NOT RECOMMENDED FOR FULL-TEXT PUBLICATION 

File Name: 17a0510n.06 

No. 16-6530 

UNITED STATES COURT OF APPEALS 

FOR THE SIXTH CIRCUIT

OWENSBORO HEALTH, INC., 

 Plaintiff-Appellant, 

v. 

SECRETARY OF HEALTH AND HUMAN 

SERVICES; UNITED STATES DEPARTMENT OF 

HEALTH AND HUMAN SERVICES, Centers for 

Medicare & Medicaid Services, 

 Defendants-Appellees. 

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ON APPEAL FROM THE 

UNITED STATES DISTRICT 

COURT FOR THE WESTERN 

DISTRICT OF KENTUCKY 

Before: DAUGHTREY, KETHLEDGE, STRANCH, Circuit Judges. 

 JANE B. STRANCH, Circuit Judge. This case involves a challenge to Medicare 

reimbursement rates. The defendant-appellee Secretary of Health and Human Services (HHS) is 

required by statute to create rates and indices for calculating reimbursements for healthcare 

provided to Medicare beneficiaries. The Centers for Medicare and Medicaid Services (CMS), an 

agency within HHS, performs these actions. The plaintiff-appellant Owensboro Health, Inc. 

(OHI) was negatively affected by a change in how medical technicians were classified in 2007 

and brought this suit alleging CMS error. The district court upheld the agency’s classification. 

We affirm as well.
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I. BACKGROUND 

A. Factual History and Context 

1. Medicare Reimbursement, the Wage Index, and the Occupational Mix Adjustment 

Medicare undertakes the important task of providing healthcare services to many citizens 

across our nation. Arranging payment for those services is a large and complex endeavor. CMS 

is the agency within the Department of HHS that administers the Medicare program. The 

Secretary of HHS has vested his rulemaking authority under the Medicare Act in CMS, which 

promulgates rules and also provides informal guidance to help implement the rules. CMS 

contracts out payment and audit functions to insurance companies that are called fiscal 

intermediaries. This case involves challenges to the way CMS interpreted the Medicare Act, 

promulgated rules in support of that interpretation, and implemented its decisions with the 

assistance of fiscal intermediaries. 

Originally, Medicare reimbursement amounts were determined based on the reasonable 

costs incurred by the hospital in a particular case. To create incentives for hospitals to lower 

costs, Congress amended the Medicare Act in 1983 to make reimbursement based on 

“predetermined, specific rates for each hospital discharge.” FY 2007 IPPS Final Rule, 71 Fed. 

Reg. 47,870, 47,875-76 (Aug. 18, 2006). This method is called the Inpatient Prospective 

Payment System (IPPS). Its rates are adjusted by a wage index that accounts for geographic 

differences in hospital labor costs. For example, prevailing wages in the nursing market in Los 

Angeles are higher than wages in Owensboro, Kentucky; consequently, a hospital in Los 

Angeles is reimbursed 34% more for the wage-related portion of the IPPS than a hospital in 

Owensboro treating a similar patient.1

 To define the geographic labor markets, CMS uses Core-

 

1

 For 2007, Los Angeles had a wage index of 1.1760. Owensboro had a wage index of 0.8748. See Cntrs. for 

Medicare & Medicaid Servs., Addendum-FY 2007 CBSA Wage Index Tables, 
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Based Statistical Areas (CBSA) created by the Office of Management and Budget. As examples 

of the size of these areas, the Owensboro CBSA contains three counties, the Bowling Green 

CBSA contains four counties, and the Louisville CBSA contains seven counties. 

In 2000, Congress amended the Medicare Act to require CMS to adjust the wage index, 

beginning in 2005, to account for staffing decisions made by hospitals. The purpose of applying 

this “occupational mix adjustment” is to ensure that the differences in wages across geographic 

areas are actually the result of disparities in regional wages and not differences in hiring choices 

made by hospitals. Thus, this adjustment controls for differences in what types of staff are used 

to complete similar tasks. For example, some hospitals may choose to hire registered nurses for 

certain staffing needs that other hospitals may meet with licensed practical nurses (who require 

less training and receive lower wages) or nursing aides (less training and lower wages still). If 

Hospital A chooses to use more registered nurses while Hospital B chooses to use more nursing 

aides, the occupational mix adjustment is supposed to prevent Hospital A from receiving more 

reimbursement based on rates resulting from a choice to employ more highly trained staff when a 

lower level of training may have sufficed. Starting in 2003, CMS used a survey to collect data to 

create the occupational mix adjustment. In 2005, CMS began application of the adjustment but, 

lacking full confidence in the survey results, it applied the adjustment to the wage index only at a 

10% rate, leaving 90% unadjusted. 

