the wages of each campus of a multi-campus 

hospital would be sufficiently similar to “reflect” the wage 

rate in the main provider’s (and thus the entire institution’s) 

geographic area. Final 2006 Rules, 70 Fed. Reg. at 47,445 

(“[W]e believe there may not be a wide range of salaries for 

the same occupational categories within the same 

institution.”). 

That judgment was grounded in experience. Multicampus hospitals have existed from “the beginning of the 

Medicare program” and have long been treated as single 

institutions with completely integrated organizational 

structure, finances, and administrative control. Medicare 

Program; Prospective Payment System for Hospital 

Outpatient Services, 63 Fed. Reg. 47,552, 47,587 (Sept. 8, 

1998) (“[F]rom the beginning of the Medicare program, some 

providers, which are referred to in this section as ‘main 

providers,’ have owned and operated other facilities * * * that 

were administered financially and clinically by the main 

provider[,]” and “[i]n order to accommodate the financial 

integration of the two facilities without creating an 

administrative burden, we have permitted the subordinate 

facility to be considered provider-based.”); see also Office of 

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Inspector General; Medicare Program; Prospective Payment 

System for Hospital Outpatient Services, 65 Fed. Reg. 18,434, 

18,504 (April 7, 2000); Final 2006 Rules, 70 Fed. Reg. at 

47,445–47,446; Final 2008 Rules, 72 Fed. Reg. at 47,318.

Moreover, to qualify for single-hospital status, the

hospital group must meet a litany of integration requirements, 

such as ensuring that: 

• the facility operates under the same license as the 

main provider; 

• clinical services are integrated, as evidenced by:

o professional staff that have clinical privileges 

at the main provider;

o monitoring and oversight of the facility by the 

main provider;

o a reporting relationship between the medical 

director of the facility and the chief medical 

officer of the main provider; 

o integrated medical records in a unified 

retrieval system (or cross reference) of the 

main provider; and

o integrated inpatient and outpatient services 

such that patients treated at the facility have 

full access to the services of the main 

provider; 

• financial operations are fully integrated within the 

main provider’s system, as evidenced by shared 

income and expenses between the main provider and 

facility, with all costs reported in the cost center of 

the main provider; and

• the facility is held out to the public and other payers 

as part of the main provider, and patients, upon 

entering the facility, are aware that they are entering 

the main provider and are billed accordingly.

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42 C.F.R. § 413.65(d)(1)–(4).

For the facility that is not located on the campus of the 

main provider, as is the case with two of Southcoast’s three 

campuses, additional requirements must be met:

• The facility must operate under the ownership and 

control of the main provider, as evidenced by:

o the main provider’s 100% ownership of the 

business enterprise that constitutes the facility;

o a shared governing body with the main 

provider; 

o the same organizational documents as the 

main provider; and

o the main provider’s exercise of final 

responsibility for administrative decisions, 

final approval for contracts with outside 

parties, final approval and responsibility for 

personnel actions and policies, and final 

approval for medical staff appointments in the 

facility.

• The main provider must directly supervise the 

facilities in the same manner that it would monitor an 

existing department, as evidenced by:

o monitoring and oversight of the facility by the 

main provider, including a reporting and 

accountability relationship between the 

facility director and a manager at the main 

provider; and

o integrated administrative functions, including 

billing services, records, human resources,

payroll, employee benefit package, salary 

structure, and purchasing services.

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• The facility must be proximately located to the main 

provider.

6

 

42 C.F.R. § 413.65(e)(1)-(3).

The Secretary reasonably determined that the effect of 

that extensive operational, organizational, and financial 

integration is that multi-campus hospitals tend to have similar 

wages across campuses. In addition, such multi-campus 

institutions commonly have employees—such as doctors, 

nurses, technicians, and administrators—that routinely 

migrate between campuses. Indeed, they are required by 

regulation to have privileges at each campus. 42 C.F.R. 

