1 

UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF COLUMBIA 

CITRUS HMA, LLC, d/b/a SEVEN RIVERS 

REGIONAL MEDICAL CENTER, et al. 

 Plaintiffs, 

v. 

XAVIER BECERRA, Secretary of U.S. 

Department of Health and Human Services, 1

Defendant.

Civil Action No. 20-707 (CKK) 

MEMORANDUM OPINION 

(April 8, 2022) 

Thirty-four hospitals located in urban areas of Arizona, Connecticut, and Florida 

(“Plaintiffs”) bring this action under the Administrative Procedure Act (“APA”) against Secretary 

of Health and Human Services Xavier Becerra (“Defendant” or “the Secretary”). Plaintiffs 

contend that they were reimbursed at lower rates than “rural” hospitals in their respective states in 

FY 2020, in violation of the Medicare statute. Pending before this Court are Plaintiffs’ [23] Motion 

for Summary Judgment and Defendant’s [26] Cross-Motion for Summary Judgment and 

Opposition to Plaintiffs’ Motion for Summary Judgment. Upon consideration of the pleadings,2

the relevant legal authorities, and for the reasons below, the Court finds that the Medicare statute 

1

 Pursuant to Federal Rule of Civil Procedure 25(d), the Court automatically substitutes Xavier Becerra, Secretary of 

the U.S. Department of Health and Human Services. 

2

 The Court’s consideration has focused on the following documents: 

• Plaintiffs’ Motion for Summary Judgment (“Pls.’ Mot.”), ECF No. 23; 

• Defendant’s Cross-Motion for Summary Judgment and Opposition to Plaintiffs’ Motion for Summary 

Judgment (“Def.’s Cross-Mot. & Opp’n”), ECF No. 26; 

• Plaintiffs’ Reply in Support of Plaintiffs’ Motion for Summary Judgment and Opposition to Defendant’s 

Cross-Motion for Summary Judgment (“Pls.’ Reply & Opp’n”), ECF No. 28; and 

• Defendant’s Reply in Support of Defendant’s Cross-Motion for Summary Judgment (“Def.’s Reply), ECF 

No. 30. 

In an exercise of its discretion, the Court finds that holding oral argument in this action would not be of assistance in 

rendering a decision. See LCvR 7(f). 
2 

unambiguously bars the methodology employed by the Secretary in FY 2020, which resulted in 

Plaintiffs being reimbursed at lower rates than rural hospitals in their same states. Accordingly, 

the Court shall grant in part Plaintiffs’ Motion for Summary Judgment, but shall remand this action 

to the Secretary for further proceedings consistent with this Memorandum Opinion without 

vacating the Secretary’s rule. The Court shall deny Defendant’s Cross-Motion for Summary 

Judgment. 

I. BACKGROUND 

A. Statutory and Regulatory Background 

 The Medicare statute, Title XVII of the Social Security Act, provides healthcare coverage 

and insurance for the elderly and disabled. 42 U.S.C. § 1395, et seq. The Center for Medicare & 

Medicaid Services (“CMS”) administers the Medicare program on behalf of the Secretary. 

Through the Medicare program, the federal government reimburses healthcare providers for 

hospital inpatient services at predetermined rates, known as the inpatient prospective payment 

system (“IPPS”). The methodology for calculating these rates is prescribed by 42 U.S.C. 

§ 1395ww(d). Under IPPS, hospitals are paid a fixed, predetermined amount depending on a 

patient’s category of illness—rather than for the actual costs incurred for a particular patient’s care. 

See Anna Jacques Hosp. v. Burwell, 797 F.3d 1155, 1157–58 (D.C. Cir. 2015) (“[IPPS] 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.”). These categories are referred to 

as “diagnostic-related groups” (“DRGs”). See 42 U.S.C. § 1395ww(d)(2)(G); Methodist Hosp. of 

Sacramento v. Shalala, 38 F.3d 1225, 1227 (D.C. Cir. 1994). CMS assigns a weight for each DRG 

reflecting how the cost of treating such diagnosis compares to the costs of treating the average 

inpatient. See 42 U.S.C. § 1395ww(d)(4)(B); Anna Jacques Hosp., 797 F.3d at 1158. The more 
3 

expensive the treatment for a DRG is relative to the average Medicare inpatient, the greater the 

weight assigned to that DRG. Final payments under IPPS are calculated by multiplying the 

patient’s DRG weight by a standardized amount equivalent to the cost of treating the average 

patient. 42 U.S.C. § 1395ww(d)(3)(D)(iii). 

