Court Opinion

ID: 768091
Source: CourtListenerOpinion
Date Created: 2012-04-18 08:51:29+00
Date Added: 2024-06-11T17:55:32.965362
License: Public Domain

207 F.3d 437 (7th Cir. 2000)
HOWARD YOUNG MEDICAL CENTER,  INCORPORATED,    Plaintiff-Appellant,v.Donna E. SHALALA, Secretary of Health  and Human Services,    Defendant-Appellee.
No. 99-2035
In the  United States Court of Appeals  For the Seventh Circuit
Argued November 2, 1999Decided March 21, 2000

Appeal from the United States District Court  for the Western District of Wisconsin.  No. 98 C 520--John C. Shabaz, Chief Judge.
Before COFFEY, FLAUM and KANNE, Circuit Judges.
COFFEY, Circuit Judge.

1
On July 22, 1998, Howard  Young Medical Center, Inc. (Howard Young), a 99-  bed hospital located in Woodruff, Wisconsin,  appealed the Secretary of Health and Human  Services' (Secretary) decision that it was not a  sole community hospital.1 On December 4, 1999,  the district court granted summary judgment in  favor of the Secretary, concluding that the  decision not to grant Howard Young sole community  hospital status was supported by the evidence in  the case and consistent with the administrative regulations implemented by the Secretary. We  affirm.

I.  BACKGROUND

2
A. The Medicare System--Relevant Statutes and  Regulations

3
Under the Medicare system prior to 1983,  hospitals and other health care providers were  entitled to payment of the lesser of the  "reasonable cost" or the "customary charge" for  the services they provided. See 42 U.S.C. sec.  1395f(b) (1982). This all changed in 1983 when  Congress established a prospective payment system  (PPS) for Medicare payment of inpatient hospital  services. See 42 U.S.C. sec. 1395ww(d). Under the  PPS, Medicare payments are made at predetermined  rates for hospital discharges based upon the  diagnosis of the patient. See 49 Fed. Reg. 235  (1984). Like all great bureaucracies, this is not  the end of the story. There are exceptions to the  "diagnosis" based payment scheme; the Secretary  is permitted to authorize additional payments to  hospitals which are designated as a sole  community hospital.

4
A sole community hospital is defined by  Medicare as:

5
any hospital--

6
(I)  that the Secretary determines is located  more than 35 road miles from another hospital,

7
(II)  that, by reason of factors such as the time  required for an individual to travel to the  nearest alternative source of appropriate  inpatient care (in accordance with standards  promulgated by the Secretary), location, weather  conditions, travel conditions, or absence of  other like hospitals (as determined by the  Secretary), is the sole source of inpatient  hospital services reasonably available to  individuals in a geographic area who are entitled  to benefits under [Medicare], or

8
(III)  that is designated by the Secretary as an  essential access community hospital under  [Medicare].

9
42 U.S.C. sec. 1395ww(d)(5)(D)(iii) (1992).  Consistent with the statute, the Secretary  promulgated administrative regulations relating  to a particular hospital's ability to qualify as  a sole community hospital.

10
The regulations promulgated by the Secretary  provide, in relevant part, that to be classified  as a sole community hospital, Howard Young must  demonstrate that it is located in a rural area,  is between 25 to 35 miles from other like  hospitals,2 and that no more than 25 percent of  the patients in the hospital's service area have  been admitted to other like hospitals within a  35-mile radius. See 42 C.F.R. sec. 412.92(a)(1).  The regulations, therefore, require two separate  calculations: 1) Howard Young must establish its  "service area;" and 2) the hospital must  calculate its "market share" within that service  area.

11
"Service area" is defined as "the area from  which a hospital draws at least 75 percent of its  inpatients during the most recent 12-month cost  reporting period ending before it applies for  classification as a sole community hospital." 42  C.F.R. sec. 412.92(c)(3). Furthermore, a  "hospital may define its service area as the  lowest number of contiguous zip codes from which  the hospital draws at least 75 percent of its  inpatients." Medicare Provider Reimbursement  Manual (PRM) sec. 2810(A)(2)(c).

