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Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 12, 2005 Decided October 14, 2005

No. 04-5276

PALISADES GENERAL HOSPITAL INC.,

APPELLANT

v.

MICHAEL O. LEAVITT, SECRETARY OF HEALTH

 AND HUMAN SERVICES,

APPELLEE

Appeal from the United States District Court

for the District of Columbia

(No. 99cv01230)

Robert L. Roth argued the cause for appellant. With him on

the briefs were Clifton S. Elgarten and Fredrick R. Keith.

Paul E. Soeffing, Attorney, U.S. Department of Health &

Human Services, argued the cause for appellee. With him on the

brief were Peter D. Keisler, Assistant Attorney General, U.S.

Department of Justice, Kenneth L. Wainstein, U.S. Attorney,

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Anthony J. Steinmeyer, Attorney, Alex M. Azar, II, General

Counsel, U.S. Department of Health & Human Services, and

Robert P. Jaye, Acting Associate General Counsel. 

Before: GINSBURG, Chief Judge, and SENTELLE and

ROGERS, Circuit Judges.

Opinion for the Court filed by Circuit Judge ROGERS.

ROGERS, Circuit Judge: Palisades General Hospital appeals

the partial denial of summary judgment on its claim for makewhole relief under the Medicare program. Because the Secretary

of the Department of Health and Human Services failed to make

timely requested corrections to wage data submitted by the

hospital, it received a substantially lower level of reimbursement

and sought to obtain the balance. The hospital contends that the

district court, having found that the Secretary acted arbitrarily

and capriciously in denying the wage data corrections, erred in

failing to exercise its equitable powers to award Palisades an

adjusted reimbursement reflecting reclassification of the hospital

to the New York City Metropolitan Statistical Area. Because the

hospital’s contention misconceives the jurisdiction of the district

court in reviewing the Secretary’s decision and is, in effect, an

attempt to circumvent the statutory bar on judicial review of the

Secretary’s reclassification decisions, we affirm. 

I.

A.

The Medicare program was created to pay for certain

specified, or “covered,” medical services provided to eligible

elderly and disabled persons. See Title XVIII of the Social

Security Act, Pub. L. 89-97, 79 Stat. 291 (1965), as amended, 42

U.S.C. § 1395 et seq. (hereafter, “Act” or “Medicare statute”).

Health care providers are reimbursed for a portion of the costs

that they incur in treating Medicare beneficiaries under an

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extremely “complex statutory and regulatory regime.” Good

Samaritan Hosp. v. Shalala, 508 U.S. 402, 404 (1993). Under

the Prospective Payment System (“PPS”), hospitals are paid

predetermined, fixed amounts for the Medicare-covered services

they provide. See 42 U.S.C. § 1395ww(d). The calculation of

PPS payment rates is described in Methodist Hospital of

Sacramento v. Shalala, 38 F.3d 1225, 1227-28 (D.C. Cir. 1994).

Suffice it to say, PPS payment rates are directly correlated with

the so-called “wage index.” 42 U.S.C. § 1395ww(d)(2)(H),

(3)(E). The wage index allows the Secretary to adjust for

regional variations in wage costs by taking into account how the

average hospital wage in an area compares to the national

average hospital wage. 44 Fed. Reg. 11,612, 11,613 (1979); see

also Methodist Hosp., 38 F.3d at 1227. 

Reimbursement of a service provider’s costs is made

through a “fiscal intermediary,” a private entity that acts as the

Secretary’s agent. 42 U.S.C. § 1395h(a). At the end of its fiscal

year, a hospital submits to its intermediaries a cost report setting

forth all costs for which it claims reimbursement. 42 C.F.R. §

405.1801(b)(1). Based on these costs and the hospital’s wage

index, the fiscal intermediary calculates the amount of

reimbursement due to the hospital. A hospital that is dissatisfied

with a final determination of the fiscal intermediary or Secretary

may appeal it. Upon compliance with the statutorily imposed

jurisdictional requirements, a hospital may request a hearing

before the Provider Reimbursement Review Board (“PRRB”).