1. Wage Index Adjustment 

 Because a significant portion of a hospital’s costs are attributable to wages and labor 

costs—which vary widely among geographic areas—the Secretary is required to adjust IPPS rates 

to account for these differences through a “wage index adjustment.” 42 U.S.C. § 

1395ww(d)(3)(E); see also Anna Jacques Hosp., 797 F.3d at 1157 (“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.”). Because, as a general matter, labor 

costs tend to be higher in “urban” areas than in “rural” areas, see, e.g., Def.’s Cross-Mot. & Opp’n 

at 6, the wage index adjustment ensures that “urban” hospitals are not undercompensated for their 

services and that “rural” hospitals are not overcompensated. Specifically, the statute provides: 

[T]he Secretary shall adjust the proportion, (as estimated by the 

Secretary from time to time) of hospitals’ costs which are 

attributable to wages and wage-related costs, of the DRG 

prospective payment rates computed under subparagraph (D) for 

area differences in hospital wage levels by a factor (established by 

the Secretary) reflecting 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). The “factor” is equivalent to the “wage index,” which is a 

comparison of the average hospital wages in a particular geographic area to the national average 

hospital wage. Anna Jacques Hosp., 797 F.3d at 1158. 
4 

For the purposes of the wage index, there are two types of geographic locations: “urban” 

and “rural.” 42 C.F.R. § 412.64(h). An “urban” area is a Metropolitan Statistical Area (“MSA”), 

as defined by the Office of Management and Budget. 42 U.S.C. § 1395ww(d)(2)(D); see also 42 

C.F.R. § 412.64(b)(1)(ii)(A). The Secretary calculates a distinct wage index adjustment for each

“urban” area in the country. See, e.g., 79 Fed. Reg. 49,854-01, 49,951 (Aug. 22, 2014). In this 

Memorandum Opinion, the Court shall refer to hospitals located in “urban” areas as “urban 

hospitals.” “Rural” areas are any areas outside of an urban area. 42 U.S.C. § 1395ww(d)(2)(D); 

see also 42 C.F.R. § 412.64(b)(1)(ii)(C). Instead of calculating a distinct wage index adjustment 

for each rural area (as is the case with urban areas), the Secretary calculates only one rural wage 

index adjustment for each state. See, e.g., 69 Fed. Reg. 48,916-01, 49,026 (Aug. 11, 2004). The 

Court shall refer to hospitals located in “rural” areas as “rural hospitals.” As an example, in a state 

with two distinct “urban” areas, an “urban wage index” specific to each area would apply to “urban 

hospitals,” whereas the “rural wage index” would apply to all remaining hospitals in the same 

state—the “rural hospitals.” 

The Secretary updates the area wage indexes annually by conducting a survey of wage and 

hour data of all Medicare-participating IPPS hospitals nationally. 42 U.S.C.§ 1395ww(d)(3)(E)(i). 

2. Rural Reclassification 

 In the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 

(“BBRA”), Congress created a mechanism through which urban hospitals can apply to be treated 

as if they were located within a state’s “rural” area for purposes of IPPS payments. BBRA, Pub. 

L. 106-113, § 401, 113 Stat. 1501, 1501A–321 (codified as 42 U.S.C. § 1395ww(d)(8)(E)). In 
5 

effect, this “rural reclassification” transforms an otherwise urban hospital into a rural one. 

Specifically, the statute provides 

For purposes of this subsection [IPPS], not later than 60 days after 

the receipt of an application (in a form and manner determined by 

the Secretary) from a subsection (d) hospital described in clause (ii), 

the Secretary shall treat the hospital as being located in the rural 

area (as defined in paragraph (2)(D)) of the State in which the 

hospital is located. 

42 U.S.C. § 1395ww(d)(8)(E)(i) (emphasis added). If an urban hospital satisfies the criteria 

specified by clause (ii),3

 that hospital is treated as if it were “located within the rural area” of the 

relevant state for purposes of IPPS payments. Id. For clarity, the Court shall refer to such eligible 

“urban hospitals” that have elected to be treated as if they are “rural hospitals” as “reclassified 

urban-to-rural hospitals.” 

In calculating the rural wage index of a particular state, the Secretary includes wage data 

from both rural hospitals and reclassified urban-to-rural hospitals. See, e.g., 42 C.F.R. 

§ 412.103(b)(6) (addressing timing requirements for reclassified hospitals to be included in the 

rural wage index calculations). Because reclassified urban-to-rural hospitals tend to have higher 

labor costs than rural hospitals, including wage data from reclassified urban-to-rural hospitals in 

calculating the rural wage index typically increases the rural wage index as compared to a rural 

wage index based on rural hospitals alone. 

3

 Clause (ii) of 42 U.S.C. § 1395ww(d)(8)(E) provides: 

For purposes of clause (i), a subsection (d) hospital described in this clause is a subsection (d) 

hospital that is located in an urban area (as defined in paragraph (2)(D)) and satisfies any of the 

following criteria: 

(I) The hospital is located in a rural census tract of a metropolitan statistical area (as determined 

under the most recent modification of the Goldsmith Modification, originally published in the 

Federal Register on February 27, 1992 (57 Fed. Reg. 6725)). 