In April 2006, the Second Circuit ordered CMS to collect more robust data and create an 

occupational mix adjustment to apply to the wage index in full instead of at a 10% rate. Bellevue 

Hospital Ctr. v. Leavitt, 443 F.3d 163, 180 (2d Cir. 2006). The court ordered CMS to complete 

the necessary data collection and other preparation by September 30, 2006, so the new 

 https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/downloads/cms-1530-n-addendumdisplay.pdf (last visited August 1, 2017). 
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adjustment could be applied for the 2007 fiscal year. Id. CMS was therefore acting within a 

constrained timeframe to create a survey, get providers to return responses, have fiscal 

intermediaries audit the data, and create the revised occupational mix adjustment. Rather than 

using the 20 job categories from the 2003 survey, the 2006 survey included only five: 

1) registered nurses; 2) licensed practical nurses; 3) nursing aides, orderlies, and attendants; 

4) medical assistants; and 5) all other occupations. FY 2007 IPPS Proposed Rule, 71 Fed. Reg. 

28,644, 28,646 (May 17, 2006). In notice-and-comment rulemaking, MedPAC—an independent 

federal body that advises on Medicare payments—had suggested refining the nursing categories 

and combining other job categories that accounted for only a small percentage of workers in 

order to decrease the reporting burden while maintaining a reasonable measure of the 

occupational mix. FY 2007 IPPS Final Rule, 71 Fed. Reg. at 48,007. CMS agreed and moved 

all occupations that constituted less than 4% of the average hospital workforce to the “other 

occupations” category. Id. In practice, employees in the “other occupations” category were not 

used to calculate the occupational mix adjustment because that catchall category contained a 

wide mix of employees. CMS chose these parameters for applying the occupational mix 

adjustment to strike a balance among several factors: the complexity of the survey; its attendant 

reporting burden for providers; and the accuracy of the resulting adjustment. 

2. The Occupational Mix Adjustment as Applied to OHI in 2007 

OHI operates a general, acute-care hospital in Owensboro, Kentucky. It is the only 

hospital in Owensboro, resulting in a single-provider statistical area. OHI filled out the 2006 

survey and classified its medical technicians in the category for “nursing aides, orderlies, and 

attendants.” In its audit of the data, the fiscal intermediary moved those relatively low-paid 

medical technicians to the “all other occupations” category. This affected OHI’s wage index 

because the “all other occupations” category was not included in the calculation of the 
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occupational mix adjustment. In essence, the move made it appear that OHI chose to employ a 

relatively high-paid mix of occupations to meet patient needs. OHI estimated that it would have 

been reimbursed $575,000 more if the medical technicians had been included in the “nursing 

aides” category instead of the “other occupations” category. 

B. Procedural History 

OHI complained to both the fiscal intermediary and CMS. CMS responded that the 

medical technicians were properly placed in the “other occupations” category because their job 

descriptions included tasks beyond providing basic patient care, and the survey instructions 

define jobs in the “nursing aides, orderlies, and attendants” category as consisting of the 

provision of basic patient care. To promote uniform classification, CMS sent supplemental 

instructions to all fiscal intermediaries in the region specifying that jobs such as surgical 

technicians should be included in the “other occupations” category. The fiscal intermediary also 

responded to OHI that it believed medical technicians were properly included in the “other 

occupations” category. 

OHI made a request under the Freedom of Information Act (FOIA) to get audited 

occupational-mix-survey data from forty-five hospitals in the region. For ten of those hospitals, 

medical technicians were included in the “nursing aides, orderlies, and attendants” category. For 

thirty-five of the hospitals, medical technicians were included in the “other occupations” 

category. The ten hospitals with misclassified medical technicians were audited by a different 

fiscal intermediary than the one that reviewed OHI. 

OHI challenged the occupational mix adjustment to the Provider Reimbursement Review 

Board (PRRB). The PRRB decided that the fiscal intermediary had properly followed CMS 

policy by classifying OHI’s medical technicians in the “other occupations” category. Citing the 

regulation at 42 C.F.R. § 412.64(k), the PRRB found that it did not have authority to require the 
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fiscal intermediary to reclassify OHI’s technicians against CMS policy, nor authority to address 

potential errors made by other fiscal intermediaries when classifying technicians at hospitals that 

were not part of the appeal. 

OHI filed this lawsuit in the Western District of Kentucky. The parties filed cross 

motions for summary judgment, and the district court denied OHI’s motion and granted the 

Secretary’s motion. OHI timely appealed. 

II. ANALYSIS 

A. Jurisdiction and Standard of Review 

OHI sued under 42 U.S.C. § 1395oo(f)(1), which states that “[p]roviders shall have the 

right to obtain judicial review of any final decision of the [Provider Reimbursement Review] 

Board.” Following the entry of final judgment for the Secretary, this court has jurisdiction over 

this timely appeal under 28 U.S.C. § 1291. 

