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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 October 16, 2008 Decided May 12, 2009 

No. 07-5345 

HEARTLAND REGIONAL MEDICAL CENTER, 

APPELLANT

v. 

KATHLEEN SEBELIUS, SECRETARY OF HEALTH AND HUMAN 

SERVICES, 

APPELLEE

Appeal from the United States District Court 

for the District of Columbia 

(No. 00cv02802) 

Michael B. DeSanctis argued the cause for appellant. 

With him on the briefs were Donald B. Verrilli Jr., Michelle 

A. Groman, and Christopher L. Crosswhite. 

Thomas H. Dupree Jr., Deputy Assistant Attorney 

General, U.S. Department of Justice, argued the cause for 

appellee. With him on the brief were Jeffrey S. Bucholtz, 

Acting Assistant Attorney General, Jeffrey A. Taylor, U.S. 

Attorney, and Michael Jay Singer, Attorney. R. Craig 

Lawrence, Assistant U.S. Attorney, entered an appearance. 

USCA Case #07-5345 Document #1180314 Filed: 05/12/2009 Page 1 of 14
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Before: GINSBURG, TATEL and BROWN, Circuit Judges. 

 GINSBURG, Circuit Judge: In 2000 the Department of 

Health and Human Services denied Heartland Regional 

Medical Center status within the Medicare program as a sole 

community hospital (SCH) for the years 1992 through 1999. 

HHS based its decision upon a 1992 regulation that provided 

a hospital located within 35 miles of a “like” hospital could 

qualify as an SCH only if it was in a rural area. As a 

consequence of the denial, Heartland received reimbursement 

for less than the actual cost of the healthcare it provided to 

Medicare beneficiaries during those years. Heartland 

petitioned the district court for review under the 

Administrative Procedure Act, arguing the district court had 

vacated the rural location rule in 1998, wherefore HHS should 

have held a hearing to consider the hospital’s fact-specific 

claim to be an SCH. The district court granted summary 

judgment to HHS without deciding whether the court’s 1998 

decision had indeed vacated the rule. We conclude the 1998 

decision did not vacate the rural location requirement and 

therefore affirm the judgment of the district court on that 

ground. 

I. Background 

 Part A of the Medicare program “provides basic 

protection against the costs of hospital ... care” for the elderly 

and disabled. 42 U.S.C. § 1395c. A hospital that provides 

inpatient services to a Medicare beneficiary receives 

reimbursement under the Prospective Payment System (PPS), 

which pays a fixed amount regardless of the actual cost of the 

care. Id. § 1395ww. Because a hospital may incur a loss 

whenever it treats a Medicare beneficiary, the Congress, 

concerned not to overburden a hospital that is the only source 

of care in its vicinity, exempted “sole community hospitals” 

USCA Case #07-5345 Document #1180314 Filed: 05/12/2009 Page 2 of 14
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from the PPS: An SCH instead receives reimbursement for 

the actual cost it incurs in providing care to each Medicare 

beneficiary. See Clinton Mem’l Hosp. v. Shalala, 10 F.3d 

854, 855–56 (D.C. Cir. 1993) (discussing both Congress’s 

“[a]ware[ness] that some hospitals might not flourish” under 

the PPS and its decision to codify HHS’s exemption for 

SCHs). In 1992 the Medicare Statute defined an SCH as “any 

hospital ... located more than 35 road miles from another 

hospital ... [or one] that, by reason of [other] factors ... is the 

sole source of inpatient hospital services reasonably available 

to individuals in a geographic area.” 42 U.S.C. § 

1395ww(d)(5)(D)(iii). An HHS regulation interpreted the 

other “factors” in such a way that a hospital located within 35 

miles of “other like hospitals” would be an SCH only if it was 

“located in a rural area,” 42 C.F.R. § 412.92(a) (1992), 

meaning “any area outside an urban area,” including any 

“Metropolitan Statistical Area (MSA) ... as defined by the 

Executive [sic] Office of Management and Budget,” id. § 

412.62(f)(1)(ii)–(iii). 

