1 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

__________________________________ ) GRANT MEDICAL CENTER, et al ., ) ) Plaintiffs, ) ) v. ) Civil Action N o. 15-480 (RMC) ) SYLVIA MATHEWS BURWELL, ) Secretary of Health and Human Services, ) ) Defendant. )

_________________________________ )

OPINION Plaintiff Hospitals blithely ar gue that the Secretary of Health and Human Services should ignore a decision of the S ixth Circuit Court of Appeals. The Hospitals challenge the Secretary’s deci sion to comply with Clark Regional Medical Center v. HHS , 314 F.3d 241 (6th Cir. 2002), a decision concerning how to calculate hospital bed counts under 42 C.F.R. § 412.105(b). Bed counts substantially affect Medicare payments. The Hospitals insist that the Secretary should ignore Clark because it results in bed counts for (and payments to) hospita ls located in the jurisdiction of the Sixth Circuit that are diffe rent from similar hospitals located elsewhere. Because the Secretary’s decision to follow Clark was not arbitrary and capricious, the Hospitals’ motion for summa ry judgment will be denied and t he Secretary’s cross motion will be granted.2 I. FACTS A. The Medicare Act In 1965, Congress enacted Title XVIII of the Social Security Ac t, known as the Medicare Act, 42 U.S.C. § 1395 et seq ., which provides for federal reimbursement for health care to the elderly and the disabled, see 42 U.S.C. § 1395c. Under Medicare Part A, the Secretary reimburses participat ing hospitals for care they prov ide to Medicare patients for “inpatient hospital services, post- hospital extend ed care servi ces, home health services, and hospice care.” Id . § 1395d(a). Medicare Part B, id . §§ 1395j-1395k, is a voluntary program that supplements Part A; it provides for reimbursement for, among ot her things, “hospital services . . . incident to physicians’ servic es rendered to outpatients,” id . §§ 1395k(a)(1), 1395x(s)(2)(b). 1. The Prospective Payment System and Bed Counts Initially, Medicare reimburse d hospitals for the “reasonable costs” of providing Medicare services. Starting i n 1983, Congress directed the Sec retary to create an “inpatient prospective payment system” (IPPS), whereby the Secretary pays the hospital a fixed payment for each patient diagnosis at di scharge, as described in 42 U.S .C. § 1395ww(d). Methodist Hosp. of Sacramento v. Shalala , 38 F.3d 1225, 1227 (D.C. Cir. 1994). IPPS depends on the pat ient’s diagnosis. Diagnoses are assi gned to a “diagnosis related grou p” (DRG), see 42 C.F.R. § 412.60, and each DRG is assigned a weight that is multiplied by a base dollar amount to determine payment, see id . § 412.64(g). 1 The rate is set in advance and is the amount commonly paid, n o

1 The majority of hospitals are pai d the “federal rate,” which i s the product of the DRG times a base dollar “standardized” amount. 42 C.F.R. ' 412.64(g). The standardized amount is roughly an average of operating costs per discharge of all patients for all IPPS hospitals in a given time period. 42 U.S.C. § 1395ww(d)(2)(C).3 matter how much the hospital actu ally may spend on that patient

. Methodist Hosp. , 38 F.3d at 1227. Because hospitals are paid a fixed rate, they are encour aged to minimize the cost of