§ 413.65(d)(2)(i). Accordingly, the Secretary reasonably 

concluded “that the average hourly wages for an individual 

campus and the whole hospital are similar because the two (or 

more) campuses are operating as a single entity under one 

Medicare provider number, are under common ownership and 

control, and are clinically and financially integrated.” Final

2006 Rule, 70 Fed. Reg. at 47,445.

Furthermore, calculating the wage index on the basis of 

campus-specific data in 2006 and 2007, in the immediate 

wake of the geographical transition, would have imposed a 

substantial burden on the Secretary, fiscal intermediaries, and 

multi-campus hospitals. See Final 2006 Rules, 70 Fed. Reg. 

at 47,445. In fiscal years 2006 and 2007, the Secretary did 

not yet have separate wage data for individual campuses of 

multi-campus hospitals. See id. at 47,444 (“[B]ecause a 

 6

 To qualify as proximately located, the facility must be in the 

same State or an adjacent State as the main provider, 42 C.F.R. 

§ 413.65(e)(3)(vii), and must either be within 35 miles of the main 

provider, 42 C.F.R. § 413.65(e)(3)(i), or meet other specified 

location requirements designed to ensure that the campuses serve 

the same patient populations, 42 C.F.R. § 413.65(e)(3)(ii)–(vi). 

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multicampus hospital is required to report data for the entire 

entity on a single cost report, there is no wage survey data for 

the individual hospital campus[.]”). Multi-campus hospitals 

have only ever submitted one cost report to the Secretary. 

Understandably so. The hospitals are required, by the 

Secretary’s regulations, to integrate their finances, 42 C.F.R. 

§ 413.65(d)(3), and therefore would not have separate cost 

data to report, Final 2006 Rules, 70 Fed. Reg. at 47,445–

47,446.

Nor was that information readily obtainable in 2006 and 

2007. The wage index is calculated based on cost reports 

from three years before the rule’s promulgation. Final 2005 

Rules, 69 Fed. Reg. at 49,049. To calculate the wage index 

for 2006 and 2007 on a campus-specific basis, the hospitals 

would have to have submitted three-year-old data, and the 

Secretary would have to have audited it in an extremely 

expedited manner before the wage index’s promulgation—

within one month for 2006 and one year for 2007. That was 

impracticable given that “the submission of manual 

[supplemental] cost report data would require a lengthy and 

tedious manual audit process for fiscal intermediaries[.]” 

Final 2006 Rules, 70 Fed. Reg. at 47,445. In addition, 

because multi-campus hospitals’ staff members are required 

to have privileges across campuses, and indeed often work on 

multiple campuses, 42 C.F.R. § 413.65(d)(2)(i); Oral Arg. Tr. 

54, requiring hospitals to go back in time to assign an 

individual employee’s wage costs to a particular campus, 

rather than to the hospital as a whole, could have resulted in 

an artificial and unreliable measure of area wages. See Final

2008 Rules, 72 Fed. Reg. at 47,318.

Readjusting the data after the fact, as the Providers now 

seek, would have run into additional difficulties. The wage 

index must be a budget-neutral determination. See 42 U.S.C. 

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§ 1395ww(d)(3)(E)(i) (any adjustment made “shall be made 

in a manner that assures that the aggregate payments * * * are 

not greater or less than those that would have been made in 

the year without such adjustment”). But any retroactive 

payments could not be offset now, almost a decade after the 

fact, against other payments made in other areas to other 

providers without profoundly unsettling the system and the 

reliance interests of countless hospitals nationwide, a problem 

that counsel for the Providers acknowledged at oral argument. 

Oral Arg. Tr. 15. In addition, the Secretary’s policy, upheld 

by this court, is that retroactive corrections to the wage index 

undermine the statutory purpose to base Medicare 

reimbursement rates on predetermined rates. Methodist 

Hospital, 38 F.3d at 1228–1229.

In other words, fully aware of the campuses’ 

comprehensive integration and the obstacles it posed to 

collecting campus-specific wage data, the Secretary 

reasonably concluded that the tremendous burden of 

completely revamping the wage index calculation (and its 

application) would far outweigh any marginal impact it might 

have. That careful balancing of considerations reflects a fair

and reasonable exercise of the Secretary’s discretionary 

judgment in addressing this transitional issue.

