IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 19-10334

HENDRICK MEDICAL CENTER, 

 Plaintiff - Appellant

v.

ALEX M. AZAR, II, SECRETARY, U.S. DEPARTMENT OF HEALTH AND 

HUMAN SERVICES, 

 Defendant – Appellee

Appeal from the United States District Court

Northern District of Texas

Before HIGGINBOTHAM, STEWART, and ENGELHARDT, Circuit Judges.

CARL E. STEWART, Circuit Judge:

Healthcare provider Hendrick Medical Center (“Hendrick”) brought this 

suit challenging Medicare payments it received for the 2015 federal fiscal year. 

After the review board dismissed its appeal, Hendrick appealed to the district 

court which rendered summary judgment in favor of Appellee Alex M. Azar, II, 

Secretary (“the Secretary”) of the U.S. Department of Health & Human 

Services (“DHHS”). For the following reasons, we AFFIRM.

I. Facts & Procedural History

This action arises under Title XVIII of the Social Security Act, 42 U.S.C. 

§§ 1395 et seq. (“the Medicare Act”) and the Administrative Procedure Act 

(“APA”), 5 U.S.C. §§ 551 et seq. The Secretary is the federal official responsible 

United States Court of Appeals

Fifth Circuit

FILED

February 24, 2020

Lyle W. Cayce

Clerk

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for administration of the Medicare program. 42 U.S.C. § 1395hh(a)(1). The 

Secretary delegates this responsibility to the Centers for Medicare & Medicaid 

Services (“CMS”), a federal agency located within the DHHS. Id. at § 1395b-9. 

CMS contracts with Medicare Administrative Contractors (“MAC”) to perform 

services necessary for the daily operation of the Medicare program. Id. at § 

1395kk-1. Each hospital is assigned to a MAC that collects wage data from the 

hospital and submits it to CMS for calculation of a “wage index.” See 42 U.S.C. 

§ 1395ww(d)(3)(E)(i). 

In simplified terms, the wage index is a ratio of each geographical area’s 

labor cost to the national average. Id. The wage index is used to calculate the 

payments that each hospital will receive for treating Medicare patients—the 

higher the wage index, the higher the payment. Id. Any adjustments to the 

wage index must be budget neutral, meaning that an increase in payment to 

one provider requires an offsetting decreased payment to another provider. Id. 

CMS updates the wage index once a year. Id. 

The wage index is calculated using the wage data correction process. The 

wage data correction process involves publication of a “timetable” containing a 

list of important dates during that Federal Fiscal Year (“FFY”), including two 

separate notices in the Federal Register—(1) a proposed rule in April or May 

and (2) a final rule in August. The timetable references public use files 

(“PUFs”) which are compiled by CMS and made available online to hospitals 

on certain dates. The hospitals are then instructed to review the data and 

request any necessary corrections by specified deadlines. Hospitals are given 

several opportunities to request corrections throughout the process, but their 

last chance is in June. If hospitals do not request revisions of the proposed rule 

that is published in April or May by the June deadline, the proposed rule 

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becomes final and is published in the Federal Register in August, setting the 

wage index for the next FFY beginning on October 1. 

Hendrick operates under the Medicare program and is located in the 

Abilene, Texas geographical area. In this case, Hendrick challenges the wage 

index applied to it during the 2015 FFY.1 It is undisputed that the wage index 

data applicable to Hendrick was incorrect because the MAC—here, Novitas 

Solutions, Inc.—transmitted Hendrick’s final wage data to CMS and the data 

contained errors. In the earlier stages of the wage data correction process, 

Hendrick noticed errors and successfully utilized the correction process to 

correct them. However, once that data was corrected, the MAC then 

erroneously provided CMS with the original uncorrected wage data, and that 

data was used to calculate the Abilene wage area index. To compound the 

problem, although the incorrect wage index was posted publicly for notice and 

correction as provided by the wage data correction process, Hendrick never 

reviewed the data or requested to correct it by the June 2, 2014 deadline. 

Because Hendrick missed the final deadline to request corrections to the data, 

the incorrect wage index became the final wage index that was set and 

subsequently published in the Federal Register in August 2014. To further 

complicate matters, Hendrick’s wage data is utilized to calculate the wage 

index for the entire geographical area of Abilene, Texas, where a separate 

group of hospitals—Anson General Hospital, ContinueCare Hospital, Stamford 

Memorial Hospital, and Southern Oaks Healthcare, Inc. (collectively, “the 

Hospitals”)—is located. Consequently, Hendrick’s incorrect wage index skewed 

the wage index applicable to both Hendrick and the Hospitals, resulting in an 

incorrect calculation of the wage index applicable to all. As a consequence, 

1 The 2015 FFY begins October 1, 2014 and ends September 30, 2015.

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Hendrick and the Hospitals received lowered Medicare reimbursements for the 