treatment. Id

. Generally, Medicare Part A pa ys for inpatient hospital servic es. To impose “cost limits” on reimbursement a s required by statute, see 42 U.S.C. § 1395x(v)(1)(A), the Secretary classifies providers by bed type and count. Identifying the ty pe of hospital bed and counting such beds is critical to determi ning a providers’ IPPS payment. A small rural hospital can have “swing beds,” which are beds that can change in reimbursement status. When a s wing bed is used for acute care, Medicare reimburses the hospital under IPPS. When the patie nt “swings” from needing ac ute care to needing “post-acute skilled nursing facilit y care,” the status of the bed changes and Medicare reimburses the hospital under skilled nursing facilit y policies. 42 U.S.C. § 1395tt; M edicare Program Proposed Changes to the Hospital IPPS & FY 2004 Rates, 68 Fed. Reg. 27154, 27205 (May 19, 2003). Hospitals also can have “observation beds,” where patients are not formal ly admitted to the hospital but they occupy a bed for short-term treatment and/or assessment in order to determine the patient’s condition and whether s/he needs to be admitted as an inpatient . 68 Fed. Reg. at 27205. When a hospital assigns a patient to a n observation bed, Medicare reimburses the hospital under outpatient rules. IPPS does notrecognize observation bed-days as part of the hospital’s inpatient operating costs. Id . If the hospital subsequent ly admits an observation patient a s an inpatient, Medicare thereafter reimburses for services under Part A. Medi care Program Changes to the Hospital IPPS for Acute Care Hospitals and FY 2010 Rates, 74 Fe d. Reg. 43754, 43905 (Aug. 27, 2009).4 Bed counts affect Medicare payments in different ways. Becau se hospitals that train medical residents incur hi gher operating costs, the Medic are Act provides an additional payment for teaching hospitals–– t he “indirect medical educatio n” (IME) adjustment. 42 U.S.C. § 1395ww(d)(5)(B). The IME adjustment is calculated by multipl ying a hospital’s DRG revenue by a factor that in turn is calcu lated using the hospital’s rat io of medical residents over beds. Id .; 42 C.F.R. § 412.105(a) & (b). Notab ly, the number of beds is a denominator in this ratio and thus, the per-student IME ris es as the bed count falls and vice versa. In other words, a teaching hospital has an incen tive to exclude beds from the total count because it would receive a larger IME payment with a smaller number of beds. The bed count has the opposite effect on the “disproportionat e share” (DSH) payment. Hospitals that serv e a significantly disproportionate number of low income patients receive a supplemental payment, i.e ., the DSH adjustment, see 42 U.S.C. § 1395ww(d)(5)(F), because low income patients tend to be in poorer health and tre atment costs are thus higher, see Rye Psychiatric Hosp. Ctr., Inc. v. Shalala , 52 F.3d 1163, 1171-72 (2d Cir. 1995). A hospital is eligible for DSH payments if it has a “disproportionate share p ercentage” amounting to: (1) 15% if the hospital has 100 or more be ds; or (2) 40% if the hospita l has fewer than 100 beds. 42 U.S.C. § 1395ww(d)(5)(F)(v). 2 The Secretary counts beds usi ng the formula set forth in 42 C.F.R. § 412.105(b), and the DSH bed t otals incorporate the for mula for counting swing beds.
See 42 C.F.R. § 412.106(a)(1)(i) (2004) (incorporating § 412.105(b ) by reference). In contrast to the IME adjustment for teaching hos pitals, the DSH adjustment i s higher if the hospital in question has a larger bed count, a t least to the 100-bed thresh old. In other words, a hospital may

2 The “disproportionate share per centage” is the sum of two frac tions, described in § 1395ww(d)(5)(F)(vi).5 have an incentive to include be ds in the DSH calculation becaus e this makes it easier to meet the low-income patient threshold and receive DSH payments.
2. Medicare Administration and the Notice of Program Reimburs ement The Centers for Medicare and M edicaid Services (CMS), an agen cy within the Department of Health and Human S ervices, administers Medicare. CMS contracts with private entities to process hospital cl aims. Such entities were known as “fiscal intermediaries,” but starting in 2004, became known as “Medicare Administrative Contractors” (MACs). See 42 U.S.C. § 1395h. At the end of every fiscal year, each healthca re provider submits a cost report to its assigned MAC showing the hos pital’s costs and the portion a llocated to Medicare. See 42 C.F.R. §§ 405.1801, 413/24(f), 424.13. The MAC reviews the rep ort, determines hospitalspecific adjustments, decides th e total amount of Medicare reim bursement owed, and issues a Notice of Program Reimbursement specifying how much Medicare wi ll reimburse for that year. 42 C.F.R. § 405.1803. Within 180 days, a provider may appeal the determination of tot al reimbursement set forth in the Notice by fili ng an appeal with the Provider R eimbursement Review Board (PRRB). 42 U.S.C. § 1395oo(a)(3); 42 C.F.R. § 405.1835. PRRB decisions are final unless the Secretary reverses, affirms, or m odifies the Board’s decision w ithin 60 days. 42 U.S.C. § 1395oo(f)(1). A hospital may seek j udicial review of PRRB de cisions in the federal district court where the hospita l is located or in t he federal district court in the District of Columbia. Id

. 3. Clark and Bed Counting in the Sixth Circuit In 2001, two Kentucky hospitals tha t provided Medicare services to low-income patients filed suit challenging the Secretary’s interpretation of the bed counting provision, 42 C.F.R. § 412.105(b). See Clark Regional Medical Center v. HHS , 314 F.3d 241, 242 (6th Cir.6 2002). Because the Secretary excluded both swing bed and obser vation bed-days from the count of inpatient bed days, the total count of inpatient beds for ea ch of the Kentucky hospitals was fewer than 100. Id . at 244. With such a low bed count , the hospitals were not el igible for a DSH adjustment despite their 15% di sproportionate share. Further, they could not meet the much higher 40% disproportionate share applicable to hospitals with fewer than 100 beds. Id . The hospitals argued tha t swing and observation beds should have be en included in the count of inpatient bed days. If those be ds had been included, the hospi tals would have had more than 100 beds and would have qualified for t he DSH adjustment under the 15% provision. The hospitals objected to the Secretary’s bed counting method ology, arguing that the regulation unambiguously req uired the Secretary to include swing and observation beds in the bed count for inpatient days. Id . at 246. The district court rule d in favor of the hospitals a nd the Sixth Circuit affirmed, f inding that § 412.105(b) listed be ds to be excluded from the court as only “beds or bassinets in the healthy newborn nursery, custodi al care beds, or beds in excluded distinct part hospital units.” 3 Id . at 247. “Because the regulati on specifically lists certain t ypes of beds that are excluded from the bed count, but does not list swing or observation beds, the plain meaning of the regulation s uggests that it is permissible to count swing and observation beds.” Id

.