12
B. Howard Young's 1992 Application for Sole  Community Hospital Status

13
In 1992, Howard Young filed an application for  sole community hospital status, as required, with  its fiscal intermediary, Blue Cross and Blue  Shield United of Wisconsin (Blue Cross). See 42  C.F.R. sec. 412.92(b)(1)(i). In its application,  Howard Young defined its service area by  identifying the 16 zip codes most dependent upon  the hospital. In identifying the 16 zip codes,  Howard Young used those areas with the highest  percentage of discharges as opposed to those  areas with the highest number of discharges.  Based on the information submitted, Blue Cross  recommended that the Health Care Financing  Administration (HCFA) approve Howard Young's  application.

14
The HCFA disagreed and denied Howard Young's  application for sole community hospital status.  HCFA did so because Howard Young failed to comply  with the "lowest number of zip codes" requirement  when it selected zip codes with the highest  percentages of discharges instead of the zip  codes with the highest numbers of discharges. The  HCFA used the information submitted by the  hospital and recalculated Howard Young's service  area in accordance with the regulations. Because  the hospital had 2,253 discharges during the time  period under consideration, its service area (in  order to meet the required 75%) needed to contain  at least 1,690 discharges. See 42 C.F.R. sec.sec.  412.92 (a)(1), (c)(3). The HCFA explained that it  recalculated the service area "in the order of  discharges from the highest to the lowest, until  the service area has included at least 75 percent  of [the hospital's] inpatient discharges . . . ."  This recalculation resulted in a ten zip code  service area as opposed to the 16 zip code area  that the hospital proposed. The HCFA then took  those ten zip codes and compared Howard Young's  market share as compared to "other like  hospitals" located in a 35 miles radius. By  merely comparing the statistics of the hospitals,  HCFA concluded that Howard Young's market share  was only 41.4%, well short of the 75% required  for sole community hospital status.

15
C. Proceedings before the Provider Reimbursement  Review Board

16
In accordance with the regulations, Howard Young  appealed the HCFA's denial of its application to  the Provider Reimbursement Review Board (PRRB).  Shortly before the hearing, in September and  October of 1995, Howard Young submitted  additional discharge data regarding its 1991  fiscal year that it had received from the State  of Wisconsin's Office of Health Care Information.  According to Howard Young, this new information,  which was also submitted to the HCFA,  "conclusively established that [it] qualified for  sole community hospital status." Basically Howard  Young took the ten zip code service area  designated by the HCFA and substituted the  Boulder Junction, Wisconsin, zip code for the  Rhinelander, Wisconsin, zip code despite the fact  that Boulder Junction had fewer discharges than  Rhinelander.3

17
The PRRB held an administrative hearing on  October 12, 1995, and the only parties allowed to  participate, according to the regulations, were  the hospital and the intermediary, and neither  the Secretary nor the HCFA. See 42 C.F.R. sec.  405.1843. At the hearing, the hospital and the  intermediary stipulated that if the new  information submitted by the hospital was used,  then it would qualify for sole community hospital  status.

18
On March 26, 1998, the PRRB reversed the HCFA  and granted Howard Young sole community hospital  status effective September 24, 1992. In so doing,  the PRRB concluded that it was authorized to  consider the new materials submitted by the  hospital under 42 U.S.C. sec. 1395oo(d). The PRRB  also concluded that the information submitted by  Howard Young was relevant to the determination of  whether it qualified for sole community hospital  status under Medicare. Based on the fact that the  hospital and the intermediary stipulated that  Howard Young would qualify as a sole community  hospital if the information submitted in 1995 was  used, the PRRB concluded that Howard Young was  "entitled" to sole community hospital status.