 In order to apply for SCH status under the 1992 

regulation, a provider would contact its “fiscal intermediary,” 

which would make a recommendation to the Health Care 

Financing Administration (HCFA),* id. § 412.92(b)(1)(i)–(v), 

the unit within HHS that administered the Medicare program 

pursuant to a delegation from the Secretary. The HCFA’s 

decision to disapprove a hospital’s application for SCH status 

was subject to review by the Provider Reimbursement Review 

Board (PRRB). 42 U.S.C. § 1395oo(a) (1992); 42 C.F.R. § 

405.1835(a) (1992). 

 

*

 The HCFA is now known as The Centers for Medicare and 

Medicaid Services. See Centers for Medicare & Medicaid Services; 

Statement of Organization, Functions and Delegations of Authority; 

Reorganization Order, 66 Fed. Reg. 35,437 (2001). 

USCA Case #07-5345 Document #1180314 Filed: 05/12/2009 Page 3 of 14
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 Heartland Regional Medical Center, which is located in 

St. Joseph, Missouri, applied for status as an SCH in 1992. 

The HCFA denied Heartland’s application because Heartland 

is in an urban area, to wit, the St. Joseph MSA, and is fewer 

than 35 miles from the nearest like hospital. Heartland 

appealed to the PRRB, arguing HHS lacked authority to 

promulgate the rural location requirement. The PRRB held it 

lacked jurisdiction to resolve this legal question and therefore 

granted the hospital’s request to seek direct judicial resolution 

of its challenge. 

 Heartland repaired to the district court, where it argued 

the rural location requirement was inconsistent with the 

Medicare Statute and, in any event, HHS had not adequately 

explained why the requirement was appropriate. The district 

court disagreed on both those counts, Heartland Hosp. v. 

Shalala, No. 95-951, slip op. at 15, 19 (D.D.C. June 15, 1998) 

(Heartland I), but it accepted Heartland’s alternative 

argument that HHS had defined “urban area” by reference to 

the OMB’s definition of an MSA without adequately 

considering other approaches raised in public comments upon 

the proposed rule. The district court held that, because HHS 

had “fail[ed] ... to respond to reasonable alternative” 

definitions of an urban area, the rule was “invalid,” id. at 23–

24, wherefore the court “remanded [the rule] to [HHS] for 

action consistent with the [court’s] opinion.” 

 On remand HHS issued a notice of proposed rulemaking 

to reconsider its decision to define “urban area” as an MSA. 

See Proposed Rule: Medicare Program; Changes to the 

Hospital Inpatient Prospective Payment Systems and Fiscal 

Year 2000 Rates, 64 Fed. Reg. 24,716, 24,732 (1999). 

Meanwhile, the HCFA reopened its adjudication of 

Heartland’s claim to status as an SCH. After receiving further 

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public comments in the rulemaking proceeding, HHS 

considered the alternatives but decided to retain the rural 

location requirement and its MSA-based definition. See Final 

Rule: Medicare Program; Changes to the Hospital Inpatient 

Prospective Payment Systems and Fiscal Year 2000 Rates, 64 

Fed. Reg. 41,490, 41,513–15 (1999). Shortly thereafter, 

however, the Congress amended the Medicare Statute to 

preclude HHS from maintaining the rural location 

requirement. Consolidated Appropriations Act, 2000, Pub. L. 

No. 106-113, app. F, tit. IV.A, § 401, 113 Stat. 1501, 1501A369 (1999). On August 31, 2000 the HCFA designated 

Heartland an SCH, effective as of January 1, 2000. 