3 The version of § 412.105(b) that wa s then effective provided: (b) Determination of number of b eds. For purposes of this secti on, the number of beds in a hospital is determined by counting the number of available bed days dur ing the cost reporting period, not including beds or bassinets in the healthy newborn nursery, custodial care beds, or beds in e xcluded distinct part hospital units, and dividing that number by the number of days in the cost repo rting period.7 While the Secretary disagrees with Clark , she recognizes that Clark is binding in the Sixth Circuit. Accord ingly, shortly after the Clark ruling, the Secretary published a notice of proposed rulemaking. 68 Fed. R eg. at 27202-05. The proposed n ew regulation excluded swing and observation beds from the count of inpatient beds. A few m onths later, the Secretary published the Final Rule amending § 412.105(b), effective Octob er 1, 2003. See Medicare Program Changes to the Hospital IPPS and FY 2004 Rates, 68 Fed. Reg. 45346 (Aug. 1, 2003). The new version of § 412.105(b) super seded the regulation at is sue in Clark

. In addition to the amended regul ation, the Secretary issued a Joint Signature Memorandum (JSM) 109. JSM-109 provi des that the Secretary will follow Clark only as to hospitals located in the jurisd iction of the Sixth Circuit and only for hospital discharges prior to the effective date of the n ew regulation, October 1, 2003. Adm inistrative Record (AR) 232-34 (JSM-109). That is, under JSM- 109, the bed counts for Sixth Ci rcuit hospitals include swing and observation beds for cost years beginning prior to October 2003 , and exclude swing and observation beds for be d counting th ereafter. The ten hospitals who are Plain tiffs here (collectively, Hosp itals) 4 are acute care general hospitals located in O hio, within the jurisdiction of t he Sixth Circuit. 5 When calculating Medicare reimbursements for th e Hospitals for fiscal years begi nning prior to October 1, 2003, the MACs applied Clark in accordance with JSM-109, thereby counting swing and observa tion beds in total bed counts for the purpose of calculating both IM E and DSH reimbursements, and they provided Notices of Program Reimbursement to the Hospitals . The Hospitals appealed their

4 The Hospitals are: Grant Medi cal Center, Riverside Methodist H ospital, Doctor’s Hospital, Western Reserve Care System, St . Elizabeth Health Center, St. J oseph Health Center, Kettering Memorial Hospital, Grandview Med ical Center, Summa Health Syste m, and Sycamore Hospital.