D.  The Secretary's Decision

19
The Secretary, acting through her designated  agent, the Deputy Administrator of HCFA, reversed  the PRRB and concluded that the HCFA had  "properly denied [Howard Young's] request for  designation as a sole community hospital." The  Secretary determined that the regulations and PRM  require that Howard Young submit all relevant  information with its original application. Based  on the original information submitted by the  hospital, the Secretary found that the HCFA had  properly analyzed the data and denied Howard  Young's application because the application did  not use the "lowest number of zip codes." The  Secretary also concluded that there was no  legitimate reason to substitute Boulder Junction  for Rhinelander because Boulder Junction had  fewer discharges.

20
The Secretary also determined that the HCFA's  denial of Howard Young's application for sole  community hospital status could only reasonably  be reversed based on the information originally  submitted to the HCFA, and not based on the  information submitted to the PRRB. In any event,  the Secretary concluded that the information  Howard Young submitted to the PRRB failed to  "demonstrate that HCFA improperly denied [sole  community hospital] status," but could only be  considered, at most, "a new application for [sole  community hospital] status and not a basis for  reversing HCFA's original denial." Finally, the  Secretary concluded that the PRRB had  "incorrectly based its decision on the  stipulation," because the HCFA's recalculation of  Howard Young's service area "is supported by the  record and consistent with the requirements of  the regulations and manual instructions."

21
Howard Young appealed the Secretary's reversal  of the PRRB to the district court, which granted  summary judgment in favor of the Secretary.  Howard Young now appeals to this Court.

II.  ISSUE

22
On appeal, we consider whether the Secretary's  decision to uphold the HCFA's denial of Howard  Young's application for sole community hospital  status was supported by substantial evidence and  in accordance with the law.

III.  DISCUSSION

23
As the district court observed, review in  federal court of decisions entrusted to  administrative agencies is deferential and thus  very limited in scope. We will set aside agency  action only if we determine that its decision is  arbitrary, capricious, an abuse of discretion,  unsupported by substantial evidence in the case,  or not in accordance with the law. See 5 U.S.C.  sec. 706(2)(A), (E); see also Central States  Enter., Inc. v. ICC, 780 F.2d 664, 673, 674 n.10  (7th Cir. 1985). In applying this standard, we  look to the administrative record in existence,  and we thus accord no deference to the district  court's disposition of the matter. See Hanson v.  Espy, 8 F.3d 469, 472 (7th Cir. 1993). We focus  primarily on whether the agency considered the  relevant data and offered a satisfactory  explanation for its action; we look only for a  rational connection between the facts the agency  found and the decision it made. See Motor Vehicle  Mfrs. Ass'n v. State Farm Mutual Ins. Co., 463 U.S. 29, 43 (1983). We are not permitted to  reweigh the evidence or to substitute our own  judgment for that of the administrative agency.  See Jancik v. HUD, 44 F.3d 553, 556 (7th Cir.  1995). Furthermore, "[t]he Secretary's  interpretation of regulations issued pursuant to  the complex and reticulated Medicare Act is  entitled to considerable deference . . . [and  t]he fact that the PRRB and the Secretary may  have reached different conclusions does not  diminish the deference due the Secretary's final  decision; [f]inal responsibility for rendering  decisions rests with the agency itself, not with  subordinate hearing officers." Adventist Living  Centers, Inc. v. Bowen, 881 F.2d 1417, 1420-21  (7th Cir. 1989) (internal citations and  quotations omitted).

24
A. Denial of the Hospital's Application Based on  the 1992 Data

25
Howard Young argues that the Secretary's  decision with respect to the 1992 data was  neither supported by substantial evidence nor in  accordance with the law governing the designation  of a facility as a sole community hospital.  According to Howard Young, its original 1992  application identified a sixteen zip code area  that accounted for more than 75 percent of its  inpatient admissions with less than 25 percent of  inpatients from the same service area having been  admitted to other like hospitals within a 35-mile  radius. Thus, Howard Young argues, its original  application satisfied the requirements set forth  in the regulations and the PRM. See 42 C.F.R.  sec. 412.92(a) (1)(i); PRM sec. 2810(A)(2)(c).

