Geisinger Community Medical Center v. Burwell et al

Filing 27

MEMORANDUM (Order to follow as separate docket entry)Signed by Honorable Malachy E Mannion on 12/22/14. (ao)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF PENNSYLVANIA
GEISINGER COMMUNITY
MEDICAL CENTER,

:
:

CIVIL ACTION NO. 3:14-1763

:

JUDGE MANNION

Plaintiff
v.
:
SYLVIA MATHEWS BURWELL,
Secretary, Department of Health
and Human Services;
MARILYN TAVENNER,
Administrator, Centers for
Medicare and Medicaid Services;
and ROBERT G. EATON,
Chairman, Medicare Geographic
Classification Review Board,

:
:
:
:
:

Defendants
:
MEMORANDUM
Pending before the court are the defendants’ motion for summary
judgment, (Doc. 15), and the plaintiff’s cross-motion for summary judgment,
(Doc. 17). Upon consideration of the motions and related materials, the
defendants’ motion for summary judgment will be granted and the plaintiff’s
cross-motion for summary judgment will be denied.

I.

PROCEDURAL HISTORY
By way of relevant procedural background, the plaintiff commenced the

instant action on September 10, 2014. (Doc. 1). In the action, the plaintiff

challenges a regulation promulgated under the Medicare program by the
Secretary of the Department of Health and Human Services, (“Secretary”),
42 C.F.R. §412.230(a)(5)(iii), which the plaintiff claims would unlawfully
prevent the Medicare Geographic Classification Review Board, (“Board”),
from considering its application to be reclassified to the AllentownBethlehem-Easton, PA-NJ urban area for purposes of payment under
Medicare’s inpatient hospital prospective payment system, (“IPPS”). The
regulation at issue precludes a hospital that has been redesignated as rural
under 42 U.S.C. §1395ww(d)(8)(E), which was enacted by Section 401 of the
Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 1999,
(“Section 401"), Pub. L. No. 106-113, H.R. 3194, 106th Cong. §401 (1st Sess.
1999), from “receiv[ing] an additional reclassification by the Board based on
this acquired rural status for a year in which such redesignation is in effect.”
42 C.F.R. §412.230(a)(5)(iii). The plaintiff alleges by way of the instant action
that it is entitled to participate in the Board reclassification process, which is
governed by 42 U.S.C. §1395ww(d)(10), on the same basis as a
geographically rural hospital and, as such, the Secretary’s regulation which
disallows such reclassification is invalid. Count One of the complaint alleges
a violation by the defendants of Section 401. Count Two alleges a violation
by the defendants of the Administrative Procedure Act, 5 U.S.C. §701, et

2

seq.
In accordance with the court’s scheduling order, (Doc. 12), on October
24, 2014, the defendants filed a motion for summary judgment, (Doc. 15),
along with a supporting brief, (Doc. 16). On the same day, the plaintiff filed
a cross-motion for summary judgment, (Doc. 17), along with a supporting
brief, (Doc. 19).
On October 28, 2014, a statement of material facts was filed in support
of the defendants’ motion for summary judgment, (Doc. 20), followed by a
statement of material facts in support of the plaintiff’s cross-motion for
summary judgment on October 29, 2014, (Doc. 21). On November 20, 2014,
the defendant filed a statement of facts responsive to that of the plaintiff’s,
(Doc. 23). On the following day, the plaintiff filed a statement of facts
responsive to that of the defendants’. (Doc. 25). In addition, the parties each
filed their briefs opposing the others’ motion for summary judgment. (Doc. 24,
Doc. 26).

II.

LEGAL STANDARD
Summary judgment is appropriate “if the pleadings, the discovery

[including, depositions, answers to interrogatories, and admissions on file]
and disclosure materials on file, and any affidavits show that there is no