42 U.S.C. § 1395oo(a), (b). The decision of the PRRB is

sometimes subject to further review by the Secretary’s delegate,

the Administrator of the Centers for Medicare & Medicaid

Services (“CMS”). See 42 C.F.R. § 405.1875. The Medicare

statute also authorizes the hospital to request judicial review of

the final decision of the PRRB in federal district court within 60

days of receipt of the final decision. 42 U.S.C. § 1395oo(f)(1).

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 Although wage indices are generally set geographically,

Congress determined that this system occasionally produced

inequitable results. See Athens Cmty. Hosp., Inc. v. Shalala, 21

F.3d 1176, 1177 (D.C. Cir. 1994). It therefore created the

Medicare Geographic Classification Review Board (“MGCRB”),

which reviews applications from hospitals seeking geographic

redesignation to a nearby area in order to use that area’s (higher)

wage index. 42 U.S.C. § 1395ww(d)(10); 42 C.F.R. § 412.230-

412.235; Athens, 21 F.3d at 1177. A hospital requesting

reclassification for the purpose of using another area’s wage

index must submit data regarding its average hourly wage that

are drawn from the “hospital wage survey used to construct the

wage index in effect for [PPS] payment purposes during the

fiscal year prior to the fiscal year for which the hospital requests

reclassification.” 42 C.F.R. § 412.230(d)(2)(i)(A). For example,

reclassification decisions for FY 2000 were based on the wage

data used to construct the FY 1999 PPS payment rates. 63 Fed.

Reg. 25,576, 25,585 (May 8, 1998); id. at 25,589. Under the

Act, decisions on applications for geographic reclassification

must be issued under strict time frames. 42 U.S.C. §

1395ww(d)(10)(C)(ii)-(iii). Congress provided that decisions of

the MGCRB may be appealed to the Secretary, but that the

Secretary’s decision regarding appeals from the MGCRB “shall

be final and shall not be subject to judicial review.” 42 U.S.C.

§ 1395ww(d)(10)(C)(iii)(II). 

B.

Palisades Hospital, located in North Bergen, New Jersey, is

a provider of services under the Medicare program. As of 1998,

the hospital was a part of the geographic region known as the

Jersey City, New Jersey Metropolitan Statistical Area (“MSA”).

On September 1, 1998, the hospital applied for geographical

reclassification to the New York City MSA for FY 2000. It also

participated in a group application submitted jointly by all of the

hospitals located in the Jersey City MSA seeking redesignation

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to the Bergen-Passaic, New Jersey MSA for FY 2000. 

In order to qualify for reclassification to the New York City

MSA for FY 2000, the hospital had to submit wage data to the

MGCRB by September 1, 1998. The hospital therefore needed

to ensure that its wage data were accurate. After February 2,

1998, the start of the wage data correction process, the hospital

filed timely requests for revisions to its wage data, some of

which were denied by its fiscal intermediary. The hospital

unsuccessfully pursued various administrative and judicial

remedies in an effort to obtain all of its desired revisions. In a

letter dated June 10, 1998, the fiscal intermediary informed the

hospital that it would make no further corrections. On February

24, 1999, using the hospital’s unrevised data, the MGCRB

granted the group application for geographic reclassification to

the Bergen-Passaic MSA and dismissed the hospital’s separate

application for reclassification to the New York City MSA. 

The hospital sued the Secretary and the MGCRB,

challenging the partial denial of its requests for corrections to the

wage data that were used in the fiscal year 1999 wage index.

The district court found that the hospital had failed to comply

with deadlines set by the Secretary, and the hospital appealed.

Following a remand for consideration of the merits, see

Palisades Gen. Hosp., Inc. v. Thompson, No. 03-5139, 2004 U.S.

