Bellevue Hospital Center v. Leavitt
2006 U.S. App. LEXIS 8190, 443 F.3d 163 (2006)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
An agency's interpretation of an ambiguous statutory term is permissible if reasonable, and its reliance on a long-standing, objective, external standard is not arbitrary and capricious. However, an agency acts unlawfully and arbitrarily when it fails to meet a statutory deadline for data collection and then cites its own failure as justification for only partially implementing a related, statutorily mandated adjustment.
Facts:
- The Medicare Act requires the Department of Health and Human Services (HHS) to adjust hospital reimbursements to account for wage differences across different "geographic areas."
- For over two decades, HHS used Metropolitan Statistical Areas (MSAs), defined by the Office of Management and Budget (OMB), to define these geographic areas.
- In 2000, Congress enacted a law requiring HHS to develop and apply an "occupational mix adjustment" to the wage index, setting a deadline of September 30, 2003, for data collection, with application to begin October 1, 2004.
- In 2003, the OMB updated its MSA definitions based on new census data and a revised methodology focused on commuting patterns.
- The updated definition expanded the New York City MSA to include three New Jersey counties with lower average hospital wages, thereby lowering the average wage for the entire area and reducing Medicare reimbursements for the plaintiff New York City hospitals.
- HHS missed its statutory deadline and did not begin collecting data for the occupational mix adjustment until January 2004, completing it in April 2004.
- In an August 2004 final rule, HHS officially adopted the new OMB MSAs and also decided to implement the new occupational mix adjustment at only "ten percent effectiveness," citing concerns about the quality of the rushed data.
Procedural Posture:
- Seventy-six hospitals filed suit against the Department of Health and Human Services (HHS) in the U.S. District Court for the Southern District of New York.
- The plaintiffs challenged two aspects of an HHS final rule: the adoption of new MSAs and the partial implementation of the occupational mix adjustment.
- The district court granted summary judgment to HHS on the MSA issue.
- The district court granted summary judgment to the hospitals on the occupational mix adjustment issue, ordering HHS to apply the adjustment in full immediately.
- The hospitals, as plaintiffs-appellants, appealed the district court's ruling on the MSA issue to the U.S. Court of Appeals for the Second Circuit.
- HHS, as defendant-appellee, cross-appealed the district court's ruling on the occupational mix adjustment issue to the same court.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Did the Department of Health and Human Services (HHS) act arbitrarily and capriciously or in violation of the Medicare Act in a 2004 rulemaking by (1) adopting revised Metropolitan Statistical Areas (MSAs) for its wage index calculation, and (2) implementing a new occupational mix adjustment at only ten-percent effectiveness?
Opinions:
Majority - Katzmann, J.
No as to the adoption of MSAs; Yes as to the partial implementation of the occupational mix adjustment. HHS acted permissibly in adopting the revised MSAs but acted unlawfully and arbitrarily and capriciously by only partially implementing the occupational mix adjustment. With respect to the MSAs, the court applied the Chevron two-step analysis. At step one, the statutory term 'geographic area' is ambiguous. At step two, HHS's long-standing use of OMB's MSAs is a reasonable interpretation to fill this statutory gap. This interpretation is bolstered by Congress's long-standing acquiescence despite being aware of the practice. The decision was not arbitrary and capricious because relying on an objective, external standard like MSAs is rational, and the agency was not required to find a 'perfect' solution, especially when the regulated industry offered no consensus on a superior alternative. With respect to the occupational mix adjustment, the agency's action violated the statute and was arbitrary and capricious. The statute unambiguously contemplated full application of the adjustment beginning October 1, 2004. The agency cannot use its own failure to meet the data collection deadline as an excuse for partial implementation. Furthermore, the decision to apply the adjustment at exactly ten percent was arbitrary, as the agency offered no reasoned explanation for choosing that specific figure over any other.
Analysis:
This case provides a clear application of the core principles of administrative law, particularly the distinction between Chevron deference and arbitrary and capricious review. The court's split holding demonstrates that while an agency is afforded significant deference in interpreting ambiguous statutory terms (the MSA issue), that deference has limits. The decision establishes that an agency cannot use its own procedural failures, such as missing a statutory deadline, to justify non-compliance with a subsequent, related statutory mandate. The ruling on the remedy also underscores the court's role in balancing congressional intent against practical constraints, choosing not to force the use of flawed data but instead imposing a new, firm deadline for the agency to comply correctly.
Unlock the full brief for Bellevue Hospital Center v. Leavitt