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Parties Involved:
Parkview Medical Associates, L.P.
Appellant
Donna E. Shalala
Appellee

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 2, 1998 Decided October 20, 1998

No. 97-5262

ParkView Medical Associates, L.P., d/b/a Parkview Regional

Medical Center, by Quorum Health Group of Vicksburg, Inc.,

its sole general partner,

Appellant

v.

Donna E. Shalala, Secretary of the Department of Health

and Human Services,

Appellee

Appeal from the United States District Court

for the District of Columbia

(No. 94cv01941)

Jonathan L. Rue argued the cause for appellant. With him

on the briefs was Ronald N. Sutter.

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Laura E. Ellis, Attorney, U.S. Department of Health &

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

the brief were Frank W. Hunger, Assistant Attorney General, U.S. Department of Justice, Wilma A. Lewis, U.S. Attorney, Harriet S. Rabb, General Counsel, U.S. Department of

Health & Human Services, and Lawrence J. Harder, Attorney. James P. Ellison, Attorney, entered an appearance.

Before: Wald, Williams and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Williams.

Williams, Circuit Judge: ParkView Medical Associates

closed its purchase of a hospital in Vicksburg, Mississippi on

November 1, 1990 and renamed the hospital ParkView Regional Medical Center.1 Because of the purchase, the hospital filed one report on its wages for the last four months

under the prior ownership (the first four months of its July 1

to June 30 reporting year), and another for the first eight

months of the new ownership (thus closing out the reporting

year). Had it filed a single report for the full twelve-month

period, it would have qualified for reclassification as "urban"

rather than "rural," and would thus have been entitled to

more generous Medicare reimbursement. ParkView sued the

Secretary of Health and Human Services, claiming that the

rules that brought about denial of reclassification were arbitrary and capricious. Although the application of those rules

in this case has produced a seeming anomaly, ParkView has

not shown the regulations to be arbitrary or capricious, and

we accordingly affirm the district court's grant of summary

judgment for the defendant.

* * *

Under Part A of Medicare, most hospitals are reimbursed

for their services to patients through a "fiscal intermediary,"

a private organization that acts as a go-between under agreement with the Secretary. See 42 U.S.C. s 1395h. A hospital

receives a predetermined amount per patient discharged in

__________

1 Except when otherwise specified, we use "ParkView" to refer

to both the partnership and the hospital.

each particular "diagnosis related group," an amount set

annually by the Secretary. See id. s 1395ww(d).

Because hospital costs tend to be higher in urban areas

than in rural, the Secretary's reimbursement rates vary with

a hospital's geographic area. First, the rates are in part

based on the "average standardized amount," a figure calculated separately for "large urban," "urban," and "rural" areas.

See id., s 1395ww(d)(3)(D). Second, the rates are also in part

based on the "wage index" for a particular area, or the

relative wage level for that area compared to the national

wage level. See id. s 1395ww(d)(3)(E). Hospitals are initially classified according to actual location, but they may apply

for reclassification into a nearby area for purposes of using

that other area's standardized amount or wage index. See id.

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s 1395ww(d)(10). Such applications are made to the Medicare

Geographic Classification Review Board, which resolves the

claims under guidelines set out by the Secretary. Its decisions are appealable to the Secretary. See Id.

In September of 1993, ParkView sought reclassification for

wage index purposes from the rural Mississippi area to the

urban Jackson, Mississippi area during federal fiscal year

1995. In order to qualify for such reclassification, a hospital

must show--among other things--that its "average hourly

wage is at least 108 percent of the average hourly wage of

hospitals in the area in which the hospital is located." 42

CFR s 412.230(e)(1)(iii). The data used for this comparison

are the "data from the HCFA hospital wage survey used to

construct the wage index in effect for prospective payment

purposes during the fiscal year prior to the fiscal year for

which the hospital requests reclassification," id.

s 412.230(e)(2)(i), i.e., the data for the hospital itself that the

Secretary used in creating her wage index. As ParkView

requested reclassification for 1995, it had to meet the 108%

test with the data used to construct the fiscal year 1994 wage

index, which the Secretary had just finalized and was about to

put into effect.2

__________

2 The fiscal year 1994 wage index affected reimbursements to

hospitals for discharges occurring on or after October 1, 1993 and

before October 1, 1994. 58 Fed. Reg. 46,293 (1993).