(II) The hospital is located in an area designated by any law or regulation of such State as a rural 

area (or is designated by such State as a rural hospital). 

(III) The hospital would qualify as a rural, regional, or national referral center under paragraph 

(5)(C) or as a sole community hospital under paragraph (5)(D) if the hospital were located in a rural 

area. 

(IV) The hospital meets such other criteria as the Secretary may specify. 
6 

3. Rural Floor Provision 

 As part of the Balanced Budget Act of 1997 (“BBA”), Congress enacted the so-called 

“rural floor” provision in response to finding “[a]n anomaly” in area wage indexes where some 

urban hospitals were being “paid less than the average rural hospital in their state[].” Balanced 

Budget Act of 1997, Pub. L. 105-33, § 4410, 111 Stat. 251 (uncodified as 42 U.S.C. § 1395ww 

NOTE); H.R. Rep. No. 105-149, at 1305 (1997). This provision was designed to correct this 

anomaly by establishing what is known as the “rural floor”—which sets the rural wage index for 

a particular state for which urban hospital wage indexes in that state cannot go below. Specifically, 

the rural floor provision states: 

For purposes of section 1886(d)(3)(E) of the Social Security Act (42 

U.S.C. 1395ww(d)(3)(E)) . . . the area wage index applicable under 

such section to any hospital which is not located in a rural area (as 

defined in section 1886(d)(2)(D) of such Act (42 U.S.C. 

1395ww(d)(2)(D)) may not be less than the area wage index 

applicable under such section to hospitals located in rural areas in 

the State in which the hospital is located. 

BBA § 4410(a) (42 U.S.C. § 1395ww NOTE) (emphases added). In other words, no urban hospital 

can receive a wage index below the rural wage index of the same state. For example, if a state’s 

rural wage index is 0.9, the rural floor provision operates to ensure that no urban wage index can 

fall below 0.9. Additionally, the Secretary is required to implement the rural floor in a budgetneutral manner so that IPPS payments “are not greater or less than those which would have been 

made” in that particular fiscal year had the rural floor provision not been applied. Id. § 4410(b). 

B. Factual Background 

 The Secretary annually publishes in the Federal Register proposed changes to IPPS polices 

and applicable rates for the upcoming fiscal year. See 42 U.S.C. § 1395ww(e)(5); 42 C.F.R. § 

412.8. Typically, the Secretary issues a Proposed Rule “identifying all changes that he proposes 
7 

to make, based on statutory amendments as well as the Secretary’s ‘continuing experience’ with 

the IPPS.” Def.’s Cross-Mot. & Opp’n at 10 (quoting 84 Fed. Reg. 19,158, 19,158 (May 3, 2019)). 

Prior to the proposed FY 2020 rule, the Secretary had calculated the “rural floor” as 

equivalent to the “rural wage index”—including data from both rural hospitals and reclassified 

urban-to-rural hospitals in the determination of the rural wage index (and therefore the rural floor). 

See Def.’s Cross-Mot. & Opp’n at 10; Pls.’ Mot. at 10. However, for FY 2020, the Secretary 

proposed modifying the method for calculating the “rural floor” by omitting reclassified urban-torural hospitals from the calculation of the rural floor. See 84 Fed. Reg. at 19,162–63. However, 

these reclassified urban-to-rural hospitals would still be included in determining the rural wage 

index. See id. at 19,397–98 (explaining that reclassified hospital data would be used for calculation 

of the rural wage index but not the rural floor). In sum, the Secretary proposed to create two 

separate rural wage indexes, one for purposes of determining the rural floor (excluding reclassified 

urban-to-rural hospitals) and the other for general rural wage index IPPS reimbursement purposes 

(including reclassified urban-to-rural hospitals). As urban-to-rural reclassified hospitals tend to 

have higher wages than rural hospitals in a particular state, removing such reclassified hospitals 

from the calculation of the rural floor has the effect of decreasing the rural floor and thereby 

reducing the minimum reimbursement rate for urban hospitals. 