5 The Sixth Circuit covers Ohi o, Kentucky, Michigan, and Tenness ee.8 respective notices to the Provide r Reimbursement Review Board ( Board), and the Board consolidated the appeals. The Hospitals argued that (1) the Clark decision bound only the pa rties to that case; and (2) the Secretary should r etroactively apply revised § 412.105(b) to Sixth Circuit hospitals’ cost year s prior to October 1, 2003. The Board reje cted these claims. AR [Dkt. 30] 6- 17. The Board held that Clark was binding precedent in the Sixt h Circuit prior to October 1, 2003, and that: [T]he separation of powers doctrine requires administrative agencies to follow the law of the circuit whose courts have jurisdiction over the cause of ac tion. In the absence of a con trolling decision by the Supreme Court, the respective courts of appeals express the laws of the circuit. As there is no controlling pr ecedent by the Supreme Court addressing the issue in this case, the Boa rd finds that the Intermediary is obligated to follow the relevant decisions of the Sixth Circuit i n which the providers are locat ed. AR 15-16 (footnote omitted). CMS , on behalf of the Secretary, declined to review the Board’s decision. The Hospitals filed s uit in this Court alleging: Count I, th e Secretary violated the Administrative Procedure Ac t (APA), 5 U.S.C. § 706; and Count I I, the Secretary violated the Hospitals’ rights to equal prot ection under the Fifth Amendment . More specifically with regard to the APA claim, the Hospitals contend: [T]he Secretary’s decision to treat the plaintiff Hospitals dif ferently from similarly situated providers outside the Sixth Circuit is arbitrary, capricious, an abuse of discretion, or otherwise notin accordance with the law; contrary to constitutional right, powe r, privilege or immunity; in excess of statutory jurisdiction, authority, or limitations, or s hort of statutory rig ht; and/or without obs ervance of procedure required by law. Compl. [Dkt. 1] ¶ 45.9 The Hospitals filed a motion for summary judgment and the Secre tary filed an opposition and cross motion. The matter is fully briefed. See Pl. Mot. for Summ. J. (MSJ) [Dkt. 22]; Def. Cross Mot. for Summ. J . Combined with Opp’n (XMSJ) [D kts. 23, 24]; Pl. Opp’n Combined with Reply (Pl. Opp’n) [Dkts. 25, 26]; Def. Reply [Dkt . 29].
II. LEGAL STANDARD A. Summary Judgment Whether agency action is contrary to law under the APA is a l egal question that courts resolve based on the enti re administrative record. See Am. Bioscience, Inc. v. Thompson , 269 F.3d 1077, 1083-84 (D.C. Cir. 2001). Under the APA, an age ncy’s role is to resolve factual issues to reach a decision suppor ted by the administrative reco rd, while “the function of the district court is to determine wh ether or not as a matter of la w the evidence in the administrative record permitted the agency to m ake the decision it did.” Sierra Club v. Mainella , 459 F. Supp. 2d 76, 90 (D.D.C. 2006) (citation omitt ed). Summary judgment i s the mechanism for deciding whether an agency action was supported by the administrative re cord and was consistent with the APA standard of review. Id. (citing Richards v. INS , 554 F. 2d 1173, 1177 & n.28 (D.C. Cir. 1977)). Summary judgment shall be granted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to j udgment as a matter of law.” Fed. R. Civ. P. 56(a); accord Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 247 (1986).
B. APA Review The Hospitals allege that the J SM-109 must be set aside becau se it is arbitrary, capricious and not in accordance wi th the law in violation of t he APA. When reviewing an agency’s interpretation of its e nabling statute a nd the laws it administers, courts are guided by “the principles of Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc. , 467 U.S. 837 (1984).” Mount Royal Joint Venture v. Kempthorne , 477 F.3d 745, 754 (D.C. Cir. 2007).10 Chevron sets forth a two-step inquiry. T he initial question is whether “Congress has directly spoken to the precise question at issue” and, if so, the court must “give effect to the unambiguously expressed i ntent of Congress.” Chevron , 467 U.S. at 842-43. When the statute is clear, the text controls a nd no deference is extended to an agency’s interpretation in conflict with the text. Chase Bank USA, N.A. v. McCoy , 563 U.S. 195, 210 (2011). On the other hand, if a statut e is ambiguous or silent on an issue, the court proceeds to the second step of the Chevron analysis and determines whether the agency’s interpretation is based on a r easonable constr uction of the sta tute. Chevron , 467 U.S. at 843; Sherley v. Sebelius , 644 F.3d 388, 393-94 (D.C. Cir. 2011). As relevant here, Con gress has not explicitly addressed the ques tion of whether observation and sw ing bed should be counted to determine the total inpatient bed count. See Health Alliance Hosp., Inc. v. Burwell , 130 F. Supp. 3d 277, 289 (D.D.C. 2015). Accordingly, the Court must proceed to Chevron step two. Under step two, a court determines the level of deference due to the agency’s interpretation of the l aw it administers. See Kempthorne , 477 F.3d at 754. When the agency’s interpretation is permissible and reasonable, it receives contr olling weight, id ., “even if the agency’s reading differs from what the court believes is the be st statutory interpretation.” Nat’l
Cable & Telecomm. Ass’n v. Brand X Internet Servs ., 545 U.S. 967, 980 (2005). “[T]he tremendous complexity of the Medic are program enhances the defe rence due the Secretary = s decision.” Cmty. Care Found. v. Thompson , 318 F.3d 219, 225 (D.C. Cir. 2003) (internal quotation marks omitted). An agency’s interpretation of the law it administers is permi ssible and reasonable if it is not arbitrary, capricious , or manifestly contrary to t he statute. Kempthorne , 477 F.3d at 754. In determining whether an act ion was arbitrary and capric ious, a reviewing court “must11 consider whether the [agency ’s] decision was based on a conside ration of the relevant factors and whether there has been a c lear error of judgment.” Marsh v. Oregon Natural Res. Council , 490 U.S. 360, 378 (1989) (internal quotation marks omitted). The scope of review under the arbitrary and capricious standa rd is narrow, and a court shouldnot “substitute its judgment for that of the agency.” Motor Vehicle Mfrs. Ass’n of U.S. v. State Farm Mut. Auto. Ins. Co. , 463 U.S. 29, 43 (1983). An agency is “not required to choose the b est solution, only a reasonable
one.” Petal Gas Storage, LLC v. FERC , 496 F.3d 695, 703 (D.C. Cir. 2007). See also Odessa Reg’l Hosp. v. Leavitt , 386 F. Supp. 2d 885, 891 (W.D. Tex. 2005) (42 C.F.R. § 412.10 5 is a permissible construction of the Medicare Act and passes the Chevron test; the question on APA review is whether the Secretary arbitrarily applied the regulation). The Hospitals make much of the fact that the S ecretary does no t agree with Clark and that the Secretary’s long- standing position, as reflected i n bed count calculations before
Clark and in the Final Rule amending § 412.105(b), has been to exclu de swing and observation beds from the inpatient bed c ount. The relevant question prese nted, however, is not whether the Secretary agrees with Clark . She avowedly does not. See XMSJ at 8 (“Although the Secretary disagreed with the decision in Clark , she had no choice but to accept the Sixth Circuit’s holding.”) The question here is wh ether interpretive rule JSM- 109––the Secretary’s decision to apply Clark to all Sixth Circuit hospitals f or fiscal years prior to Octob er 2003––was an arbitrary and capricious interpretation of t he Medicare Act. The Court f inds that it was not. 6