App. LEXIS 5 (D.C. Cir. Jan. 2, 2004), the district court partially

granted and partially denied the parties’ cross-motions for

summary judgment. The district court found that the Secretary

acted arbitrarily and capriciously in denying the hospital’s

disputed wage data correction requests, and that its wage data

index should be revised and its Medicare reimbursement

recalculated in light of the change. The district court also

determined that its decision did not entitle the Hospital to have

its individual geographic reclassification application

reconsidered, regarding review as precluded by the Secretary’s

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“no adjustment” policy, under which the Secretary will not

consider revised wage data for purposes of revisiting past

adjudications of requests for geographic reclassification. See 60

Fed. Reg. 45,778, 45,795-96 (Sept. 1, 1995).

 

The hospital again appeals. Our review of the district

court’s denial of summary judgment is de novo, Transitional

Hosps. Corp. of La. v. Shalala, 222 F.3d 1019, 1023 (D.C. Cir.

2000), while our review under 42 U.S.C. § 1395oo(f)(l) of the

Secretary’s decision denying relief based on corrected wage data

is limited to determining whether it is “arbitrary, capricious, an

abuse of discretion, or otherwise not in accordance with law.” 5

U.S.C. § 706(2)(A). See Methodist Hosp., 38 F.3d at 1229; see

also Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512

(1994).

II.

The hospital contends that the district court erred by

declining to grant it full relief by restoring it to the position it

would have occupied had the Secretary corrected its wage data

before the MGCRB issued its reclassification decisions. The

hospital maintains that the scope of relief is a judicial

determination and that “the natural and ordinary relief” to be

ordered in setting aside an agency action is to direct the agency

to ensure that the claimant is afforded the same outcome that

would have followed if the agency had acted correctly.

Specifically, the hospital contends it is entitled to make-whole

relief including an adjusted reimbursement reflecting the sum it

would have received had it been reclassified to the New York

City MSA.

At the outset, the hospital’s contention is based on a flawed

premise. The district court had no jurisdiction to order specific

relief. Unlike a district court managing a “garden variety civil

suit,” a district court reviewing a final agency action “‘does not

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perform its normal role’ but instead ‘sits as an appellate

tribunal.’” County of Los Angeles v. Shalala, 192 F.3d 1005,

1011 (D.C. Cir. 1999) (quoting PPG Indus., Inc. v. United States,

52 F.3d 363, 365 (D.C. Cir. 1995)). Thus, “‘under settled

principles of administrative law, when a court reviewing agency

action determines that an agency made an error of law, the

court’s inquiry is at an end: the case must be remanded to the

agency for further action consistent with the correct legal

standards.’” Id. Accordingly, the district court had jurisdiction

only to vacate the Secretary’s decision rejecting the hospital’s

revised wage data and to remand for further action consistent

with its opinion. It did not, as the hospital contends, have

jurisdiction to order either reclassification based upon those

adjusted wage data or an adjusted reimbursement payment that

would reflect such a reclassification. See id.

Furthermore, the Medicare statute bars the specific relief

requested. The Act provides that the decision of the Secretary on

reclassification decisions “shall be final,” and “shall not be

subject to review.” 42 U.S.C. § 1395ww(d)(10)(C)(iii)(II). The

plain text of the Act alone is enough to affirm the district court’s

decision because a hospital is not entitled to seek review to

overturn a reclassification decision of the Secretary once that

decision becomes final. Robert Wood Johnson Univ. Hosp. v.

Thompson, 297 F.3d 273, 286 n.6 (3d Cir. 2002); Jordan Hosp.,

Inc. v. Shalala, 276 F.3d 72, 77 (1st Cir. 2002); ParkView Med.

Assocs. v. Shalala, 158 F.3d 146, 148 (D.C. Cir. 1998); Skagit

County Pub. Hosp. Dist. No. 2 v. Shalala, 80 F.3d 379, 385 (9th

Cir. 1996). The hospital has not pointed to anything in the

statute or legislative history to demonstrate otherwise. There is

no jurisdiction, therefore, either to order the Secretary to

reconsider his reclassification decision or to direct a

reimbursement payment that would reflect such a

reclassification. 