 The Secretary explained that the purpose of this revised methodology was to mitigate wage 

index disparities caused by the inclusion of rural reclassified hospitals raising a state’s rural wage 

index and applicable rural floor. 84 Fed. Reg. 42,044-01, 42,333 (Aug. 16, 2019). The Secretary 

further explained that “the rural floor policy was meant to address anomalies of some urban 

hospitals being paid less than the average rural hospital in their States, not to raise the payments 

of many hospitals in a State to the high wage level of a geographically urban hospital.” Id. at 
8 

42,332. Such “urban to rural reclassifications,” the Secretary opined, “have stretched the rural 

floor provision beyond a policy designed to address such anomalies,” and “the inclusion of 

reclassified hospitals in the rural floor calculation has had the unforeseen effect of exacerbating 

the wage index disparities between low and high wage index hospitals.” Id. at 42,333. “[W]e 

believe an adjustment is necessary to address the unanticipated effects of urban to rural 

reclassifications on the rural floor and the resulting wage index disparities, including the 

inappropriate wage index disparities caused by the manipulation of the rural floor policy by some 

hospitals.” Id. In support of this change, the Secretary explained that “the rural floor statute does 

not specify how the rural floor wage index is to be calculated or what data are to be included in 

the calculation” nor does the rural reclassification statute “specify where the wage data of 

reclassified hospitals must be included.” Id. 

The Secretary employed this new methodology for calculating each state’s “rural floor” for 

the first time in FY 2020. Id. In several states, the new formula resulted in a rural floor that was 

lower than the rural wage index. See Pls.’ Mot. at 11. Consequently, some urban hospitals were 

assigned wage indexes below the relevant rural wage index but either at or above the (lower) rural 

floor. See id. Plaintiffs in this action are thirty-four urban hospitals located in Arizona, 

Connecticut, and Florida that received lower wage indexes than the applicable rural wage index in 

their particular state based on the Secretary’s methodology for FY 2020. See id. at 13. 

In February 2020, Plaintiffs filed six separate appeals before the Provider Review 

Reimbursement Board (“PRRB”), an administrative body located within the Department of Health 

and Human Services with authority to hear Medicare reimbursements disputes, arguing that the 

Secretary had assigned Plaintiffs lower wage indexes than allowed under the Medicare statute. See 

id.; Def.’s Cross-Mot. & Opp’n at 13. Because the PRRB determined that it lacked “authority to 
9 

decide the legal question of whether the Uncodified Regulation of Rural Reclassification as 

published in the FY 2020 IPPS final rule is valid,” it granted Plaintiff’s expedited judicial review 

allowing Plaintiffs to bring suit in federal district court. Def.’s Cross-Mot. & Opp’n at 13. 

Plaintiffs then commenced this action. The parties have now cross-moved for summary judgment. 

II. LEGAL STANDARD 

Under Rule 56(a) of the Federal Rules of Civil Procedure, “[t]he court shall grant summary 

judgment 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.” However, “when a party seeks review of 

agency action under the APA [before a district court], the district judge sits as an appellate tribunal. 

The ‘entire case’ on review is a question of law.” Am. Bioscience, Inc. v. Thompson, 269 F.3d 

1077, 1083 (D.C. Cir. 2001). Accordingly, “the standard set forth in Rule 56[ ] does not apply 

because of the limited role of a court in reviewing the administrative record . . . . Summary 

judgment is [ ] the mechanism for deciding whether as a matter of law the agency action is 

supported by the administrative record and is otherwise consistent with the APA standard of 

review.” Southeast Conference v. Vilsack, 684 F. Supp. 2d 135, 142 (D.D.C. 2010). 

The APA “sets forth the full extent of judicial authority to review executive agency action 

for procedural correctness.” FCC v. Fox Television Stations, Inc., 556 U.S. 502, 513 (2009). It 

requires courts to “hold unlawful and set aside agency action, findings, and conclusions” that are 

either “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” or 

“in excess of statutory jurisdiction, authority, or limitations, or short of statutory right.” 5 U.S.C. 

§ 706(2)(A), (C). “This is a ‘narrow’ standard of review as courts defer to the agency’s expertise.” 

Ctr. for Food Safety v. Salazar, 898 F. Supp. 2d 130, 138 (D.D.C. 2012) (quoting Motor Vehicle 

Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)). However, an 
10 

agency is still required to “examine the relevant data and articulate a satisfactory explanation for 

its action including a rational connection between the facts found and the choice made.” Motor 

Vehicle Mfrs. Ass’n, 463 U.S. at 43 (internal quotation omitted). “Moreover, an agency cannot 

‘fail[ ] to consider an important aspect of the problem’ or ‘offer[ ] an explanation for its decision 

that runs counter to the evidence’ before it.” Dist. Hosp. Partners, L.P. v. Burwell, 786 F.3d 46, 

57 (D.C. Cir. 2015) (quoting Motor Vehicle Mfrs. Ass’n, 463 U.S. at 43). 

 An agency’s construction of a statute it administers is reviewed under the familiar two-step 

framework set forth in Chevron, U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 

837 (1984). When deciding whether to apply Chevron deference, initially, the Court must ask 

whether “Congress has directly spoken to the precise question at issue.” If so, “the court, as well 

as the agency, must give effect to the unambiguously expressed intent of Congress.” Chevron, 

467 U.S. at 842–43. However, if “the statute is silent or ambiguous with respect to the specific 

issue, the question for the court is whether the agency’s answer is based on a permissible 

construction of the statute.” Id. As long as the agency’s interpretation is “reasonable and 

consistent with the statute’s purpose,” the Court must defer to the agency’s interpretation. 