6 JSM-109 is an interpretive rule . Interpretive rules receive s uch deference as is warranted by circumstances surrounding their creation, including “the degree of the agency’s care, its consistency, formality, and relativ e expertness” and the “persu asiveness of the agency’s position.” Oceana, Inc. v. Locke , 831 F. Supp. 2d 95, 116-17 (D.D.C. 2011).12 III. ANALYSIS A. Agency Nonacquiescence The Hospitals argue that th e Secretary should have engaged in “intracircuit nonacquiescence.” They argue that because the Secretary is res ponsible for implementing Medicare uniformly and nationwide and because she disagrees wit h Clark , she should have refused to apply Clark to any other case. The Hospitals fail to appreciate that t he broad and clear hold ing of Clark necessarily applies to all hospitals in the Sixth Circuit. The Sixth Circ uit held that the plain meaning of the prior regulation r equired the Secretary to inclu de swing and observation beds when counting inpatient beds a nd, conversely, she had no author ity to exclude such beds. Clark , 314 F.3d at 247. The opinion is une quivocal and leaves no wigg le room for arguing that it applied only to the particul ar parties in that case: We conclude that the Department's application of its own regulations in this case cannot be squared with either the plai n meaning of the regulations or with the Department's definition of “available bed” set forth in PRM § 2405.3(G). As such, we concl ude that the [ ] decision was a rbitrary and capricious. The Department’s attempt to distinguish between a “bed” and an “available bed day” is at odds with the plain meaning of § 412.105(b). Section 412.105(b) state s that the number of beds is to be determined “by counting the number of available bed days during the cost reporting period, not including beds or bassinets in the healthy newborn nursery, custodial care beds, or beds in excluded distinct part hospital uni ts, and dividing that number by the number of days in the cost reporting period. ” 42 C.F.R. § 412.105(b) (emphasis added). Becaus e the regulation specificall y lists certain types of beds that are excluded from the bed coun t, but does not list swing or observation beds, the plain meaning of t he regulation suggests that it is permissible to count swing and observation beds. Further, swing and observation beds are not o f the same class or type as “beds or bas sinets in the healthy newborn nursery, custodial care beds, or b eds in excluded distinct part hospital units.” Although these be ds listed as excluded are . . . all13 non-PPS reimbursable beds, the sw ing and observation beds at is sue in this case are actually used for PPS-reimbursable services mo re often than not. None of the beds described as excluded may be u sed primarily for acute inpatient ca re as the swing and observation beds are. This is because these excluded beds are located in areas o f the hospital that, by definition, cannot come within PPS. Had the Department intended to exclude a ll non-PPS reimbursable beds an d services, it could easily have written the regulation to do so. Id . at 247-48 (emphasis in original). After the Sixth Circuit issued its Clark decision in February 2003, the Secretary’s choices were limited: (1) she coul d file a writ of certiorari t o the Supreme Court; (2) she could request that Congress pass a statute superseding Clark ; or (3) she could ame nd the regulation and issue an interpretive memo sp ecifying how she would treat Sixth Circuit cases until the amended regulation became effective. In the interest of expediency and facing the onset of a new fiscal year, the Secretary chose opti on three, amending the prior regu lation and specifying through JSM-109 that Clark applied only in the Sixth Circu it and only for fiscal years pr ior to the effective date of the Final Rul e that amended the regulation. The Final Rule was completed in time for it to be effective across the country at the start of the federal fiscal year beginning October 1, 2003. 7 This was a permissible and r easonable course of action, espec ially due to separation of powers principles and the criticism of agency non acquiescence from the courts explained below. The separation of powers doctrin e requires administrative age ncies to follow the law of the circuit with juris diction over a cause of action. Yellow Taxi Co. of Minneapolis d/b/a