 On September 6, 2000 the HCFA denied Heartland’s 

request that it be deemed an SCH for the years 1992 through 

1999, giving three reasons. First, the HCFA reasoned that the 

court in Heartland I had not vacated the rural location 

requirement but had merely remanded it to HHS to consider 

alternatives to defining “urban area” as an MSA; once HHS 

had duly considered and rejected the alternatives, the HCFA

could lawfully deny Heartland’s application based upon the 

rural location requirement. The HCFA reasoned in the 

alternative that, even if the court in Heartland I did vacate the 

rule, the HCFA could, in adjudicating Heartland’s status, 

adopt the same rural location requirement and apply it 

retroactively to 1992 based upon HHS’s reasoning in the 1999 

rulemaking. The HCFA’s third reason for denying SCH 

status was new: Heartland’s 1992 application had not 

adequately defined the hospital’s service area. 

 Heartland returned to the district court and filed both a 

motion to enforce the judgment in Heartland I and a 

challenge under the APA to the HCFA’s new decision. In the 

motion to enforce, Heartland sought reimbursement of its 

actual costs of care for Medicare beneficiaries, plus interest, 

USCA Case #07-5345 Document #1180314 Filed: 05/12/2009 Page 5 of 14
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for the years 1992 through 1999. The district court denied 

that motion, Heartland Hosp. v. Thompson, 328 F. Supp. 2d 

8, 15 (D.D.C. 2004) (Heartland II), and we affirmed because 

“even if Heartland I vacated the rural area requirement, the 

only obligation it expressly imposed on the agency was to 

consider the two alternatives suggested during the comment 

period,” Heartland Reg’l Med. Ctr. v. Leavitt, 415 F.3d 24, 29 

(2005) (Heartland III). 

 In its APA challenge to the HCFA’s three reasons for 

denying it status as an SCH, Heartland argued the district 

court in Heartland I had vacated the rural requirement and 

remanded the matter for HHS to develop the particular facts 

relevant to Heartland’s claim to be an SCH. The district court 

granted summary judgment to HHS without deciding whether 

it had in Heartland I vacated the rural location requirement, 

Heartland Reg’l Med. Ctr. v. Leavitt, 511 F. Supp. 2d 46, 52 

(D.D.C. 2007) (Heartland IV), relying upon our statement in 

Heartland III that “with or without vacatur, an agency that 

cures a problem identified by a court is free to reinstate the 

original result on remand,” 415 F.3d at 29–30. By 

considering alternatives in its 1999 rulemaking, HHS had 

cured the problem and thereby cleared the way for the HCFA 

to apply the rural location requirement and deny Heartland’s 

application. Heartland IV, 511 F. Supp. 2d at 52–56. 

Heartland appeals that ruling, which we review de novo. See 

Venetian Casino Resort, L.L.C. v. EEOC, 530 F.3d 925, 929 

(D.C. Cir. 2008). 

II. Analysis 

 

 Heartland contends that because Heartland I vacated the 

rural location rule in force from 1992 to 1998 and HHS did 

not promulgate a new rural location rule until 1999, the 

HCFA retroactively applied a rural location requirement in 

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the 2000 adjudication when it denied the hospital’s 

application for reimbursement as an SCH in 1992 through 

1999. Although Heartland does not dispute that a principle 

announced in adjudication is necessarily retroactive, see 

Rivers v. Roadway Express, Inc., 511 U.S. 298, 311–12 

(1994); Goodman v. FCC, 182 F.3d 987, 994 (D.C. Cir. 

1999), the hospital points out that the agency could not have 

applied HHS’s 1999 rule retroactively to deny Heartland’s 

application “unless that power [had been] conveyed by 

Congress in express terms,” Bowen v. Georgetown Univ. 

Hosp., 488 U.S. 204, 208–09 (1988). Heartland asserts the 

Congress gave the agency no such power and therefore the 

HCFA had but two options on remand: It could have either 

(a) adjudicated Heartland’s application by reference solely to 

the statutory criteria in force from 1992 through 1999, which 

did not include a rural location requirement, or (b) adopted a 

rural location requirement, as a matter of statutory 

interpretation, and applied it retroactively through 

adjudication. In either event, Heartland argues, the HCFA 

should have permitted Heartland to argue against the adoption 

of a rural location requirement and to submit evidence related 

to its eligibility under the statutory criteria. The HCFA’s 

refusal to permit the introduction of such argument and 

evidence was, according to the hospital, “arbitrary, capricious, 

an abuse of discretion, or otherwise not in accordance with 

law,” 5 U.S.C. § 706(2)(A). Heartland also raises procedural 

and substantive challenges to the HCFA’s alternative ground 

for denying its application, viz., that the hospital did not 

properly define its service area. 