ParkView Medical Associates had purchased the hospital

on November 1, 1990. A hospital that experiences a change

in ownership must file a terminating cost report at the end of

the seller's ownership, see id. s 413.24(f)(1), and has the

option of changing its cost reporting period for the future, see

id. s 413.24(f)(3). ParkView kept its old cost reporting

period: July 1 to June 30. It thus filed two consecutive

short-period reports: a four-month report for July 1, 1990 to

October 31, 1990 and an eight-month report for November 1,

1990 to June 30, 1991--the normal end of its reporting period.

But this brought ParkView up against another rule. The

1994 index was to be based on "data for hospital cost reporting periods beginning on or after October 1, 1989 and before

October 1, 1990 (FY 1990)." 58 Fed. Reg. 46,293 (1993).

Unfortunately for ParkView, the beginning date of its eightmonth report was a month after the end of the October-toOctober window; thus the report was not included in the 1994

wage index calculation. The result: ParkView could not use

the data from the eight-month report to show that it satisfied

the 108% test for reclassification. See 42 CFR

s 412.230(e)(2)(i). If calculated from a combination of the two

short-period reports' data, the average hourly wage would

have been 119.6589% of the local average. Apparently because of seasonal fluctuations, however, calculations based on

only the four-month data fell short of the 108% criterion by a

hair--107.5948%. The Medicare Geographic Classification

Review Board accordingly denied ParkView's request for

1995 reclassification, and the Secretary affirmed the denial.

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* * *

Judicial review of the denial itself is barred. See 42 U.S.C.

s 1395ww(d)(10)(C)(iii)(II) ("The decision of the Secretary

shall be final and shall not be subject to judicial review.").

But this bar leaves hospitals free to challenge the general

rules leading to denial. See Universal Health Servs. v.

Sullivan, 770 F. Supp. 704, 710-12 (D.D.C. 1991); see also

Athens Community Hosp. v. Shalala, 21 F.3d 1176 (D.C. Cir.

1994) (striking down adjacency rule governing reclassificaUSCA Case #97-5262 Document #390397 Filed: 10/20/1998 Page 4 of 8
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tions). But cf. Skagit County Public Hosp. Dist. No. 2 v.

Shalala, 80 F.3d 379, 386-87 (9th Cir. 1996) (finding review

precluded if challenge brought "only to achieve reversal of the

reclassification decision"). Among those rules, ParkView

does not question the requirement of 42 CFR

s 412.230(e)(2)(i) that to satisfy the 108% requirement a

hospital must use the data that had been used in constructing

the wage index. Its attack on the Secretary's strict reliance

on data from cost reports starting within the October-toOctober window for those purposes, then, is necessarily an

attack on the construction of the 1994 wage index.3

We first note that the Secretary had good general reasons

for many of the elements in her data collection method for

this index. By using data for periods for which reports were

already filed with fiscal intermediaries and audited, rather

than a single uniform period, she avoided any need for

Procrustean adjustments of existing data or for generation of

entirely new data. See 58 Fed. Reg. 46,302 (1993) ("We

believe that the FY 1990 data is much more accurate than any

we have used previously.... [Those] data have been subjected to comprehensive edits and revisions, both before and

after the publication of the proposed rule."). Similarly, the

use of a fixed one-year time window (in this case the federal

fiscal year), within which the start of a reporting period must

fall, obviously advances the interest in getting more-or-less

contemporaneous data that can be updated annually, as 42

U.S.C. s 1395ww(d)(3)(E) requires. See 58 Fed. Reg. 30,236

__________

3 ParkView repeatedly refers to its challenge as one to the

Secretary's "annualization" policy. It is true that she provided for

annualization of cost reports shorter or longer than a year--that is,

"dividing the data by the number of days in the cost report and

then multiplying the results by 365." 58 Fed. Reg. 46,298 (1993).

ParkView's claim, however, is not that the Secretary somehow

distorted the wage index by giving short cost reports excessive

weight, but that the Secretary wrongly made no provision for

inclusion of the second short-period report. Indeed, since the 108%

comparison is made on average hourly wages, it is not apparent that

non-annualization would have had any effect at all on ParkView's

reclassification claim.