3

genuine issue as to any material fact and that the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(c); see also Celotex Corp.
v. Catrett, 477 U.S. 317, 322-23 (1986); Turner v. Schering-Plough Corp.,
901 F.2d 335, 340 (3d Cir. 1990). A factual dispute is genuine if a reasonable
jury could find for the non-moving party, and is material if it will affect the
outcome of the trial under governing substantive law. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986); Aetna Cas. & Sur. Co. v. Ericksen,
903 F. Supp. 836, 838 (M.D. Pa. 1995). At the summary judgment stage, “the
judge’s function is not himself to weigh the evidence and determine the truth
of the matter but to determine whether there is a genuine issue for trial.”
Anderson, 477 U.S. at 249; see also Marino v. Indus. Crating Co., 358 F.3d
241, 247 (3d Cir. 2004) (a court may not weigh the evidence or make
credibility determinations). Rather, the court must consider all evidence and
inferences drawn therefrom in the light most favorable to the non-moving
party. Andreoli v. Gates, 482 F.3d 641, 647 (3d Cir. 2007).
To prevail on summary judgment, the moving party must affirmatively
identify those portions of the record which demonstrate the absence of a
genuine issue of material fact. Celotex, 477 U.S. at 323-24. The moving party
can discharge the burden by showing that “on all the essential elements of
its case on which it bears the burden of proof at trial, no reasonable jury

4

could find for the non-moving party.” In re Bressman, 327 F.3d 229, 238 (3d
Cir. 2003); see also Celotex, 477 U.S. at 325. If the moving party meets this
initial burden, the non-moving party “must do more than simply show that
there is some metaphysical doubt as to material facts,” but must show
sufficient evidence to support a jury verdict in its favor. Boyle v. County of
Allegheny, 139 F.3d 386, 393 (3d Cir. 1998) (quoting Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)). However, if the nonmoving party “fails to make a showing sufficient to establish the existence of
an element essential to [the non-movant’s] case, and on which [the nonmovant] will bear the burden of proof at trial,” Rule 56 mandates the entry of
summary judgment because such a failure “necessarily renders all other
facts immaterial.” Celotex Corp., 477 U.S. at 322-23; Jakimas v. Hoffman-La
Roche, Inc., 485 F.3d 770, 777 (3d Cir. 2007).
The summary judgment standard does not change when the parties
have filed cross-motions for summary judgment. Applemans v. City of Phila.,
826 F.2d 214, 216 (3d Cir. 1987). When confronted with cross-motions for
summary judgment, as in this case, “the court must rule on each party’s
motion on an individual and separate basis, determining, for each side,
whether a judgment may be entered in accordance with the summary

5

judgment standard.1 ” Marciniak v. Prudential Financial Ins. Co. of America,
2006 WL 1697010, at *3 (3d Cir. June 21, 2006) (citations omitted) (not
precedential). If review of cross-motions reveals no genuine issue of material
fact, then judgment may be entered in favor of the party deserving of
judgment in light of the law and undisputed facts. Iberia Foods Corp. v.
Romeo, 150 F.3d 298, 302 (3d Cir. 1998) (citation omitted). See Nationwide
Mut. Ins. Co. v. Roth, 2006 WL 3069721, at *3 (M.D. Pa. Oct. 26, 2006) aff’d,
252 F. App’x 505 (3d Cir. 2007).

III.

DISCUSSION
As indicated above, the parties have each filed a statement of material

facts in support of their respective motions for summary judgment. Based
upon a review of those statements, as well as the opposing parties’
responses thereto, the following are the facts which are undisputed2.

1

The court notes that, although it must rule on each party’s motion on
an individual basis, in this case, the arguments raised by the plaintiff in
support of its motion for summary judgment substantially mirror those by the
plaintiff in opposition to the defendants’ motion for summary judgment. As
such, the arguments raised by the parties are addressed collectively and
disposition in favor of one party necessarily implies disposition against the
other.
2

As the parties’ statements of material fact substantially overlap, the
court has combined them for purposes of considering the cross-motions for
summary judgment.
6

The plaintiff, Geisinger Community Medical Center, (“Geisinger”), is a
not-for-profit, general, acute care hospital located at 1800 Mulberry Street,
Scranton, Pennsylvania. Scranton is classified as an urban area. Geisinger
is a provider of services as defined in the Medicare Act, 42 U.S.C. §1395x(u),
and has entered into an agreement with the Secretary to provide services to
Medicare beneficiaries pursuant to 42 U.S.C. §1395cc. Geisinger is a
subsection (d) hospital under the Medicare Act and receives reimbursement
for services rendered to Medicare beneficiaries.
With respect to the Medicare Program, unless exempt, hospitals in
Medicare, such as Geisinger, are paid under Medicare’s IPPS as provided
for in 42 U.S.C. §1395ww(d). Calculating IPPS rates begins with a standard
nationwide rate based on average operating costs of inpatient hospital
services. The Centers for Medicare and Medicaid Services, (“CMS”),
determines the proportion of the standardized amount attributable to wages
and wage-related costs, and multiplies that proportion by a “wage index” that
reflects the relation between the local average of hospital wages and the
national average. Another variable reflects the disparate hospital resources
required to treat illnesses. Medicare inpatients are classified into groups
based on diagnosis. Each “diagnosis-related group,” is assigned a “weight”
representing the relationship between the cost of treating patients within that