 HHS does not take issue with Heartland’s analysis of the 

options open to the HCFA on remand — assuming, as 

Heartland does, the district court in Heartland I vacated the 

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rural location requirement.*

 Instead, HHS disputes that 

assumption. Citing Allied-Signal, Inc. v. United States 

Nuclear Regulatory Commission, 988 F.2d 146 (D.C. Cir. 

1993), HHS contends the district court did not vacate the rule 

because vacatur of the regulation would have been contrary to 

this circuit’s precedent and unwarranted in light of the 

“prospect of the rule’s being readopted upon the basis of a 

more adequate explanation of the agency’s reasoning,” Ill. 

Pub. Telecomms. Ass’n v. FCC, 123 F.3d 693, 693 (D.C. Cir. 

1997). 

 We agree with HHS that Heartland I did not vacate the 

rural location requirement. The hospital’s argument to the 

contrary is based upon the erroneous proposition that when a 

district court declares a regulatory requirement “invalid,” it 

thereby necessarily vacates the regulation in which that 

requirement is expressed. See Heartland I, slip op. at 24. 

 To determine the effect of the judgment in Heartland I, 

however, we must look not only to the district court’s having 

declared the rural location rule “invalid,” but also to the 

nature of the flaw in the agency decision there under review, 

to circuit law governing the proper remedy for such a flaw, 

and to the remanding court’s analysis of that flaw, viewed in 

the context of “the decision as a whole.” See Select Specialty 

Hosp. of Atlanta v. Thompson, 292 F. Supp. 2d 57, 68–69 

(D.D.C. 2003). In Illinois Public Telecommunications Ass’n 

v. FCC, for example, we granted the petition for review, 

stating only that “we remand this issue to the agency for 

further consideration.” 117 F.3d 555, 564 (1997). Upon 

granting the petitioners’ motion for clarification, we looked to 

 

*

 HHS does not agree with Heartland, however, that any further 

proceedings were required before the HCFA could rule against 

Heartland’s application. 

USCA Case #07-5345 Document #1180314 Filed: 05/12/2009 Page 8 of 14
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the law governing remedies and explained that our prior 

judgment should be understood to have vacated the rule 

because the accompanying opinion indicated the agency had 

“little or no prospect” of curing the defect in the rule. See Ill. 

Pub., 123 F.3d at 693–94; see also Ill. Pub., 117 F.3d at 564 

(doubting agency had basis for factual conclusion it had 

adopted “cavalierly,” without acknowledging contrary 

empirical evidence, and defended on reconsideration by 

stating only that it “disagree[d]” with contrary proposition). 

 When the district court decided Heartland I in 1998, the 

law of this circuit was (as it had been since 1993) that in 

deciding whether to vacate a flawed agency action, the district 

court should be guided by two principal factors: (1) “‘the 

seriousness of the ... deficiencies’” of the action, that is, how 

likely it is “the [agency] will be able to justify” its decision on 

remand; and (2) “the disruptive consequences of vacatur.” 

Fox Television Stations, Inc. v. FCC, 280 F.3d 1027, 1048–

49, modified on reh’g on other ground, 293 F.3d 537 (2002) 

(quoting Allied-Signal, 988 F.2d at 150–51); Ill. Pub., 123 

F.3d at 693–94 (applying Allied-Signal factors but also citing 

ABA House of Delegates Rec. No. 107B (ABA Report) 

(1997), which lists additional “factors to guide the court’s ... 

discretion”). Heartland maintains that, because the district 

court did not apply the Allied-Signal factors in Heartland I, it 

must have intended to vacate the rural location rule. The 

Allied-Signal factors were well understood, however, when 

the district court decided Heartland I. Because both factors 

unambiguously pointed to remand without vacatur, and that is 

what the opinion, on its face, suggests, that is how the 

judgment should be understood. 