Chemical Mfrs. Ass’n v. EPA, 217 F.3d 861, 866 (D.C. Cir. 2000). 

“[I]n framing the scope of review, the court takes special note of the tremendous 

complexity of the Medicare statute. That complexity adds to the deference which is due to the 

Secretary's decision.” Methodist Hosp. of Sacramento, 38 F.3d at 1229; see also Thomas Jefferson 

Univ. v. Shalala, 512 U.S. 504, 512 (1994) (“The broad deference of Chevron is even more 

appropriate in cases that involve a ‘complex and highly technical regulatory program,’ such as 

Medicare, which ‘require[s] significant expertise and entail[s] the exercise of judgment grounded 

in policy concerns.’”). 
11 

III. DISCUSSION 

A. The Secretary’s FY 2020 Methodology Is Inconsistent with the Rural Floor Provision of 

the Medicare Statute. 

Plaintiffs argue that the Secretary has violated the plain text of the Medicare Act by 

calculating a rural floor that is different from the rural wage index. According to Plaintiffs, the 

rural floor provision of the statute, 42 U.S.C. § 1395ww NOTE, unambiguously requires the 

Secretary to calculate a rural wage index using wage data from both geographically rural and 

reclassified urban-to-rural hospitals, and then to set the rural floor at that wage index level. 

Plaintiffs contend that the methodology adopted by the Secretary for FY 2020 violates the statute 

because the Secretary separately calculated a “rural floor” that excluded urban-to-rural reclassified 

hospitals. In response, the Secretary argues that the relevant statutory language is ambiguous as 

to how the Secretary should calculate the rural floor and how data from urban-to-rural reclassified 

hospitals must be used. Further, the Secretary argues that his interpretation of the statutory 

language—excluding reclassified urban-to-rural from the rural floor calculation—is reasonable 

and therefore deserving of deference from this Court. 

To evaluate Plaintiffs’ claim that the Secretary’s methodology for calculating the “rural 

floor” for FY 2020 is inconsistent with the statute, the Court must first apply the “ordinary tools 

of statutory construction” to determine “whether Congress has directly spoken to the precise 

question at issue.” Chevron, 467 U.S. at 842. “If the intent of Congress is clear, that is the end of 

the matter; for the court, as well as the agency, must give effect to the unambiguously expressed 

intent of Congress.’” City of Arlington v. F.C.C., 569 U.S. 290, 296 (2013) (quoting Chevron, 467 

U.S. at 842–43). But if “the statute is silent or ambiguous with respect to the specific issue . . . 

[the Court] move[s] to the second step and defer[s] to the agency’s interpretation as long as it is 

based on a permissible construction of the statute.” Noramco of Del., Inc. v. DEA, 375 F.3d 1148, 
12 

1152–53 (D.C. Cir. 2004) (internal citations and quotation marks omitted). “If a statute is 

ambiguous, and if the implementing agency’s construction is reasonable, Chevron requires a 

federal court to accept the agency’s construction of the statute, even if the agency’s reading differs 

from what the court believes is the best statutory interpretation.” Nat’l Cable & Telecomms. Ass’n 

v. Brand X Internet Servs., 545 U.S. 967, 980 (2005). 

Here, Plaintiffs contend that the Court need only address the first step of Chevron, arguing 

that the Medicare Act unambiguously forbids the Secretary from first calculating a wage index for 

purposes of establishing the rural floor, excluding wage data from urban hospitals that have been 

reclassified as rural, and then calculating a separate rural wage index for the purpose of 

reimbursement of rural hospitals, inclusive of the data of reclassified urban-to-rural hospitals.4

 See

Pls.’ Mot. at 14–22. The Court agrees with Plaintiffs and therefore addresses only the first step of 

Chevron. 

The Court begins with the language of the relevant statutes. See Consumer Prod. Safety 

Comm’n v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980) (“We begin with the familiar canon of 

statutory construction that the starting point for interpreting a statute is the language of the statute 

itself.”). As quoted above, the rural floor provision directs that for “purposes of” the wage index 

provision, 42 U.S.C. § 1395ww(d)(3)(E), the “area wage index applicable under such section to 

any hospital which is not located in a rural area . . . may not be less than the area wage index 

applicable under such section to hospitals located in rural areas in the State in which the hospital 

is located.” 42 U.S.C. § 1395ww NOTE. The plain language provides that the urban area wage 

4

 Defendant frames the issue slightly differently, suggesting instead that the central question is whether the statute 

unambiguously requires the Secretary to include the data from reclassified urban-to-rural hospitals when calculating 

the rural floor. But this framing assumes as true the very thing in dispute in this case: whether the statute provides for 

a separate and independent calculation of the rural floor. Because the antecedent question of whether the Medicare 

statute speaks to the calculation of a rural floor separate from that of the rural wage index must first be answered, the 

Court declines to accept Defendant’s framing. 
13 

index cannot be less than “the area wage index applicable under such section [42 U.S.C. 