Furthermore, the Secretary’s decision simply maintained 

the wage-reporting status quo for a two-year transitional 

period while she continued to study the problem, sensibly 

concluding that “the interests in finality and administrative 

efficiency outweighed the value of increased accuracy.” 

Methodist Hospital, 38 F.3d at 1235. We commonly “defer to 

the agency’s judgment about how best to achieve a smooth 

transition[.]” Sorenson Communications, Inc. v. FCC, 765 

F.3d 37, 52 (D.C. Cir. 2014); see MCI Telecommunications 

Corp. v. FCC, 750 F.2d 135, 141 (D.C. Cir. 1984) 

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(“Substantial deference must be accorded an agency when it 

acts to maintain the status quo so that the objectives of a 

pending rulemaking proceeding will not be frustrated.”). 

“While [the Secretary’s] choice was not the only one 

permissible under the statute, the court has no occasion to 

second guess” the Secretary’s judgment in that respect. 

Methodist Hospital, 38 F.3d at 1235.

The Providers present four objections that, in their view, 

establish that the Secretary’s decision not to calculate the 

wage index on the basis of campus-specific data for the 

interim period of 2006–2007 was arbitrary and capricious. 

While they are thoughtfully presented, ultimately none 

succeeds. 

First, the Providers contend that the Secretary provided 

“no rational explanation” for including wage data from 

outside the Boston-Quincy geographic area in calculating that 

area’s wage index. Providers’ Br. 19. That simply recycles 

the already-rejected argument that the Secretary improperly 

gave effect to Southcoast’s recognized status as a unitary 

hospital for cost reporting, with an address in the BostonQuincy area. While the Providers wish the Secretary had 

made a different choice, it was entirely rational to treat 

Southcoast as a single institution with respect to wage data,

just as it is treated for numerous other Medicare purposes. 

See Final 2006 Rules, 70 Fed. Reg. at 47,446 (“[T]he use of 

the wage data for the entire multicampus hospital is consistent 

with [the Centers’] treatment of multicampus hospitals for 

calculating area wage index values, GME [Graduate Medical 

Education], DSH [Disproportionate Share Hospital], and 

provider-based purposes, under which multicampus hospitals 

operating under a single Medicare provider number are 

treated as a single hospital for payment purposes.”).

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 Beyond that, the Secretary offered three quite 

reasonable explanations for her transitional treatment of 

multi-campus hospitals that straddled two Core-Based 

Statistical Areas. She discussed (i) the lack of available data 

from providers at that time on which to allocate wage data by 

campus, (ii) the practical and administrative obstacles to 

obtaining that data in a timely manner, and (iii) the stark 

imbalance between the logistical hurdles of collecting and 

using campus-specific data and the marginal anticipated 

impact of that data on the wage index calculation. Given 

those considerations, the Secretary’s decision to treat 

Southcoast as in the same geographic area as its main 

provider’s address, as the Secretary does for other Medicare 

purposes, falls within the range of reasonable judgment. See 

Barnhart v. Thomas, 540 U.S. 20, 29 (2003); Adventist

GlenOaks Hospital, 663 F.3d at 945 (in calculating the wage 

index, Secretary may adopt “a bright-line rule that is 

comparatively easy to administer”). 

Second, the Providers argue that the Secretary’s altered 

approach in 2008 shows that her decision in 2006 and 2007 

was unreasonable. Providers’ Br. 20. Not so. Courts have 

long recognized that “[a]n initial agency interpretation is not 

instantly carved in stone,” and that, to engage in informed 

rulemaking, the agency may “consider varying interpretations 

and the wisdom of its policy on a continuing basis.” Chevron, 

467 U.S. at 863–864; accord National Cable & 

Telecommunications Ass’n v. Brand X Internet Services, 545 

U.S. 967, 983 (2005). There can, after all, be more than one 

reasonable solution to a problem. The agency just must offer 

a reasoned explanation for changing course. See FCC v. Fox 

Television Stations, Inc., 556 U.S. 502, 514 (2009); Anna 

Jaques, 583 F.3d at 6. 