 The district court in Heartland I declared the rural 

requirement “invalid” solely because of “[t]he failure of 

[HHS] to respond to reasonable alternative” ways of defining 

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“urban areas,” slip op. at 23–24, and remanded the matter to 

HHS “for action consistent with the foregoing opinion,” 

which could only mean responding to those alternatives. 

When an agency may be able readily to cure a defect in its 

explanation of a decision, the first factor in Allied-Signal 

counsels remand without vacatur. See La. Fed. Land Bank 

Ass’n v. Farm Credit Admin., 336 F.3d 1075, 1085 (D.C. Cir. 

2003); Ronald M. Levin, “Vacation” at Sea: Judicial 

Remedies and Equitable Discretion in Administrative Law, 53

DUKE L.J. 291, 379 (2003) (citing ABA Report and endorsing 

cases in which the “perception [that agency may be able to 

cure defect] tends to militate towards leaving the action in 

place while the agency addresses the deficiency”); ABA 

Report (“special circumstances” justifying remand without 

vacatur include “substantial likelihood that the agency, after 

further consideration, will be able to remedy its error and 

reach a similar overall result on a valid basis”). 

 The second factor — the disruptive effect of vacatur — 

pointed in the same direction. Under the rule in effect from 

1992 through 1998, Heartland and similarly situated hospitals 

were not eligible for reimbursement as SCHs. See 42 C.F.R. 

§ 412.92(a) (1992). Vacating the rural location requirement 

for eligibility likely would have required HHS to make 

payments to those hospitals for those years and for any 

subsequent years until the agency repromulgated the same 

rule and gave an adequate reason for rejecting the alternatives. 

Reinstating the same rule, however, likely would not have 

enabled HHS to recover payments made for 1992 through the 

time of reinstatement, as is implied by the HCFA’s position in 

the order under review, viz., that if the court in Heartland I 

had vacated the 1992 rule, then the presumption against 

retroactive rulemaking outlined in Georgetown would have 

prevented the HCFA from applying the 1999 rule in order to 

deny Heartland’s application. Without deciding whether the 

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agency correctly understood the statute (as it then was) to 

preclude retroactive application of a rural location rule, we 

think it sufficient for the purpose of the second Allied-Signal 

factor that vacatur of the rural location requirement would 

have raised substantial doubt about HHS’s ability to recoup 

payments it made for years prior to reinstatement of that 

requirement. See Georgetown, 488 U.S. at 207, 215 (rejecting 

HHS’s attempt, through promulgation of a retroactive rule, to 

recoup payments made in response to vacatur of rule). In 

sum, both factors counseled remand without vacatur, and we 

conclude that is what the district court did in Heartland I. 

Heartland nonetheless insists the court must have vacated 

the rule because it declared the rule “invalid,” but the terms 

“invalid” and “vacated” are not synonyms. That is why we 

may label an agency’s action “invalid” even when we have 

remanded it for further proceedings without having vacated it. 

See In re Core Commc’ns, Inc., 531 F.3d 849, 856 (D.C. Cir. 

2008) (noting prior decision held agency rules were “invalid” 

but “remand without vacatur left ... rules in place”). Nor are 

the concepts those terms denote inseparable. Thus, in 

Rodway v. United States Department of Agriculture, 514 F.2d 

809, 813–14 (D.C. Cir. 1975), the agency failed to provide 

public notice and an opportunity for comment before it 

adopted regulations establishing an allotment system for the 

federal food stamp program and then issued the regulations 

without the “concise general statement of their basis and 

purpose” required by APA § 4(c), 5 U.S.C. § 553(c). We held 

the regulation “invalid as promulgated.” Rodway, 514 F.2d at 

817. In light of the “critical importance of the allotment 

regulations,” however, “we [did] not order the regulations 

vacated pending” a curative rulemaking on remand. Id. As 

Core Communications and Rodway illustrate, therefore, 

vacatur need not be the remedy for an invalidly adopted rule. 