7

group and the average cost of treating all Medicare patients.
Medicare generally pays providers for outpatient services in
accordance with Medicare’s Outpatient Prospective Payment System,
(“OPPS”), as set forth in 43 U.S.C. §1395l(t). Payments for each outpatient
Ambulatory Payment Classification, are based, in part, on CMS’s estimates
of the costs associated with providing services assigned to an APC.
Typically, payments for procedures are adjusted for geographic wage
variations.
With respect to the Medicare Wage Index Adjustment, in 42 U.S.C.
§1395ww(d)(3)(E), Congress required an adjustment to the federal
reimbursement rate to account for differences in labor costs based on
geographic location and the market in which the hospitals compete for labor:
[t]he Secretary shall adjust the proportion . . . of the hospitals’
costs which are attributable to wages and wage-related costs
. . . for area differences in hospital wage levels by a factor
(established by the Secretary) reflecting the relative hospital
wage level in the geographic area of the hospital compared to
the national average hospital wage level.
The wage index adjustment is recomputed annually to reflect changes
in local labor costs compared to the national average. Hospitals in areas with
labor costs above the national average receive a higher reimbursement rate,
while hospitals in areas with lower labor costs receive a lower rate.
In 1983, the Secretary established hospital labor markets by grouping
8

hospitals according to Metropolitan Statistical Areas, (“MSAs”). Hospitals in
the county or counties that make up an MSA are grouped together and
treated as a single labor market for wage index purposes. Following the 2000
census, CMS adopted Core Based Statistical Areas, (“CBSAs”), to replace
MSAs. The Secretary determines a separate wage index for each CBSA, and
one wage index per state for rural areas. Whether a hospital is considered
located in an urban area or rural area can significantly impact a hospital’s
Medicare reimbursement. A hospital’s wage index is the wage index the
Secretary assigns to the area where the hospital is physically located.
According to a June 2007 report issued by the Medicare Political Advisory
Committee, (“MedPAC”), the calculated wage index for more than one-third
of IPPS hospitals had increased as a result of various exceptions to the basic
wage index system.
With respect to the Board’s Geographic Reclassification Process, in
1989, Congress established the Board to provide a mechanism for a hospital
to request to be reclassified from the geographic area in which it is physically
located to another proximate area for purposes of Medicare reimbursement.
The Board is an administrative body within the United States Department of
Health and Human Services and renders decisions on applications by
hospitals to be reclassified to different geographic areas for purposes of

9

computing portions of their Medicare payments for inpatient services for a
particular fiscal year.
Generally, a hospital applying to the Board for geographic
reclassification as an individual hospital must prove three things. First, the
hospital’s three-year average hourly wage, (“AHW”), must be at least 108%
of the AHW of the area in which the hospital is located if the hospital is
located in an urban area or 106% if the hospital is located in a rural area.
Second, the hospital’s three-year AHW must be at least 84% of the AHW of
the area to which the hospital is applying if the hospital is located in an urban
area or 82% if the hospital is located in a rural area. Third, the hospital must
be within 35 miles of the area to which it is applying if the hospital is located
in a rural area, or within 15 miles if the hospital is located in an urban area.
Reclassifications by the Board are valid for three years, after which a hospital
must reapply to the Board if the hospital wishes to be reclassified to a
different CBSA for a subsequent time period.
Medicare recognizes hospitals with “special” status, including rural
referral centers, (“RRCs”). A RRC need not demonstrate close proximity to
the area to which it seeks reclassification. Any hospital that was ever an RRC
is exempt from the 108% requirement of 42 C.F.R. §412.230(d)(1)(iii) and
need only meet the 82% requirement of 42 C.F.R. §412.230(d)(1)(iv).