The Administrative Procedure Act governs the scope of our review of agency actions. 

5 U.S.C. §§ 701-706. We review the district court’s summary judgment decision de novo. 

Battle Creek Health Sys. v. Leavitt, 498 F.3d 401, 408 (6th Cir. 2007). 

B. Statutory Interpretation and Chevron Deference 

OHI argues that CMS violated relevant statutory language by effectively excluding 

medical technicians from the calculation of the occupational mix adjustment. When an agency 

engages in statutory interpretation with the force of law, such as through notice-and-comment 

rulemaking, we afford the agency deference. Chevron U.S.A., Inc. v. Natural Res. Def. Council, 

Inc., 467 U.S. 837 (1984). Under the Chevron standard, if Congress has not directly spoken on 

the issue, the agency’s interpretation is upheld unless it is “arbitrary, capricious, or manifestly 

contrary to the statute.” Id. at 844. The statute at issue states: 
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Not less often than once every 3 years the Secretary (through such survey or 

otherwise) shall measure the earnings and paid hours of employment by 

occupational category and shall exclude data with respect to the wages and 

wage-related costs incurred in furnishing skilled nursing facility services. Any 

adjustments or updates . . . shall be made in a manner that assures that the 

aggregate payments under this subsection in the fiscal year are not greater or 

less than those that would have been made in the year without such adjustment. 

42 U.S.C. § 1395ww(d)(3)(E)(i) (emphasis added). 

OHI argues that the italicized portion excluding data on wages from skilled-nursing 

facilities—which are reimbursed for Medicare services through a separate mechanism—implies 

that all other wages must be included in calculating the occupational mix adjustment. Although 

OHI’s medical technicians were included in the survey, their wage data was not used in 

calculating the occupational mix adjustment because “other occupations” were effectively 

excluded from the calculation. OHI claims that this exclusion violates the statute. 

The statute is largely silent as to the details of how to collect wage and occupation data, 

analyze it, and create the occupational mix adjustment. This ambiguity leaves CMS with 

discretion on the matter. See Atrium Med. Ctr. v. U.S. Dep’t of Health & Human Servs., 766 

F.3d 560, 568 (6th Cir. 2014) (finding the lack of detail in a delegation of authority to CMS to 

create the Medicare wage index to confer broad discretion on the agency). If CMS had waited 

more than three years to collect data or had included wages from skilled-nursing facilities, then it 

would have acted “manifestly contrary to the statute” because those details are actually spelled 

out in the statute. But the explicit exclusion of wages from skilled-nursing facilities does not 

mean that all other wages must be included. On that question, Congress did not speak directly 

and thus left CMS with discretion. 

CMS interpreted that ambiguity in the statute in a way that was not arbitrary, capricious, 

or manifestly contrary to the statutory language. CMS used a “survey or otherwise” to “measure 

the earnings and paid hours of employment by occupational category.” 42 U.S.C. 
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§ 1395ww(d)(3)(E)(i). It incorporated feedback from the notice-and-comment process and 

struck a balance as to the reporting burden on medical facilities and accuracy by simplifying the 

number of categories. OHI alleges that CMS’s decision to classify medical technicians as “other 

occupations” and then not use that data to construct the final occupational mix adjustment was 

arbitrary, but the agency’s interpretation of ambiguities in the statute was not arbitrary or 

capricious. As explained in the well-reasoned and thorough opinion of the district court, “[t]he 

Secretary considered comments and other relevant factors and articulated a reasonable 

explanation for its policy.” Owensboro Health, Inc. v. Burwell, No. 4:14-cv-0095, 2016 WL 

4361527, at *12 (W.D. Ky. Aug. 12, 2016) We adopt the analysis of the district court on the 

issue of statutory construction, id. at *9-12, and uphold the agency’s interpretation. 

C. Implementation of CMS’s Categorization of Medical Technicians 

OHI’s second argument is that CMS acted arbitrarily by placing OHI’s medical 

technicians in the “other occupations” category, while some other hospitals were allowed to 

include their medical technicians in the “nursing aides” category. Under the Administrative 

Procedure Act, an agency action is set aside if it is “arbitrary, capricious, an abuse of discretion, 

or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). “Normally, an agency rule 

would be arbitrary and capricious if the agency has relied on factors which Congress has not 

intended it to consider, entirely failed to consider an important aspect of the problem, offered an 

explanation for its decision that runs counter to the evidence before the agency, or is so 

implausible that it could not be ascribed to a difference in view or the product of agency 

expertise.” Motor Vehicles Manufacturers Ass’n v. State Farm Mutual Auto. Insur. Co., 

463 U.S. 29, 43 (1983). 

CMS instructions for the 2006 survey classified medical technicians in the “other 

occupations” category because those employees did tasks that did not fit in the “nursing aides, 
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orderlies, and attendants” category. CMS’s supplemental instructions made it clear that 

technicians should be placed in the “other occupations” category. It was not “arbitrary, 

capricious, an abuse of discretion, or otherwise not in accordance with the law” for CMS to 

follow its policy by classifying OHI’s medical technicians in the “other occupations” category. 