§ 1395ww(d)(3)(E)]” to rural hospitals. The statute’s use of the word “the” in the phrase “the area 

wage index” indicates that Congress contemplated that there would be one wage index for rural 

hospitals for each state. But under the Secretary’s proffered construction, there are effectively 

now two rural wage indexes for each state, in contravention of the statute. Nothing in the statutory 

texts supports Defendant’s argument that the Secretary may calculate a rural wage index solely for 

purposes of determining the rural floor. Indeed, the statute does not speak to any rural wage index 

calculation whatsoever.5

 At most, the statute constrains how the urban wage index must be 

calculated by setting a minimum below which the urban wage index cannot fall. But it does not 

follow that the statutory language independently allows for a novel calculation of the rural wage 

index or affects the rural wage index in any way. 

Moreover, the rural floor statute directly references the rural wage index calculated by the 

Secretary: “the area wage index applicable under such section.” 42 U.S.C. § 1395ww NOTE 

(emphasis added). For rural hospitals, there is only one “area wage index applicable under [42 

U.S.C. § 1395ww(d)(3)(E)]”—the one calculated by the Secretary for purposes of that section. If 

Congress had intended the Secretary to calculate anew the rural wage index for purposes of 

establishing the rural floor, then the explicit language linking the wage index used for the rural 

floor to the same rural wage index otherwise calculated for reimbursement purposes under 

§ 1395ww(d)(3)(E) contradicts such a reading. The more natural reading is that a rural wage index 

is calculated pursuant to § 1395ww(d)(3)(E) and the rural floor provision then takes that number 

and sets that as the floor for which the urban wage index cannot go below. In simpler terms, as 

5

 A statute providing only that “A must be greater than or equal to B” certainly does not determine how to calculate B 

or suggest that B may be calculated in a manner differently than that provided by a separate statute explaining how to 

calculate B. 
14 

Plaintiffs put it: “Since the rural wage index is, by definition, the ‘wage index applicable to 

hospitals located in rural areas [of the] State,’ it must also set the rural floor.” Pls.’ Mot. at 16. To 

hold otherwise would be to say that the language does not mean what it plainly says. 

Defendant maintains that the word “applicable” as used in the rural floor provision “has a 

broader meaning . . . leaving open the possibility that the Secretary may calculate a wage index 

value applicable to geographically rural hospitals . . . for setting the rural floor, but ultimately 

decide to assign or award rural hospitals a higher wage index value that is calculated using the 

wage data of both [geographically] rural hospitals and urban-to-rural reclassified hospitals.” 

Def.’s Reply at 5. According to Defendant, “applicable,” means “capable of being applied” and 

“does not necessarily mean actually applied” or “assigned” or “awarded.” Id. The Secretary 

argues that this definition affords discretion to calculate separately the rural floor from the rural 

wage index because there could be more than one wage index “applicable under [the statute].” Id. 

Such a construction of the statutory language is in tension with the plain meaning of the 

language as a whole. The phrase “applicable under such section [42 U.S.C. § 1395ww(d)(3)(E)]” 

modifies the phrase “the area wage index.” Without the phrase “applicable under such section,” 

the reader is left guessing as to what the “area wage index” is and where to find it. That clause 

connects the rural floor provision to the rural wage index. It, therefore, makes little sense to believe 

that Congress, despite referencing the wage index, meant for the Secretary to disregard the wage 

index as calculated under § 1395ww(d)(3)(E), and instead calculate a different index using 

different criteria. 

 As to the word “applicable,” the text indicates that term is being used in the sense of 

relevant, pertinent, or germane. That is, to determine the rural floor, the Secretary must use the 
15 

“applicable” or relevant area wage index as determined in 42 U.S.C. § 1395ww(d)(3)(E).6

 There 

is no room in the statutory language for a free-floating area wage index that is calculated for rural 

floor purposes without regard for the area wage index calculated pursuant to § 1395ww(d)(3)(E). 

To construe the language otherwise would be to render a whole phrase of the statutory text without 

meaning. See Mertens v. Hewitt Assocs., 508 U.S. 248, 258 (1993) (“We will not read the statute 

to render the modifier superfluous”); Dole Food Co. v. Patrickson, 538 U.S. 468, 476–77 (2003) 

(“[W]e should not construe the statute in a manner that . . . would render a statutory term 

superfluous.”). 