26
The HCFA, however, was able to use the  statistics submitted by Howard Young with its  original application for sole community hospital  status to recalculate the hospital's service  area. By listing zip codes in order of discharges  from the highest to the lowest number until the  service area included at least 75% of the  hospital's inpatient discharges, the HCFA was  able to devise a service area for Howard Young  which contained only ten zip codes. Using this  service area, the HCFA calculated that the  hospital's market share was only 41.4%, obviously  short of the 75% necessary to be designated a  sole community hospital. See 42 C.F.R. sec.  412.92(a)(1)(i). In an effort to challenge the  propriety of the HCFA's proposed service area,  Howard Young asserts that contiguity is a  requirement to be considered in determining a  facility's service area.

27
Howard Young's argument is misplaced. Despite  the fact that the PRM uses the term "contiguous  zip codes," zip code continuity is not a  requirement, and was included in the PRM by  mistake. See 61 Fed. Reg. 46203 (1996). The HCFA  revised the sole community hospital regulations  in 1988 and stated that the proper criterion is  simply the "lowest number of zip codes." See 53  Fed. Reg. 38510-11 (1988). The HCFA explained  that it applied the "lowest number" test since  October 1, 1988, because the lowest number of  contiguous zip codes method does not present a  very "accurate picture of a hospital's true  service area . . . ." 61 Fed. Reg. 46204 (1996).  Additionally, in the 1988 Federal Register  preamble, the HCFA also noted that it would use  the "lowest number of zip codes" in determining  a provider's service area.

28
In St. Anthony Mem'l Hosp. v. Blue Cross and  Blue Shield of Ill., PRRB No. 2000-D5, the  Secretary explained that statements in the PRM  are generally considered interpretive, not  binding, whereas statements in the preamble  portion of the Federal Register constitute the  agency's statutory interpretation. PRRB No. 2000-  D5 at 11, citing Methodist Hosps. of Sacramento  v. Shalala, 38 F.3d 1225, 1229-35 (D.C. Cir.  1994); Jewish Hosp. v. Sec. of Health and Human  Servs., 19 F.3d 270, 272-76 (6th Cir. 1994).  Thus, the fact that the preamble to both the 1988  and 1996 Federal Register stated that a service  area would be made up of the lowest number of zip  codes, without any mention that they be  contiguous, indicates that contiguity is not a  requirement for a sole community hospital  application.

29
Because contiguity of zip codes is not required  when defining a service area for purposes of  determining whether Howard Young qualifies as a  sole community hospital, we defer to the service  area as defined by the HCFA in considering the  hospital's application. Under the service area  delineated by the HCFA, Howard Young had only  41.4% of the market share; the regulations  require 75%. Thus, we refuse to overturn the  Secretary's decision upholding the HCFA's denial  of Howard Young's original application for sole  community hospital status.

30
B.  Consideration of the Hospital's 1995 Data

31
Shortly before the PRRB hearing, Howard Young  submitted a new ten zip code service area that  accounted for more than 75% of its inpatients  discharged within the hospital's fiscal year 1991  and established that fewer than 25% of the  patients from the relevant service area were  admitted to other like hospitals. As stated  earlier, counsel for the hospital and counsel for  the fiscal intermediary stipulated that the ten  zip codes submitted by the hospital would satisfy  the requirements of the regulations and the PRM.  Using this new service area, the parties then  stipulated that if Howard Young were allowed to  use the information it submitted to the PRRB,  rather than the data that was before the HCFA in  1992, it would satisfy the market share test and  thereby qualify Howard Young as a sole community  hospital. As noted before, neither the HCFA nor  the Secretary was a party to this stipulation.

32
Howard Young argues before this Court that: 1)  the PRRB properly considered the 1995 data; 2) if  this 1995 data is considered, it qualifies as a  sole community hospital; and 3) that the HCFA and  the Secretary are bound by the stipulation made  by counsel for the intermediary at the PRRB  hearing.