2015 FFY.2

Hendrick appealed to the Provider Reimbursement Review Board (“the 

Board”)3 seeking an additional $2 million for hospital inpatient services 

furnished to Medicare beneficiaries in the 2015 FFY. The Board dismissed 

Hendrick’s appeal for lack of jurisdiction because Hendrick had failed to adhere 

to the statutory process for the correction of wage data by requesting correction 

of the incorrect data by the June 2014 deadline. Specifically, the Board stated:

The Board concludes that it lacks jurisdiction over 

Hendrick Medical Center because it failed to exhaust its 

administrative remedies when it failed to check the May 2, 

2014 PUF which contained the incorrect wage data for FFY 

2015. Although the Provider argues that it lacked notice of 

the issuance of the PUF, the Secretary advised providers to 

review the file in the May 15, 2014 Federal Register.

Hendrick appealed the Board’s ruling to the district court. On March 7, 

2019, the district court granted summary judgment in favor of the Secretary, 

holding that the jurisdictional decision of the Board and subsequent 

reconsideration denial did not violate the APA or the Medicare Act. The district 

court explained that it was “undisputed that [Hendrick] failed to check its data 

in the final public use file and failed to notice that its wage data included a 

transmission error . . . [and] also failed to request a wage data correction by 

the June 2, 2014 deadline.” The district court further observed that despite 

Hendrick’s argument to the contrary, “the exhaustion requirement was a dulypromulgated rule . . . designed . . . specifically to address the issue [Hendrick] 

alleges caused the error—CMS or MAC errors made in the entry of the final 

2 The Hospitals have a separate, related appeal currently pending before this court. 

See No. 19-10470, Anson Gen. Hosp., et al v. Azar. 3 The Provider Reimbursement Review Board is a regulatory body authorized to make 

substantive decisions regarding Medicare reimbursement appeals.

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wage index data that resulted from the correction process. See 79 Fed. Reg. at 

28,081.” The district court concluded that the “results may be harsh, but the 

deadline for administrative exhaustion was clearly set forth and properly 

noticed.” This appeal ensued.

II. Standard of Review

We review a district court’s grant of a summary judgment de novo, 

applying the same standard as the district court. Forrest Gen. Hosp. v. Azar, 

926 F.3d 221, 227 (5th Cir. 2019). “Under Rule 56, summary judgment is 

proper if the movant shows that there is no genuine dispute as to any material 

fact and the movant is entitled to judgment as a matter of law.” Id. (internal 

quotation marks omitted) (quoting FED. R. CIV. P. 56(a)). 

Hendrick filed suit under 42 U.S.C. § 1395oo(f), which states that 

“[p]roviders shall have the right to obtain judicial review of any final decision 

of the Board, or of any reversal, affirmance, or modification by the Secretary, 

by a civil action commenced within 60 days of the date on which notice of any 

final decision by the Board or of any reversal, affirmance, or modification by 

the Secretary is received.” Section 1395oo(f)(1) uses the standards for judicial 

review established in the APA. Id. (“Such action shall be brought in the district 

court of the United States for the judicial district in which the provider is 

located . . . and shall be tried pursuant to the applicable provisions under 

chapter 7 of Title 5 notwithstanding any other provisions in section 405 of this 

title.”). “Under the APA, the [agency’s] action may be set aside if ‘arbitrary, 

capricious, an abuse of discretion, or otherwise not in accordance with law.’” 

See Tex. Tech. Physicians Assocs. v. U.S. Dep’t of Health & Human Servs., 917 

F.3d 837, 844 (5th Cir. 2019) (quoting 5 U.S.C. § 706(2)(A)). However, we defer 

to an agency’s decision and presume it to be valid. Id. “[T]he plaintiff bears the 

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burden of showing otherwise.” Id. Additionally, “[w]e defer to the agency’s 

findings of fact if they are supported by substantial evidence.” Id. 

III. Discussion

Hendrick appeals to this court arguing that under the Medicare Act and 

the APA the Secretary may not make Medicare payments based on incorrect 

information, regardless of its failure to adhere to the administrative process 

used to correct inaccurate data under the statute. Hendrick advances 

numerous arguments against the exhaustion requirements the Board relied on

in determining that it lacked jurisdiction over Hendrick’s appeal. It also 

submits policy, notice, and statutory construction arguments and requests that 

this court require the Secretary to recalculate its 2015 FFY Medicare payments 

if we determine that the Board had jurisdiction over its appeal. Our review of 

the applicable statutory and case law reveals that Hendrick is not entitled to 

the relief that it seeks.