The PRRB directly decided this question, and the decision upholding that rule was supported by 

substantial evidence. 5 U.S.C. § 706(2)(E). We again adopt the district court’s well-reasoned 

analysis on this issue. Owensboro Health, Inc., 2016 WL 4361527, at *15. 

A closer question in this case is whether CMS acted in an arbitrary manner by allowing at 

least ten other hospitals to classify their medical technicians in the “nursing aides” category. The 

PRRB did not decide this issue because it found it had “no authority under the [review] 

regulation to act on this information.” (R. 14-1, PageID 107) The PRRB stated that OHI’s “only 

potential remedy in this case appears to be through judicial review of the agency’s action.” Id. 

OHI cites Sarasota Memorial Hospital v. Shalala, 60 F.3d 1507, 1513 (11th Cir. 1995), 

as an example of a court ordering CMS to recalculate an index—in that case the Medicare wage 

index—because the agency had failed to treat similar things in a like manner. In Sarasota, CMS 

treated two payroll taxes differently even though the taxes were functionally the same thing. Id. 

But the failure to have uniform classification of medical technicians in this case is not analogous 

to the CMS policy of treating two taxes differently in Sarasota. Instead, this case is a failure to 

uniformly implement a policy that, per the discussion above, itself survives review. The review 

regulation does not provide CMS with authority to correct this type of error, see 42 C.F.R. 

§ 412.64(k) (allowing for corrections to a hospital’s own data, but not to data from other 

hospitals), and there is no case authority in which a hospital has appealed the calculation of wage 

data based on hospitals that were outside the challenging hospital’s labor market, see, e.g.,

Sarasota, 60 F.3d at 1508-09 (appealing based on wages within the Sarasota statistical area); 
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Atrium, 776 F.3d at 570-71 (Cincinnati statistical area). We decline to create such a rule in these 

circumstances. As a practical matter, OHI’s argument could be used by any hospital to challenge 

the occupational mix adjustment whenever that hospital can find a mistake (through FOIA or 

elsewhere) in the classification of employees at any other hospital in the country. Because the 

occupational mix adjustment is budget neutral by statute, 42 U.S.C. § 1395ww(d)(3)(E)(i), a 

correction resulting from an error of categorization at any hospital could require recalculation of 

reimbursement rates for all medical facilities. 

And specific to this case, CMS was acting under a court-imposed deadline in Bellevue, 

443 F.3d at 180 (ordering CMS to conduct the survey and publish the occupational mix 

adjustment on an expedited basis), and was required to collect data, have fiscal intermediaries 

audit the data, and then construct the occupational mix adjustment in an accelerated timeframe. 

The mistake here was made by a fiscal intermediary—different from the one that audited OHI—

and not by CMS itself. CMS was coordinating a complex task with multiple fiscal 

intermediaries and the agency attempted to maintain uniformity, such as through supplemental 

instructions to all fiscal intermediaries to classify technicians in the “other occupations” 

category. Considering the complexity of the task and the accelerated timeframe imposed by the 

court-ordered deadline, it is unsurprising that CMS was not able to ensure perfect uniformity, 

especially across different fiscal intermediaries. In sum, while there may be situations in which a 

classification error requires correction and recalculation of reimbursements due to arbitrary and 

capricious conduct of the agency, such a situation is not presented here. 

This conclusion does not mean that we are unsympathetic to the financial concerns of 

OHI and other small medical facilities across the nation that rely on reimbursement under the 

Medicare Act to provide patient care in their communities. We also recognize the dilemma of 

OHI—the hospital made hiring decisions with an eye on CMS policy as evidenced in the 2003 
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survey, assuming that it could include medical technicians when calculating the occupational 

mix adjustment. The 2006 survey changed job categories in a way that had a financial impact on 

OHI in 2007—though perhaps not on some other facilities—then CMS made differing alterations 

in later surveys. But it is not improper for CMS to utilize the lessons it learned in this situation 

to improve its surveys for the future. CMS employed a reasoned approach as it complied with 

court orders, responded to comments, and managed multiple fiscal intermediaries. 

Implementation of the occupational mix adjustment here was in accordance with the law and not 

arbitrary or capricious. CMS did not violate the standards of the Administrative Procedure Act. 

III. CONCLUSION 

We affirm the decision of the district court and the PRRB.