(1993) (identifying FY 1990 window as response to this statutory requirement).

The real question, then, is whether it was arbitrary and

capricious for the Secretary to fail to adopt a rule that would

more elegantly fit ParkView's special circumstance. Here,

inclusion of ParkView's two short periods would have produced the precise equivalent of inclusion of a single one-year

period starting July 1, 1990, and the Secretary does not offer

any reasons to contest ParkView's view that use of the oneyear data in constructing the wage index (and thus in adjudicating ParkView's reclassification claim) would have yielded a

more accurate result.

But in considering ParkView's contention we cannot be

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blinded by hindsight. Despite being notified in April 1993

that the Secretary's preliminary 1994 wage index calculation

used only the four-month report, ParkView made no protest

at the time. Indeed, it failed even to allude to the issue until

it filed its reclassification request in late September, weeks

after the index at issue had been finalized on September 1,

1993. See 58 Fed. Reg. 46,270 (1993). This is fatal to

ParkView's claim that the Secretary failed to explain this

feature of her choice. "[A]n agency 'cannot be expected to

make silk purse responses to sow's ear arguments.' Similarly, a zero argument deserves a zero response." NRDC v.

EPA, 937 F.2d 641, 647-48 (D.C. Cir. 1991) (quoting City of

Vernon v. FERC, 845 F.2d 1042, 1047 (D.C. Cir. 1988)).

Since ParkView entirely failed to challenge the Secretary's

rule in the process of its adoption, we cannot fault the

Secretary for her failure to refute the unvoiced attack.

Hindsight similarly gives a false sheen to the alternative

now proposed by ParkView: "The Secretary should have

considered the possibility of using aggregate data from more

than one cost report for providers who continue in the

program after the sale of a facility and do not change their

fiscal year." In other words, according to ParkView, the

Secretary should have structured an exception fitted to ParkView's particular case: where two short periods (one starting

after the close of the October-to-October window) add up to

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exactly one year starting within the window. Unless such

period combinations are quite common, the Secretary might

reasonably believe that the added precision would not justify

the added complication. Such a conclusion would be especially defensible in the absence of evidence that the seasonal

variations that so unluckily affected ParkView are often decisive. Further, and critically, ParkView has not shown that

the situations covered by its proposed exception were so

common, or that application of the Secretary's exceptionless

rule would ordinarily lead to consequences so outrageous,

that it was arbitrary and capricious for the Secretary not to

anticipate and correct the problem on her own--despite silence from the parties most directly concerned.

To point up what it sees as the egregiousness of the

Secretary's supposed error, ParkView notes Secretarial determinations that in its view show the common sense necessity of addressing the glitch of which it has run afoul. First, it

notes that the Secretary has permitted inclusion of cost

reports for hospitals with cost reporting periods longer than

52 weeks. But the periods involved were only very slightly in

excess of 52 weeks, and the decision was, like the use of

short-period reports, part of an effort to include data from as

many hospitals as possible. See 58 Fed. Reg. 46,298 (1993)

("The data were included because no data from these hospitals would be available for the cost reporting period described

above, and particular labor market areas might be affected

due to the omission of these hospitals."). This concern seems

to us distinct from ParkView's concern here: whether the

data from a particular included hospital were sufficiently

accurate or representative.

ParkView also says that when the Secretary, in constructing the 1995 wage index calculation, was confronted with two

ParkView reports that satisfied the October-to-October test

(the report for the eight-month period starting November 1,

1990 and the report for the full year starting July 1, 1991),

the Secretary excluded the short-period report. But we do

not see how the Secretary's decision to rely on a full year of

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al eight months, speaks to the rationality of excluding periods

that do not start in the October-to-October window.

ParkView can, of course, always propose a change in the

regulations, and if it confronted the Secretary with a specific

alternative (and perhaps with data as well), Secretarial intransigence in favor of the present rule might be arbitrary

and capricious. See Health Insurance Ass'n of America v.

Shalala, 23 F.3d 412, 417 (D.C. Cir. 1994) (noting contingent

character of arbitrary and capricious classification). On the

present record, however, we cannot so characterize the method the Secretary used to calculate the 1994 wage index. We

therefore affirm the grant of summary judgment.

So 

ordered.

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