7 Seeking a writ of certiorari or a new statute would have taken substantially more time. “Catching Congress’ ear . . . is more easily said than done; an d given the huge volume of petitions for certior ari that flood the Supreme Court, it is of ten necessary to establish a split among the circuits before the Court will examine an issue.” Johnson v. U.S. R.R. Ret. Bd ., 969 F.2d 1083, 1097 (D.C. Cir. 1992) (Buckley, J., concurring in pa rt and dissenti ng in part).14 Suburban Yellow Taxi Co. v. NLRB , 721 F.2d 366, 382 (D.C. Cir. 1983). “I n the absence of a controlling decision by the Supreme Court, the respective court s of appeals express the law of the circuit.” Hyatt v. Heckler , 807 F.2d 376, 379 (4th Cir. 1986). In Yellow Taxi , the D.C. Circuit rebuked the National Labor Relations Board which had “h istorically arrogated to themselves the authority to ‘disa gree’ with judicial precedent. ” 721 F.2d at 382. The Circuit explained that agencies must ab ide by the superior power of the courts: [T]he Board is not a court nor is it equal to this court in matters of statutory interpretation. Thus, a disagreement by the NLRB with a decision of this court is simply an academic exercise that poss esses no authoritative effect. It is in the court of appeals and not in an administrative agency that Congress has vested the power and authority to enforce orders of the NLRB. [National Labor Relati ons Act,] 29 U.S.C. § 160(e). It is in t his court that Congress has vested the power to modify or set aside an order of the NLRB. [ Id .] § 160(f). In 1803, Chief Justice John Marshall, speaking for a unanimous Court, concisely stated the fundamental principle on which we rely: “It is emphatical ly the province and duty of the judicial department to say what the law is. Those who apply the rule to particular cases, must of necessity expound and interpret th at rule. If two laws conflict with each oth er, the courts must decide onthe operation of each.” Marbury v. Madison, 5 U.S. (1 Cranch) 137, 177, 2 L. Ed. 60 (1803). Thus, it is in this court by virtue of its responsibility as the statutory c ourt of review of NLRB orders that Congress has vested a superior pow er for the interpretation of the congressional mandate. Congress has not given to the NLRB the power or authority to disagree, respectfully or otherwise, with decisions of this court. See Volkswagenwerk Aktiengesellschaft v. FMC, 390 U.S. 261, 272, 88 S. Ct. 929, 935, 19 L. Ed.2d 1090 (1968). For the Board to predicate an order on its disagreement with this court’s interpretation of a statute is for it to operate o utside the law. Such an order will not be enforced. Yellow Taxi , 721 F.2d at 382–83. Agencies that have followed apolicy of intracircuit nonacqui escence have been roundly “condemned” by every circu it that has addressed the iss ue. Johnson v. U.S. R.R. Ret.
Bd ., 969 F.2d 1083, 1097 (D.C. Cir. 1992) (citing Hyatt , 807 F.2d at 379; Stieberger v. Bowen, 801 F.2d 29, 36–37 (2d Cir. 1986); Polaski v. Heckler, 739 F.2d 1320, 1322 (8th Cir. 1984);15 Lopez v. Heckler, 725 F.2d 1489, 1503 (9th Cir.), vacated on other grounds and remanded, 469 U.S. 1082 (1984); Childress v. Secretary of HHS, 679 F.2d 623, 630 (6th Cir. 1982)); see also Jones & Laughlin Steel Corp. v. Marshall , 636 F.2d 32, 33 (3d Cir. 1980); Mary Thompson Hosp., Inc. v. NLRB , 621 F.2d 858, 864 (7th Cir. 1980). “[F]l agrant disregard of judicial precedent must not continue. Not only is the [agency] obligate d under the principles of stare decisis to follow this court’s deci sion . . . , but it also owes defer ence to the other courts of appeals which have ruled on the issue.” Mary Thompson , 621 F.2d at 864. It “raises grave constitutional and statutory quest ions” when an agency refuses to petition for Supreme Court review of an adverse circuit ru ling and instead elects to conti nue to apply the rejected interpretation of an agency rule. Johnson , 969 F.2d at 1091; see also id . at 1092 (comparing nonacquiescence to Governor O rval Faubus’ defiance of Brown v. Bd. of Education , 373 U.S. 493 (1954), at Little Rock) (citing Lopez , 725 F.2d. at 1497). In Johnson , the Circuit noted that the Secretary of Health and Human Services previously exercised a policy of intracircuit nonacquiescence, but abandoned thi s policy “after being severel y criticized by the Courts and by Congress.” Johnson , 969 F.2d at 1093. 8 In support of its claim that th e Secretary should practice no nacquiescence here, the Hospitals cite Atchison Topeka & Santa Fe Ry. v. Pena , 44 F.3d 437 (7th Cir. 1994) and Holland v. Nat’l Mining Ass’n , 309 F.3d 808 (D.C. Cir. 2002). Atchison and Holland do not