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The Secretary provided that reasoned explanation here. 

Unlike in 2006 and 2007, when the consequences of the 

geographic reconfiguration first flared on the scene, by 2008, 

the Secretary had had three years to study the multi-campus 

hospital problem and to evaluate alternative ways of 

accurately and practicably collecting wage data. “Nothing 

prohibits federal agencies from moving in an incremental 

manner,” Fox Television, 556 U.S. at 522, even when that 

includes revisiting prior judgments, Brand X, 545 U.S. at 

1002.

Notably, even in 2008, the Secretary continued to have 

serious qualms about the campus-by-campus calculation 

methodologies suggested by commenters. The Secretary 

explained that the number of discharges was an “unstable data 

source to use in allocating a hospital’s wages,” and the 

number of beds “does not correlate well with how a hospital 

incurs its wage costs.” Final 2008 Rules, 72 Fed. Reg. at 

47,318. Furthermore, many multi-campus hospitals—

including Southcoast—did not have full-time employment 

data for specific campuses because their employees often 

work at multiple campuses, rotating through them—

sometimes on a daily basis—depending on need. Id. 

The Secretary, in short, only altered her approach in 2008 

because she became persuaded that “the benefit of having 

more accuracy in the wage index calculations should 

outweigh concerns over which alternative methods to use,” 

Final 2008 Rules, 72 Fed. Reg. at 47,318–47,319, and not 

because she found the alternative wage-calculation methods 

to be obviously superior or her prior view to be unreasonable. 

Nothing in that decision evidences that her declination to leap 

immediately to that same conclusion in 2006 was arbitrary 

and capricious. Instead, both approaches were reasonable 

under their different circumstances. 

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Third, the Providers contend that the Secretary acted 

unreasonably because, while she used Southcoast’s unified 

wage data to calculate the Boston-Quincy wage index, she 

paid Medicare reimbursements to Southcoast’s New Bedford 

and Fall River campuses on the basis of the Providence wage 

index. Providers’ Br. 19–20. 

That may appear odd at first blush, but nothing in the 

Medicare Act requires that hospitals be treated the same for 

reimbursement and wage-index measurement purposes. For 

example, the statute “allow[s] a hospital to seek 

reclassification from its geographically-based wage area to a 

nearby wage area for payment purposes if it meets certain 

criteria.” Robert Wood Johnson Univ. Hosp. v. Thompson, 

297 F.3d 273, 276 (3d Cir. 2002); see 42 U.S.C. 

§ 1395ww(d)(10); 42 C.F.R. § 412.230(a)(1)(ii).7

 Moreover, 

Medicare reimbursements to such reclassified hospitals are 

governed by an entirely different statutory provision, 42 

U.S.C. § 1395ww(d)(8)(B)(i), than the creation of the wage 

index, 42 U.S.C. § 1395ww(d)(3)(E)(1). And the wage data 

of reclassified hospitals may or may not be included in their 

new area’s wage index calculations, depending on the 

circumstances. See 42 U.S.C. § 1395ww(d)(8)(C)(i)(II) 

(requiring the Secretary to exclude reclassified hospitals’ 

wage data from calculating the wage index under certain 

conditions); Final 2006 Rules, 70 Fed. Reg. at 47,378. In 

short, the statute does not categorically dictate that hospitals 

be reimbursed in accordance with a wage index that

incorporates their own wage data, and, in some scenarios, 

even prescribes otherwise.

 7 Some of petitioners themselves have been reclassified into the 

Boston-Quincy area for patient reimbursement purposes. See 

Administrative Record at 100, Anna Jaques Hospital v. Sebelius, 

No. 1:13-cv-00053-ABJ (D.D.C. filed May 17, 2013), ECF No. 14.

