Bellevue Hosp. Ctr. v. Leavitt - 443 F.3d 163 (2d Cir. 2006)

Rule:

Two of the United States Court of Appeals for the Second Circuit's sister circuits have upheld the Centers for Medicare and Medicaid Services' (CMS) use of Metropolitan Statistical Areas (MSA) to determine which hospitals are in urban or rural areas. Although the definition of a Metropolitan Statistical Area was not designed and is not perfectly tailored for determining which hospitals should qualify, it is an established and uniform standard that generally coincides with the definition of an urban area. Similarly, the court finds that an MSA, while not designed for Title XVIII of the Social Security Act, 42 U.S.C.S. § 1395 et seq., and inevitably not perfectly tailored for it, generally coincides with the statutory purposes and is thus a reasonable proxy for the "geographic area" that the statute charges CMS with defining.

Facts:

The Centers for Medicare and Medicaid Services was the agency within Department of Health and Humans Services' ("HHS") responsible for administering the Medicare program. The hospitals challenged the implementation of a statutory requirement that the agency adjust hospitals' reimbursements for the costs of administering care to Medicare recipients to reflect differences in hospital wage levels across geographic areas. The hospitals argued both that the use of Metropolitan Statistical Areas ("MSAs") as proxies for "geographic areas" is an unreasonable interpretation of the Medicare Act and that the agency took improper considerations into account in adopting the MSAs. The hospitals also challenged defendant's decision in the same 2004 rulemaking to apply at only ten-percent effectiveness in its first year a new reimbursement adjustment that controls for hospitals' decisions to hire more or fewer skilled professionals, on the ground that the data the agency had collected were not of sufficient quality to merit full implementation. 

Issue:

Was the use of MSA a reasonable proxy for the "geographic area" that the statute charged the agency with defining?

Answer:

Yes.

Conclusion:

The appellate court held that the term "geographic area" was ambiguous and that the use of MSAs to fill the gap was reasonable since the MSAs, while not designed for 42 U.S.C.S. § 1395ww(d), generally coincided with the statutory purposes and was thus a reasonable proxy for the geographic area that the statute charged the agency with defining. The agency lacked the statutory authority to apply at only 10 percent effectiveness in its first year a new reimbursement adjustment that controlled for hospitals' decisions to hire more or fewer skilled professionals, on the ground that the data the agency had collected were not of sufficient quality to merit full implementation, and thus acted arbitrarily and capriciously. Thus, the agency was ordered to apply the adjustment in full by September 30, 2006.