8 In the early 1980s, the Secretary took the posi tion that each Circuit ruling applied only to the parties in that case on the ground t hat the Social Security ben efits program should be administered uniformly on a national basis. See H.R. Rep. 98-618 (1984), reprinted in 1984 U.S.C.C.A.N. 3038, 1984 WL 3743 6, at *23-24 (Mar. 14, 1984). C ongress debated the issue in the course of enacting the Socia l Security Disability Benefits Reform Act of 1984, Pub. l. No. 98-460, 98 Stat 1794. The Conference Committee urged agencies to follow a policy of nonacquiescense only where “the administration has initiated or has the reasonable expectation and intention of initiating the steps necessary to receive a re view of the issue in the Supreme Court.” Joint Conf. Comm. S tatement, H.R. Conf. Rep. 98-1039, at *37 (1984).16 apply. In those cases , the agency in question relied on a sing le circuit decision to create a new nationwide policy and gave no expl anation for its policy change

. Atchison , 44 F.3d at 440;
Holland , 309 F.3d at 810. Here, the Secretar y has followed a circuit decision in only the circuit that rendered it, and the S ecretary provided, via JSM-109, a re asonable explanation of why she did so. 9 Even if the Secretary mi ght have chosen not to follow Clark , she was not required to make this choice. An agency i s not required to choose the “ best” solution, only a reasonable

one. Petal Gas , 496 F.3d at 703. Choosing to issue JSM-109 was reasonable inlight of strong prior criticism of intracircu it nonacquiescence by numerous cir cuit courts and Congress, see Johnson 969 F.2d at 1097, and in light of the conflicting policy conce rns at issue . Hospitals around the country disagree abou t how beds should be counted. In contrast to the Hospitals’ argument that Clark should be disregarded within the Sixth Circuit, other hospital s advocate for national application of the Clark decision. See, e.g., Health Alliance Hosp., Inc. v. Burwell , 130 F. Supp. 3d 277, 292-99 (D.D.C. 2015) (following Clark in determining the bed count at a Massachusetts hospital prior to October 2003); Odessa Reg’l Hosp. v. Leavitt , 386 F. Supp. 2d 885, 891-92 (W.D. Tex. 2005) (following Clark in determining the bed count at a Texas hospital for time periods before 2003). This is variation presumably is caused by the fact that including swing and observation beds in bed c ounts increases Medicare pay ments to some hospitals and decreases Medicare payments to ot hers. The Secretary is in the best position to weigh the conflicting interests involved. See Cmty. Care , 318 F.3d at 225 (courts defer to the Secretary’s

9 The Hospitals also assert that Holland requires that no deference be given to the Secretary’s decision here because her acquiescence to Clark is not a “reasoned judgment” where she openly disagrees. Pl. Opp’n at 4. But a n agency that predicates acti on based on its disagreement with a court order acts outside the law. Yellow Taxi , 721 F.2d at 383.17 policy choices in Medicare cases due to the tremendous complexi ty of the Medicare program). The Secretary’s action in adop ting JSM-109, and thereby applyin g Clark to hospitals located within the Sixth Circuit only, w as not arbitrary and capricious

. The Hospitals further contend tha t the Secretary’s decision to apply Clark in the Sixth Circuit was arbitrary and capricious because of the venue choice provision in the statute, 42 U.S.C. § 1395oo(f)(1). That prov ision allows a hospital to seek judicial review of PRRB decisions in the federal distri ct court where the hospital is l ocated or in the federal district court in the District of Columbia. The fact that a litigant has a ch oice where to file its appeal has no bearing on the analysis of whethe r the Secretary acted reasonab ly. A plaintiff may choose the venue for its APA challenge, but t he Rule under review (here, J SM-109) is the same wherever the suit is filed. B. Retroactive Rulemaking The Hospitals also argue tha t the Secretary should have applie d the Final Rule retroactively within the Sixt h Circuit. “The decision of wheth er to grant retroactive force to a newly promulgated agency rule is a question of law for the cour ts with no overriding obligation of deference to the agency decision.” Mason Gen. Hosp. v. Sec’y of HHS , 809 F.2d 1220, 1224 (6th Cir. 1987). However, it is wel l-established that a regula tion that changes legal rights adversely cannot be applied retroactively. See Nat’l Mining Ass’n v. Dep’t of Labor , 292 F.3d 849, 859 (D.C. Cir. 2002) (a rule can not be applied retroactive ly where it “cha nges the legal landscape” by impairing vested rig hts, creating a new duty or o bligation., or increasing a party’s liability for past conduct) (citing Landgraf v. USI Film Prods ., 511 U.S. 244, 269-71 (1994)); Georgetown Univ. Hosp. v. Bowen , 821 F2d 750, 757 (D.C. Cir. 1987) (the APA does not authorize the Secretary to enga ge in retroactive rulemaking), aff’d sub nom. Bowen v.18 Georgetown Univ. Hosp ., 488 U.S. 204, 213 (1988) (the Medicar e Act does not authoriz e retroactive rulemaking). The Final Rule, amending 42 C.F.R. § 412.105(b), cannot be applied retroactively because it modified settled Sixth Circuit law est ablished in Clark