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It also bears noting that reimbursement for patient 

services on a campus-specific basis is significantly more 

administrable because it turns on the readily ascertainable 

location of the patient. Reconfiguring the wage index, by 

contrast, requires finding a reasonable way to unscramble an 

institution’s merged financial and operational practices and to 

attribute centralized costs to individual campuses, even when 

employees routinely migrate between campuses.

Fourth, the Providers argue that, by not separating out 

campus-specific data, the Secretary failed to provide a 

uniformly measured wage index. Providers’ Br. 20–23. As 

the Providers see it, the Secretary failed to apply geographic 

lines consistently across the Country. That is not correct. 

Uniformly and nationwide, the Secretary collected one cost 

report from each hospital participating in the Prospective 

Payment System, and used the wage data from that cost report 

to calculate the average hourly wage for the geographic area 

associated with the hospital’s provider number. She utilized 

that rule consistently and evenhandedly for all hospitals, 

whether or not multi-campus. 

At bottom, the Providers’ central objection is that they 

believe there was a better method of calculating the wage 

index for their area. Maybe so. But all that the law requires, 

and all that we can evaluate on review, is whether the 

Secretary’s approach was reasonable. See American Forest 

and Paper Ass’n v. FERC, 550 F.3d 1179, 1183 (D.C. Cir. 

2008) (“Step two of Chevron does not require the best 

interpretation, only a reasonable one.”). And that it was. 

(2) Geographic Designation of Southcoast

The Secretary also acted reasonably in recognizing Tobey 

Hospital, located in the Boston-Quincy area, as Southcoast’s 

main campus for purposes of the Medicare program and, on 

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that basis, treating all of Southcoast’s employees (or more 

accurately, their wage data) as located in that same 

geographic area. See Final 2006 Rules, 70 Fed. Reg. at 

47,445–47,446. Tobey Hospital had performed that function 

within the Medicare program for nearly a decade, and 

Southcoast met all of the statutory and regulatory criteria for 

reporting in that manner, which the Providers do not dispute. 

Furthermore, Tobey Hospital provided the Medicare reporting 

number for the unified hospital, through which other 

Medicare reporting and all Medicare billings and certification 

took place. 

In addition, the complications inherent in retroactively redetermining where a multi-campus hospital is located are 

identical to those the Secretary was attempting to avoid by 

declining to allocate the multi-campus hospitals’ wage data by 

campus. The Providers’ argument that “90%” or “the vast 

bulk of the multicampus hospital was located” in the 

Providence area proves that point. Reply Br. 6; Oral Arg. Tr. 

48–49, 52–54. That “90%” number is based on the number of 

beds in Southcoast’s campuses, which “does not correlate 

well with how a hospital incurs its wage costs.” Final 2008

Rules, 72 Fed. Reg. at 47,318. Nor would Medicare 

discharges be a reliable basis on which to determine where the 

bulk of Southcoast’s personnel and operations were located 

because the number “can fluctuate from year to year and may 

be an unstable data source.” Id. at 47,317–47,318. 

More importantly, the Secretary did not have the 

substitute data that the Providers prefer in 2006 or 2007. 

Final 2008 Rules, 72 Fed. Reg. at 47,318 (“Furthermore, 

neither of these numbers [the number of beds or discharges] is 

available on a campus-specific basis in Medicare’s data 

systems.”). Indeed, the Secretary’s ultimate adjustment in 

2008 had to rely on Southcoast’s discharges because 

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Southcoast did not have reliable full-time and campusspecific employment data since its employees routinely 

worked on multiple campuses. See id. at 47,319. It thus was 

neither arbitrary nor capricious for the Secretary, when first 

confronting the problem in 2006, to eschew an approach that 

depended on unreliable data not in the Secretary’s possession. 

III

Conclusion

We hold that the Secretary’s calculation of the wage 

index for fiscal years 2006 and 2007 was reasonable, nonarbitrary, and supported by substantial evidence. The 

judgment below is affirmed. 

So ordered. 

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