Defendant correctly notes that certain provisions of the Medicare Act relevant here do 

contain ambiguities and allow the Secretary discretion in certain regards. For example, this Circuit 

has held as ambiguous the language in 42 U.S.C. § 1395ww(d)(3)(E) concerning the exact method 

of calculating the area wage indexes, allowing the Secretary wide latitude in determining how to 

calculate the applicable indexes. See Anna Jacques Hosp., 797 F.3d at 1164–65 (citing Bellevue 

Hosp. Ctr. v. Leavitt, 443 F.3d 163, 175 (2d Cir. 2006)). But cf. Bellevue Hosp. Ctr., 443 F.3d at 

174 (“[The Secretary’s] task is unambiguous: to calculate a factor that reflects geographic-area 

wage-level differences, and nothing else.”). But, even accepting the Secretary’s authority to 

determine the precise manner by which the area wage indexes are calculated does not answer the 

question posed here: whether the Secretary may separately calculate an index for the rural floor 

that is methodologically distinct from the rural wage index. Merely relying, as the Secretary does, 

on the observation that the Medicare statute is large and complex and has a number of ambiguous 

6

 To further illustrate this point, imagine a linguistically similar statute that specifies that a court is to give to a winning

plaintiff a “fee applicable under such section [referring to a statutory provision setting out the calculation of such 

fee].” In such a case, the court, to decide the fee to give to plaintiff, would have to resort to reference to the other 

statute to calculate the fee, i.e., find the fee “applicable” under the statute. It would make little sense for a court to 

interpret such language as authorizing it to create two separate fee calculations. 
16 

provisions to conclude that the provisions relevant here are ambiguous and capable of being 

interpreted by the Secretary is insufficient. See, e.g., Def.’s Cross-Mot. & Opp’n at 17–18, 23; cf.

Bates Cty. Mem’l Hosp. v. Azar, 464 F. Supp. 3d 43, 50–51 (D.D.C. 2020) (describing several 

cases where the Secretary’s argument as to the ambiguity of provisions of the Medicare statute has 

been rejected). 

Because the Court finds that the rural floor provision unambiguously provides that the level 

of the rural floor for a state is set at the applicable rural wage index of that same state—i.e., the 

rural floor and the rural wage index are one and the same—Defendant’s decision to calculate 

separately those indexes using differing methodology violated the statute. Put plainly, the statute 

provides no room for the Secretary to “fix” whatever anomalies he may think exists in the operation 

of the statute.7

 A court cannot “set aside a statute’s plain language simply because the agency 

thinks it leads to undesirable consequences in some applications.” Friends of Earth, 446 F.3d at 

145. After all, “[o]ur task is to apply the text, not to improve upon it.” Pavelic & LeFlore v. 

Marvel Entm’t Grp., 493 U.S. 120, 126 (1989). In sum, the Court agrees that Defendant’s method 

of separately calculating the “rural floor” and the “rural wage index” for FY 2020 violated the 

unambiguous language of the “rural floor” provision of the Medicare statute. 

 Before addressing the appropriate remedy, the Court notes that Plaintiffs have additionally 

argued that the Secretary’s FY 2020 rural floor calculation independently violates the rural 

reclassification provision, 42 U.S.C. § 1395ww(d)(8)(E)(i), because the Secretary is not, in 

7

 This is not to impugn the motives of the Secretary, who seemed plainly concerned with reducing potential 

manipulation of area wage indexes and improving the operation of the IPPS program. But no amount of good intention 

can override the clear commands that Congress has expressed in enacting a statute. The Secretary is bound to follow 

the plain text of the law regardless of whether he believes it to be wise or the best course of action. The Secretary 

may not “avoid the Congressional intent clearly expressed in the text simply by asserting that [his] preferred approach 

would be better policy.” Friends of Earth, Inc. v. E.P.A., 446 F.3d 140, 145 (D.C. Cir. 2006) (quoting Engine Mfrs. 

Ass’n v. EPA, 88 F.3d 1075, 1089 (D.C. Cir. 1996)). Just as this Court is required to defer to the Secretary’s considered 

judgment in cases of genuine textual ambiguity, so too is the Secretary required to “give effect to the unambiguously 

expressed intent of Congress.” Chevron, 467 U.S. at 842–43. 
17 

contradiction of the statute, treating reclassified urban-to-rural hospitals as if they were located in 

the rural area of a state. See, e.g., Pls.’ Mot. at 22–26. By excluding reclassified urban-to-rural 

hospitals from the calculation of the rural floor, Plaintiffs contend, the Secretary is not following 

the unambiguous dictates of the rural reclassification statute. Because the rural floor provision 

unambiguously requires the Secretary to set the rural floor equivalent to the rural wage index and 

forbids the Secretary from developing an alternative calculation for rural floor purposes, the Court 

does not address whether the Secretary was required to include data from reclassified urban-torural hospital wage data in the calculation of the rural floor, a calculation which does not actually 

exist independently under the statute.8

 

