Opinion ID: 684140
Heading Depth: 2
Heading Rank: 2

Heading: Significant Change in Rate-Setting Methods and Standards.

Text: 20 Oklahoma argues first that HCFA arbitrarily failed to follow its stated policy of deferring to a state's reasonable determination of the significance of a change in methods and standards. Petitioner's Br. at 21-23. 7 Oklahoma maintains that instead of finding that the State's determination of insignificance was unreasonable, the Administrator merely found that HCFA's own determination of significance was reasonable. The State argues that this error prejudices it, because the State's determination of insignificance clearly was reasonable. It cites the fact that the State had made an inflation adjustment to hospital rates every year since 1983, that the providers expected the adjustment, that the adjustment was in the same range as previous adjustments, and that the State had not issued public notice for the adjustment in the previous year and HCFA approved it anyway. Petitioner's Reply Br. at 7, 13. 21 HCFA does not appear to dispute that a state is to make the initial determination of significance: We submit that ultimately, HCFA must judge the reasonableness of a state's characterizations of amendments to its plan, and HCFA's determination should be sustained if it is neither arbitrary nor capricious. Respondents' Br. at 26. 8 22 It is possible to read the Administrator's decision, as Oklahoma did, as a finding with regard to HCFA's determination, rather than with regard to the State's. See R. at 8 ([T]he Administrator finds that the Hearing Officer properly decided that HCFA reasonably determined that the proposed amendment constitutes a significant change in the methods or standards used to set Medicaid payments.). 23 We must determine, then, whether the Administrator merely wrote unclearly or actually applied a standard different from the one he purports to recognize. Upon examination we find that, whether or not he was bound to do so, the Administrator did implicitly review the reasonableness of the State's determination; he found it to be unreasonable and therefore gave it no deference. The Administrator found that the 5.9 percent inflation adjustment represents a substantial increase in the inflation adjustment over prior years, R. at 8, implicitly rejecting as unreasonable the State's argument that the adjustment was in the same range as previous ones. The inflation factor in SPA 86-1 was 3 percent; SPA 87-2, zero percent; SPA 87-13, 3.7 percent; SPA 88-3, 4 percent; SPA 89-18, 5.9 percent. The Administrator could reasonably find that an inflation adjustment nearly half again as large in percentage terms as the next highest adjustment in the previous four amendments was a substantial increase in that factor. 24 The Administrator also found that the State was advised as early as 1986 that HCFA would consider the proposed annual inflation changes significant as long as the State used various measures of inflation without formally committing itself to the use of any one or any combination of indices. 9 This finding implicitly rejects as unreasonable any reliance on the fact of annual inflation adjustments since 1983 or on providers' expectations as a basis for calling this particular adjustment insignificant. We further note that SPA 86-1 and SPA 87-2 also were annual adjustments, and there was no showing that they were less anticipated than SPA 89-18, yet Oklahoma does not dispute their significance. The Administrator was correct to deem these two premises an unreasonable basis for the State's determination that SPA 89-18 was insignificant. 25 Finally, the State argues that because it did not issue public notice of SPA 88-3 the previous year and HCFA approved the amendment anyway, the State acted reasonably in concluding that SPA 89-18 must not be a significant change in methods and standards. See Petitioner's Reply Br. at 7, 13. It does not appear that Oklahoma raised this argument before the Administrator, though, see R. at 68-70, so we do not consider it here. Rives v. ICC, 934 F.2d 1171, 1176 (10th Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 1559, 118 L.Ed.2d 207 (1992). 26 Implicitly finding Oklahoma's determination of insignificance to be unreasonable and entitled to no deference, the Administrator made his own finding that SPA 89-18 was a significant change in rate-setting methods and standards. HCFA's regulations do not define significant proposed change, and the agency has pointedly refused invitations to add a definition to the regulations. See preamble to Final Rule, 48 Fed.Reg. 56,046, 56,049-50. But the agency has instructed states that in determining the significance of a change in methods and standards, they should consider the impact of the proposed change (e.g., the change in rates and the number of providers affected). 10 Id. at 56,051. Here, the Administrator looked at both the magnitude and the breadth of impact of SPA 89-18. He found that the 5.9 percent inflation adjustment to Medicaid payment rates for inpatient hospital services was the largest single determinant of all inpatient hospitals' year-to-year payment increase. R. at 7. The amendment represents a substantial increase in the inflation adjustment over prior years and will impact payment for all inpatient hospital services in the State of Oklahoma. R. at 8. 27 Oklahoma suggests that the mere fact that an inflation factor determined the hospitals' annual payment increase says nothing about the factor's significance if the resultant annual payment increase itself was miniscule, and here the Administrator made no finding that the payment increase was significant. See Petitioner's Br. at 24. This logic might persuade us, had the State not already effectively conceded that the 5.9 percent increase was significant in magnitude. See id. at 10 (disapproval of July 1, 1989, effective date is of great significance to Oklahoma--$5.6 million of scarce state funds and services valued at over $18 million are at stake). We find that substantial evidence supports the Administrator's finding that SPA 89-18's 5.9 percent inflation factor was a significant change in rate-setting methods and standards. 11 28