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As the hospital would have it, its appeal involves review of

a wage data correction request rather than a geographic

reclassification decision. Pointing to 42 C.F.R. §§ 412.266 &

412.274, the hospital maintains that the MGCRB does not have

authority to recalculate the wage index but must accept the wage

index determinations provided to it, and concludes that therefore

court-ordered corrections to the wage index logically should

result in corrections to the reclassification decision. Its

contention that Congress’s provision for judicial review of wage

data indicates that Congress could not have intended to prevent

courts from correcting injustices arising from the use of incorrect

wage data neglects to consider the rationale for finality noted by

the court in Methodist Hospital, 38 F.3d at 1233. There the court

concluded that “it was not arbitrary and capricious of the

Secretary to decide that the administrative burden of

recalculating the reimbursement rate for every hospital in a

metropolitan area every time any hospital in that area makes an

error in reporting wage data outweighs the increase in accuracy

that would result.” Id. (quotations omitted).

 The court observed that because, under the PPS payment

system, “each wage index is used to develop the base national

rate as well as to adjust that rate by region, a change in any

single wage index can affect the reimbursement rate of each

hospital in the country.” Id. at 1228. So too here, the Secretary

has weighed competing interests in finality and accuracy and has

arrived at a policy that is substantially buttressed by Congress’s

decision to mandate the finality of reclassification decisions.

The Ninth Circuit held in a similar case that “although [the

hospital] focuses on an intermediate process [the wage correction

process] and the fringe benefit determinations, what [the

hospital] really wants is for the court to overturn the final

reclassification decision. Such judicial action is not permissible

under the Medicare statutory scheme.” Skagit County Pub.

Hosp., 80 F.3d at 386. 

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Furthermore, the hospital’s view of legislative intent is

inconsistent with the statutory structure. The hospital views it as

impossible that Congress would render a reclassification decision

non-reviewable when it is made on the basis of erroneous wage

data, especially when the blame for the errors lies at the

Secretary’s doorstep. Again, that determinations related to wage

index are subject to judicial review pursuant to 42 U.S.C. §

1395oo(f)(1) does not mean that Congress intended for

geographic reclassification also to be judicially reviewable on the

basis of court-corrected data. This distinction between

“ordinary” reimbursement and reclassification is supported by

the fact that Congress provided separately for applications

seeking geographic reclassification through the MGCRB, 42

U.S.C. § 1395ww(d)(10)(C)(ii), (D)(i). As the Secretary

explains, before Congress’s creation of the MGCRB, the hospital

wage data were important only for purposes of figuring the area

wage indices used in calculating the amount of a hospital’s perdischarge reimbursement. After the creation of the MGCRB,

however, the data used to construct the wage index also became

important for purposes of determining whether a hospital could

obtain geographic reclassification for wage index purposes. The

fact that two different determinations share a common input - the

wage data - does not imply that the judicial review and remedial

authority available for one determination must carry over to the

other. 

The hospital’s reliance on ParkView, 158 F.3d 146, is

misplaced. The court stated in that case that “[j]udicial review

of the denial [of a reclassification decision] itself is barred...

[b]ut this bar leaves hospitals free to challenge the general rules

leading to denial.” 158 F.3d at 148 (emphasis added). As the

Ninth Circuit has recognized, however, when a procedure is

challenged solely in order to reverse an individual

reclassification decision, judicial review is not permitted. Skagit,

80 F.3d at 386. The proposition that hospitals may challenge the

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general rules leading to denial is therefore inapplicable here,

where the hospital’s challenge is no more than an attempt to

undo an individual denial of reclassification.

Accordingly, we affirm the order denying in part the

hospital’s motion for summary judgment. We therefore need not

and do not reach the hospital’s contention that the district court

erred in its alternative ruling that the Secretary properly could

decline make-whole relief relying on its unpublished practice to

act on group applications for reclassification prior to individual

applications.

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