B. Remand Without Vacatur is Appropriate. 

 Having concluded that the Secretary erred in calculating separately the rural wage index 

and the rural floor for FY 2020, the Court next considers the appropriate remedy. “When a district 

court reverses agency action and determines that the agency acted unlawfully, ordinarily the 

appropriate course is simply to identify a legal error and then remand to the agency.” N. Air Cargo 

v. USPS, 674 F.3d 852, 861 (D.C. Cir. 2012); see also Am. Hosp. Ass’n v. Azar, 385 F. Supp. 3d 

1, 11 (D.D.C. 2019) (“[W]hen a plaintiff brings an APA claim ‘to set aside an unlawful agency 

action . . . it is the prerogative of the agency to decide in the first instance how to best provide 

relief.’” (quoting Bennett v. Donovan, 703 F.3d 582, 589 (D.C. Cir. 2013)). 

Both parties agree that remand to the Secretary is appropriate. See Pls.’ Reply & Opp’n at 

13; Defs.’ Cross-Mot. & Opp’n at 27. Plaintiffs, however, seek remand “with instructions that 

8

 The Court notes that several courts, including one in this Circuit, have held that the rural reclassification provision, 

42 U.S.C. § 1395ww(d)(8)(E)(i), unambiguously requires the Secretary to treat reclassified urban-to-rural hospitals 

as though they are geographically rural and not located in an urban area. See Bates Cty. Mem’l Hosp., 464 F. Supp. 

3d at 50–52; Geisinger Cmty. Med. Ctr. v. Sec’y U.S. Dep’t of Health & Hum. Servs., 794 F.3d 383, 395 (3d Cir. 

2015). 
18 

[the Secretary] assign an area wage index to each hospital that is no lower than the wage index . . . 

assigned to rural hospitals in the [Plaintiffs’] home states of Arizona, Colorado, or Florida.” Pls.’ 

Reply & Opp’n at 13; see also Pls.’ Mot. at 27–28 (seeking an order “vacating the Secretary’s 

challenged policy,” and directing the Secretary to “treat the 2020 rural wage index as the rural 

floor” and to “recalculate each [Plaintiff’s] FY 2020 wage index adjustments and payments 

accordingly”). Defendant counters that the appropriate relief is “remand (without vacatur)” to the 

Secretary for “further action” consistent with the Court’s opinion. Defs.’ Cross-Mot. & Opp’n at 

27 (citing Palisades Gen. Hosp. Inc. v. Leavitt, 426 F.3d 400, 403 (D.C. Cir. 2005)). 

The Court shall remand the case to the Secretary for further proceedings but shall not vacate 

the FY 2020 rule. In deciding whether to remand without vacatur, courts consider “the seriousness 

of the [agency decision’s] deficiencies . . . and the disruptive consequences of an interim change 

that may itself be changed.” Allied-Signal, Inc. v. U.S. Nuclear Regul. Comm’n, 988 F.2d 146, 

150–51 (D.C. Cir. 1993). The Secretary here rests his argument in support of remand without 

vacatur on Allied-Signal’s second prong, arguing that vacating the FY 2020 rule would “greatly 

disrupt the complex Medicare [IPPS] system,” with “potential consequences for payments to 

hospitals that are not parties to this case.” Id. Defendant further notes that the IPPS system must 

operate on a “budget-neutral” basis, and that a court order vacating the FY 2020 rule “could require 

unscrambling and revising interdependent budget-neutral reimbursement decisions already made, 

since any amount of gain to Plaintiffs’ hospitals that might result from the Court’s order might 

have to be offset by recoupments from other hospitals nationwide.” Id. at 28. Although Plaintiffs 

contend that the “budget-neutrality requirements” do not bar the Court from ordering a 

recalculation of their payments, Pls.’ Reply & Opp’n at 14, the Court agrees that the Secretary 

should address the appropriate adjustment of Plaintiffs’ reimbursement rates in the first instance, 
19 

see Defs.’ Reply at 16–17; Allina Health Servs. v. Sebelius, 746 F.3d 1102, 1111 (D.C. Cir. 2014). 

Accordingly, the Court shall remand this action to the Secretary for further proceedings consistent 

with this Memorandum Opinion. 

IV. CONCLUSION 

For the foregoing reasons, Plaintiffs’ Motion for Summary Judgment is granted in part, and 

Defendants’ Cross-Motion for Summary Judgment is denied. This case shall be remanded to the 

Secretary for further proceedings consistent with this Memorandum Opinion. A separate order 

accompanies this Memorandum Opinion. 

 /s/ 

 COLLEEN KOLLAR-KOTELLY 

 United States District Judge 

Date: April 8, 2022