. The Hospitals insist that t he revisions to § 412.105(b) in the Final Rule were “clarifying amendments” that th e Secretary can and should applyretroactively. The Hospitals argue that Clark did not “settle” th e law, that in fact it “unsettled” the law, and the Secretary’s amendment to § 412.105(b) should be given retroactive effect be cause it clarified the preexisting regulation. Pl. Opp’n 17-18. The Hospitals are correct tha t a clarifying amendment, which d oes not change the law, can be applied retroactiv ely. The Secretary takes the pos ition in all but the Sixth Circuit that the Final Rule amendi ng § 412.105(b) merely clarified the law. See XMSJ at 25. In the Sixth Circuit, however, the Final R ule represents a substantive change because revised § 412.105(b) is inconsistent with Clark . “If a new regulation is substa ntively inconsistent with a prior regulation, prio r agency practice, or any Court of Appeals decision rejecting a prior regulation or agency practice , it is retroactive as app lied to pending claims.” Nat’l Mining Ass’n v. Dep’t of Labor , 292 F.3d 849, 860 (D.C. Cir. 2002) (emphasis added). In their argument that the S ecretary should apply the Final Ru le retroactively, the Hospitals ignore the rules of stare decisis

. Clark interpreted the “plai n meaning” of the prior regulation, see Clark , 314 F.3d at 247, and thereby established precedent that is bi nding in the Sixth Circuit unless and until its ruling is overturned en banc or by the Supreme Court. See Salmi v. Sec’y of HHS , 774 F.2d 685, 689 (6th Cir. 1985) (the ruling of a circuit pa nel creates binding precedent in the circuit). Clark determined what the law was in the Sixth Circuit at the time, and the Secretary was obligated to follow it. See Yellow Taxi , 721 F.2d at 382 (an agency’s19 disagreement with a court deci sion “possesses no authoritative effect”). Clark established Sixth Circuit law, and the subsequent Final Rule amending § 412.105(b ) as of October 2003, was in conflict with Sixth Circuit law prior to its effective date. A s a matter of law, the Secretary had no authority to apply the Final Ru le retroactively in the SixthCircuit. C. Equal Protection The Hospitals claim that the S ecretary violated their rights to equal protection by treating them differently from similarly situated hospitals, i.e ., by applying Clark and thus including swing and observation beds in finding their total bed count. To advance an equal protection claim, a plaintiff mu st assert facts that support th e allegation that the government intentionally treated it differe ntly from others who were simil arly situated and that there is no rational basis for the difference in treatment. 3883 Connecticut LLC v. District of Columbia , 336 F.3d 1068, 1075 (D.C. Cir. 2003) (citing Village of Willowbrook v. Olech , 529 U.S. 562, 564 (2000)). Equal protection “does not require that all persons e verywhere be treated alike. Instead, it imposes the rather more modest requirement that government n ot treat similarly situated individuals differently wit hout a rational basis.” Noble v. U.S. Parole Comm’n , 194 F.3d 152, 154 (D.C. Cir. 1999) (citing Cleburne v. Cleburne Living Ctr., Inc. , 473 U.S. 432, 439 (1985)). In the face of an equal protection challenge, a court must upho ld agency action if there was a rational basis for such action. FCC v. Beach Commc’ns, Inc ., 508 U.S. 307, 313 (1993). The Hospitals assert that the geographical location of the hosp itals is an arbitrary basis for determining whether to apply Clark or the Final Rule. As explained above, however, the Secretary’s decision to prom ulgate and apply JSM-109 was re asonable. The geographical boundaries that govern are those of the Sixth Circuit where Clark provided the relevant rule of law until the Final Rule became effective. The equal protectio n claim fails.20 IV. CONCLUSION For the reasons set forth above , Plaintiffs’ motion for summary judgment [Dkt. 22] will be denied, and the Secret ary’s cross motion for summary judgment [Dkt. 23] will be granted. Judgment will be entered in favor of the Secretary. A memorializing Order accompanies this Opinion.

Date: September 1, 2016 /s/ ROSEMARY M. COLLYER United States District Judge