In 1965, Congress established the Medicare Act “and authorized the 

Secretary to issue regulations defining the reimbursable costs and to otherwise 

carry out the Medicare Act provisions.” See Lion Health Servs., Inc. v. Sebelius, 

635 F.3d 693, 695 (5th Cir. 2011) (citing 42 U.S.C. §§ 1395x(v)(1)(A) & 

1395hh(a)(1)). “[T]he statutory text [of the Medicare Act] expressly affords the 

Secretary flexibility and discretion in compiling data and calculating the wage 

index.” Anna Jacques Hosp. v. Burwell, 797 F.3d 1155, 1164 (D.C. Cir. 2015). 

Section 1395oo(a) describes the Secretary’s authority (acting through CMS) to 

require reports from hospitals desiring to challenge their assigned wage index 

and to set deadlines for the submission of those reports. In turn, the notice set 

forth in 79 Fed. Reg. 27978, 28081 (May 15, 2014), provided that the May 2014 

PUFs were made available online “solely for the limited purpose of identifying 

any potential errors made by CMS or the MAC in the entry of the final wage 

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index data.” The notice made clear that “[a]fter the release of the May 2014 

wage index data files, changes to the wage and occupational mix data will only 

be made in those very limited situations involving an error by the MAC or CMS 

that the hospital could not have known about before its review of the final wage 

index data files.” 79 Fed. Reg. 27978, 28081 (May 15, 2014). (emphasis added). 

The notice states that “[i]f, after reviewing the May 2014 final public use files, 

a hospital believes that its wage or occupational mix data are incorrect due to 

a MAC or CMS error in the entry or tabulation of the final data, the hospital 

should notify both its MAC and CMS regarding why the hospital believes an 

error exists and provide all supporting information, including relevant dates 

(for example, when it first became aware of the error). The hospital is required 

to send its request to CMS and to the MAC no later than June 2, 2014.” See id. 

(emphasis added). This notice was clear and in no uncertain terms placed the 

onus on Hendrick to review and request any corrections of its wage data by 

June 2, 2014—which it did not. 

Providers such as Hendrick are deemed to have notice of the contents of 

the Federal Register. See 44 U.S.C. § 1507 (stating that notice by publication 

in the Federal Register “is sufficient to give notice of the contents of the 

document to a person subject to or affected by it”). Moreover, although exact 

dates for the 2015 FFY deadlines were provided in the Federal Register in 

2014, the original wage data correction process timetable with the same 

relevant deadlines has been published every year since 1997. See Final Rule, 

62 Fed. Reg. 45966, 45993 (Aug. 29, 1997) (providing the early June final 

deadline for correction of wage data, publication of the final rule in August, 

and the effective date of the updated wage index in October). 

Additionally, 42 C.F.R. § 412.64(k)(1)-(2) further underscores a 

provider’s duty to exhaust its administrative remedies by availing itself of the 

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wage data correction process prior to obtaining review from the Board. 

Subsection 412.64(k)(1) states that a hospital may obtain a “midyear” 

correction of a wage index “only if a hospital can show that—(i) [t]he [MAC] or 

CMS made an error in tabulating its data; and (ii) [t]he hospital could not have 

known about the error, or did not have the opportunity to correct the error, 

before the beginning of the Federal fiscal year.” Subsection 412.64(k)(2) has 

similar limiting language in that it only allows retroactive changes to the wage 

index when CMS determines that “the hospital knew about the error in its 

wage data and requested the fiscal intermediary and CMS to correct the error 

both within the established schedule for requesting corrections to the wage 

data . . . and using the established process[.]”

Under this court’s deferential standard of judicial review applicable here, 

the agency’s action cannot be set aside unless we find it “arbitrary, capricious, 

an abuse of discretion, or otherwise not in accordance with the law.” Tex. Tech. 

Physicians Assocs., 917 F.3d at 844 (internal quotation marks omitted). The 

agency’s action here, however, was supported by the statute and regulations.

Hendrick received notice via the Federal Register but failed to request 

correction of its wage data by the published deadline in accordance with the 

established process under the statute. Thus, the Board’s determination that it 

did not have jurisdiction over Hendrick’s appeal for failure to exhaust 

administrative remedies was correct. As the district court correctly observed, 

the “results may be harsh, but the deadline for administrative exhaustion was 

clearly set forth and properly noticed.”4 The district court did not err in 

dismissing Hendrick’s appeal. 

4 See also Baystate Franklin Med. Ctr. v. Azar, --- F.3d ---, No. 18-5264, 2020 WL 

625214, at *7 (D.C. Cir. Feb. 11, 2020) (holding that the Secretary’s decision to enforce a 

deadline and reject data submitted by a hospital months after the deadline to request 

revisions had passed was within his statutory discretion and a permissible construction of 

the statute).

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IV. Conclusion

For these reasons, we affirm the district court’s summary judgment in 

favor of the Secretary. 

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