1.  The Stipulation

33
As a preliminary matter, we do not consider the  Secretary to be bound by the stipulation entered  into at the PRRB hearing by counsel for the  hospital and counsel for the intermediary.  Pursuant to the regulations, neither the  Secretary nor the HCFA were a party to, and thus  did not participate in, the hearing before the  PRRB. See 42 C.F.R. sec. 405.1843 (except when  the HCFA acts directly as intermediary, "neither  the Secretary nor the Health Care Financing  Administration may be made a party to the  hearing"). Thus we will not hold the HCFA, much  less the Secretary, responsible for a stipulation  that they had no chance to challenge and that may  conflict with the agency's official position  regarding service areas. See Heckler v. Community  Servs., 467 U.S. 51, 64 (1984) (government not  bound by misrepresentations made by fiscal  intermediary regarding published Federal  regulations under Medicare program). See also  Appalachian Reg'l Healthcare, Inc. v. Shalala,  131 F.3d 1050, 1053 n.4 (D.C. Cir. 1997) ("the  intermediary's position is not the Secretary's .  . . . [W]e think it plain that a statement by  intermediary's counsel in the course of an  internal quasi-adjudicatory proceeding" cannot be  thought of "as the official departmental  position" (citations omitted)); Monongahela  Valley Hosp. v. Sullivan, 945 F.2d 576, 589 (3rd  Cir. 1991) ("[provider's] contention that it  reasonably relied on Blue Cross's representation  . . . 'misapprehends the nature of the  relationship between the fiscal intermediary and  the Secretary'" (citations omitted)).

2.  The 1995 Data

34
In reviewing the PRRB's decision, the Secretary  found that even if the 1995 data had been before  the HCFA in 1992, the outcome would have been the  same because there was no reason to alter the  service area proposed by the HCFA, especially in  light of the fact that the Boulder Junction area  had far fewer discharges than the Rhinelander  area. According to the Secretary's interpretation  of the regulations, it is unacceptable to replace  a zip code with a higher number of discharges  with a zip code with fewer discharges because a  service area is to be defined by listing zip  codes in order of the number of discharges, from  the highest to the lowest, until the service area  includes at least 75% of the hospital's inpatient  discharges.

35
Because Howard Young's proposed service area did  not comport with the regulations, the Secretary  found that the hospital's proposed new service  area, created in 1995 by replacing the  Rhinelander zip code with the Boulder Junction  zip code, was improper. Giving the proper  deference to the Secretary's interpretations, we  refuse to hold that this reading of the  regulations and PRM was incorrect.

36
Accordingly, we hold that the ten zip code  service area proposed by the HCFA was consistent  with the regulations and the service area  proposed by the hospital in 1995, by substituting  the Boulder Junction zip code for the Rhinelander  zip code, was inconsistent with the regulations.  Thus, even if the 1995 data was considered,  Howard Young's application would still fall short  of qualifying it as a sole community hospital.4

37
The district court's grant of summary judgment  to the Secretary is

38
AFFIRMED.

Notes:

1
 Sole community hospital is a designation, under  Medicare, that the hospital serves a community  with limited access to medical care. The reason  that Howard Young cares about such a designation  is that sole community hospitals recover  additional monies under Medicare.

2
 "The term 'like hospital' means a hospital  furnishing short-term, acute care. [Health Care  Financing Administration] will not evaluate  comparability of specialty services in making  determinations on classifications as sole  community hospitals." 42 C.F.R. sec.  412.92(c)(2).

3
 For the hospital's 1991 fiscal year, the time  period relevant to the determination of its sole  community hospital status, the Boulder Junction  area had 90 discharges and was ranked 11th in  number of discharges while the Rhinelander area  had 130 discharges and was ranked sixth.

4
 Because we hold that the Secretary properly  denied Howard Young's application for sole  community hospital status even if the 1995 data  was considered, we need not address the issue of  whether the Secretary erred in concluding that  the hospital's 1995 data was improperly  considered by the PRRB.