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Adirondack Medical Center v. Burwell

United States Court of Appeals, District of Columbia Circuit

April 10, 2015


Argued: March 23, 2015.

Appeal from the United States District Court for the District of Columbia. (No. 1:11-cv-00313).

Ankur J. Goel argued the cause for appellants. With him on the briefs was Johnny H. Walker.

Daniel J. Hettich was on the brief for amici curiae Knox Community Hospital, et al., in support of appellants.

Abby C. Wright, Attorney, U.S. Department of Justice, argued the cause for appellee. With her on the brief were Ronald C. Machen Jr., U.S. Attorney at the time the brief was filed, and Michael S. Raab, Attorney.

Before: TATEL, Circuit Judge, PILLARD, Circuit Judge, and EDWARDS, Senior Circuit Judge.


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The Medicare program provides federally funded healthcare to the elderly and the disabled. See Title XVIII of the Social Security Act, Pub. L. No. 89-97, 79 Stat. 291 (1965), as amended, 42 U.S.C. § 1395 et seq. Under a " complex statutory and regulatory regime" called Medicare Part A, the Government reimburses participating hospitals for care that they provide to inpatient Medicare beneficiaries. Good Samaritan Hosp. v. Shalala, 508 U.S. 402, 404, 113 S.Ct. 2151, 124 L.Ed.2d 368 (1993). " [T]he labyrinthine world of Medicare has two types of hospitals that enjoy different reimbursement schemes." Adirondack Med. Ctr. v. Sebelius, 740 F.3d 692, 694, 408 U.S.App.D.C. 161 (D.C. Cir. 2014). Most hospitals are reimbursed for inpatient hospital services pursuant to a standardized rate under 42 U.S.C. § 1395ww(d). However, the Social Security Act also provides a method for calculating reimbursement rates for certain rural hospitals: those that qualify as " sole community hospital[s]" (" SCHs" ), see id. § 1395ww(d)(5)(D), and those that qualify as " medicare-dependent small rural hospital[s]" (" MDHs" ), see id. § 1395ww(d)(5)(G).

Appellants in this case are MDHs and SCHs. They challenge revisions made by the Secretary of the Department of Health and Human Services (" Secretary" ) to the rules covering their Medicare reimbursements for inpatient hospital services. The District Court rejected Appellants' claims, Adirondack Med. Ctr. v. Sebelius, 29 F.Supp.3d 25 (D.D.C. 2014); Adirondack Med. Ctr. v. Sebelius, 935 F.Supp.2d 121 (D.D.C. 2013), holding, inter alia, that the Secretary acted within her authority and

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reasonably in adjusting the disputed reimbursement requirements under the statute. Appellants now urge this court to reverse the judgments of the District Court in favor of the Secretary, grant their motions for summary judgment, and remand the case with instructions to the District Court to enter judgment in favor of Appellants. After careful review of the record, we hold that the Secretary's actions were neither " arbitrary, capricious, [nor] manifestly contrary to the statute." Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837, 844, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). We therefore affirm the judgment of the District Court.

When an SCH or MDH discharges a patient insured by Medicare, it receives reimbursement based on either the standard federal rate or a hospital-specific rate derived from its actual costs of treatment in one of the base years specified in the statute, whichever is higher. 42 U.S.C. § 1395ww(d)(5)(D), (G); 42 C.F.R. § § 412.92, 412.108. The Secretary determines an MDH or SCH's hospital-specific reimbursement rate using the most favorable base year available.

To calculate reimbursement for a particular patient, the Secretary multiplies the hospital's base rate by the appropriate group weight -- a number representing how resource-intensive the patient's condition was to treat. See 42 C.F.R. § § 412.78(f), 412.79(e). Each year, the Secretary is required to revise group weights based on changes in technology and medical best practices. 42 U.S.C. § 1395ww(d)(4)(C)(i). The statute also requires that these revisions have no effect on aggregate Medicare payments - in other words, that they be budget neutral. Id. § 1395ww(d)(4)(C)(iii). The Secretary eliminates any variation in aggregate payments by applying a uniform " budget neutrality adjustment" to all reimbursement rates throughout the Medicare system. See, e.g., Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 1994 Rates, 58 ...

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