Opinion ID: 32619
Heading Depth: 2
Heading Rank: 2

Heading: The Administrator's decision was arbitrary and capricious

Text: 45 Louisiana changed its law in response to, and its understanding is in accordance with, former Secretary Shalala's guidance. Louisiana eliminated Secretary Shalala's primary objection to the plan — separate licensing requirements for RHCs — and instead adopted a common licensure regime. Not only were these changes substantial and made in good faith by the Louisiana legislature, but, when questioned directly at oral argument, counsel for CMS was unable to offer any other language that Louisiana should have used to comply with Secretary Shalala's letter. 46 CMS does not seriously dispute that RHCs provide medical services traditionally provided in hospitals. We agree with Louisiana that commonly-licensed RHCs, like traditional hospitals, provide medical service that is preventative, diagnostic, therapeutic, rehabilitative, or palliative, 42 C.F.R. § 440.20, thereby satisfying the first part of the definition of hospital services. 47 The second part of the definition requires services to be furnished by an institution that is licensed or formally approved as a hospital by an officially designated authority for State standard-setting.... Id. The Administrator adopted the recommendation of a hearing officer who ignored the critical fact that Louisiana, with an eye to this definition, enacted a system of common licensure for hospital based RHCs. Whether medical care falls within the second part of the definition heavily depends on the licensing scheme of the institution furnishing the service. The Administrator's assumption — that the nature of a service, and not the circumstances under which the service is delivered, determines its categorization — ignores the common licensure scheme, the clear textual analysis offered by Louisiana, and the previous Medicare regulations that analyzed hospitals and RHCs in a similar manner. Given the Administrator's decision was made without proper consideration of the appropriate facts and contravenes prior regulations promulgated by the HCFA itself, we hold that the Administrator's decision was arbitrary and capricious, and cannot stand.