Bearing in mind the difference between invalidity and 

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vacatur, we do not believe the district court in Heartland I

used “invalid” to mean “vacated” when it reasoned that 

HHS’s procedural “failure ... to respond to [comments] ... 

render[ed] the adoption of the regulations arbitrary and 

capricious and, consequently, invalid.” Heartland I, slip op. 

at 23–24. 

 Heartland points out that in the Georgetown case the 

Supreme Court used “invalidated” as a synonym for 

“vacated,” 488 U.S. at 206–07, and cites Action on Smoking 

& Health v. Civil Aeronautics Board, 713 F.2d 795 (1983) 

(ASH), because there we stated, “To ‘vacate’ ... means ‘... to 

make of no authority or validity,’” id. at 797. Neither case, 

however, tells us that when a court declares a rule “invalid” 

because the agency’s explanation is inadequate, as the district 

court did in Heartland I, it necessarily vacates the rule. 

Allied-Signal, which came after both cases but before 

Heartland I, clearly indicates it does not. 

 In Georgetown the Court equated “invalidated” and 

“vacated” in discussing a district court’s decision setting aside 

a rule for which the agency had not gone through the notice 

and comment procedure required by the APA. 488 U.S. at 

206–07. Similarly, in ASH we were interpreting an 

eponymous earlier decision, see 699 F.2d 1209 (1983), in 

which we had “clearly and unequivocally vacated” a rule, 713 

F.2d at 797, because the agency had published a “palpably 

inadequate” explanation devoid of “reasoning to support its 

conclusion” and therefore failed to comply with the 

requirement that it provide a statement of basis and purpose 

when promulgating a rule, see 699 F.2d at 1217; see also 713 

F.2d at 797–99 & n.2 (when “required explanation of the 

agency’s action is totally absent,” vacatur is indicated lest 

remand invite “wholly post hoc rationalization”). Failure to 

provide the required notice and to invite public comment — 

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in contrast to the agency’s failure here adequately to explain 

why it chose one approach rather than another for one aspect 

of an otherwise permissible rule — is a fundamental flaw that 

“normally” requires vacatur of the rule. See Sugar Cane 

Growers Coop. of Fla. v. Veneman, 289 F.3d 89, 97–98 (D.C. 

Cir. 2002). So too, when an agency’s explanation of the basis 

and purpose of its rule is so inadequate that the reviewing 

court cannot evaluate it, the regulation is subject to vacatur 

under the first Allied-Signal factor. See Ill. Pub., 123 F.3d at 

693–94. Therefore, neither Georgetown, which involved a 

rule vacated for want of an essential procedural safeguard, nor 

ASH, which involved an agency’s failure to offer any 

reasoned statement of the basis and purpose of its action, 

suggests a court declaring “invalid” and remanding a rule 

with a defect that is likely curable necessarily vacates that 

rule. 

 In sum, because all indications in Heartland I point 

toward remand without vacatur, we believe the district court 

left the “invalid” rural location rule in place pending a 

curative rulemaking. Because Heartland does not argue HHS 

failed in 1999 to cure the deficiencies identified in Heartland 

I, it follows that in the 2000 adjudication the HCFA was “free 

to reinstate the original result” based upon that rule. See 

Heartland III, 415 F.3d at 29–30; see also Fertilizer Inst. v. 

EPA, 935 F.2d 1303, 1312 (D.C. Cir. 1991) (describing 

remand without vacatur as “allow[ing] the [rule] to remain in 

place until” agency cures defect). Therefore, we do not reach 

Heartland’s various challenges to the HCFA’s adjudication of 

the hospital’s application for SCH status from 1992 through 

1999, which challenges proceed from the premise that the 

court in Heartland I vacated the 1992 rule. 

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III. Conclusion 

 For the foregoing reasons the judgment of the district 

court is 

Affirmed. 

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