10

In 1999, Congress enacted Section 401. Section 401 amended Section
1886(d)(8) of the Medicare Act and created a mechanism by which some
hospitals located in urban areas could be treated as being located in a rural
area for purposes of Medicare reimbursement. Under Section 401, a hospital
located in an urban area may qualify to be treated as if it were located in a
rural area for purposes of Medicare reimbursement if it meets one of several
specified criteria. One such criterion provides that a hospital qualifies for
reclassification under Section 401 if it “would qualify as a rural, regional, or
national referral center under . . . [1886(d)(5)(C)] . . . if the hospital were
located in a rural area.” A hospital qualifies as a RRC if it meets all of the
following criteria: (1) the hospital’s case-mix index is at least equal to the
national or regional average, (2) the hospital has at least 5,000 discharges,
and (3) at least 50% of the hospital’s medical staff is board certified.
The conference report accompanying Section 401 provides, in part, as
follows:
Hospitals qualifying under this section shall be eligible to qualify
for all categories and designations available to rural hospitals,
including sole community, Medicare dependent, critical access,
and referral centers. Additionally, qualifying hospitals shall be
eligible to apply to the Medicare Geographic [Classification]
Review Board for geographic reclassification to another area.
The Board shall regard such hospitals as rural and as entitled to
the exceptions extended to referral centers and sole community
hospitals, if such hospitals are so designated.

11

H.R. Conf. Rep. No. 106-479, at Title IV §401 (1999).
Subsequent to the enactment of Section 401, the Secretary adopted
regulations providing that “[a]n urban hospital that has been granted
redesignation as rural under §412.103 [the regulation implementing Section
401] cannot receive an additional reclassification by the Board based on this
acquired rural status for a year in which such redesignation is in effect.” 42
C.F.R. §412.230(a)(5)(iii).
With the above in mind, Geisinger, by application dated May 28, 2014,
and received by the CMS on June 11, 2014, applied to be designated a
Section 401 hospital and thus to be treated as being located in the rural
areas of Pennsylvania for the purposes set forth in Section 401. By letter
dated August 12, 2014, CMS notified Geisinger that its application to be
designated a Section 401 hospital had been approved effective June 11,
2014.
By letter dated June 11, 2014, and received by CMS and the Medicare
Administrative Contractor on June 13, 2014, Geisinger requested to be
designated a RRC, which as indicated above is a designation attributed to
rural hospitals with specified characteristics that permits such hospitals to
enjoy certain benefits under Medicare’s payment system. On August 12,
2014, CMS granted Geisinger’s request to be designated a RRC pursuant

12

to Section 401, effective June 11, 2014. Shortly thereafter, by letter dated
August 20, 2014, Novitas Solutions, the Medicare Administrative Contractor,
notified Geisinger that its request for RRC status had been approved
effective July 1, 2014.
On August 26, 2014, fourteen days after CMS redesignated Geisinger
as a rural hospital, Geisinger asked CMS to cancel its Section 401 status
effective October 1, 20153.
On August 28, 2014, Geisinger submitted two applications to the
Board. The primary application was to be reclassified for wage-index
purposes to the Allentown-Bethlehem-Easton, PA-NJ urban area effective
October 1, 20164 . On this application, Geisinger identified itself as a rural
hospital. The secondary application was to be reclassified to the East
Stroudsburg, PA, urban area, also effective October 1, 2016. On this
application, Geisinger identified itself as an urban hospital. Geisinger would
likely receive additional reimbursement if it were to be reclassified into either
its primary or secondary preference for reclassification.

3

Pursuant to 42 C.F.R. §412.104(g)(ii), hospitals which reclassify as
rural are required to retain that reclassification for at least one year.
4

Although plaintiff indicates this reclassification was to be effective
October 1, 2015, the application itself reflects that it was to be effective the
federal fiscal years 2016 through 2018. Federal fiscal years run from October
1st.
13

As for Geisinger’s primary application, the Secretary’s regulations
preclude a hospital, such as Geisinger, that has been redesignated as a rural
hospital under Section 401 from utilizing the Board reclassification process.
If Geisinger were a RRC actually located in a rural area, rather than an urban
hospital that is redesignated as a rural under Section 401, it would be able
to utilize the Board’s reclassification process.
The distance between Geisinger and the Allentown CBSA, its first
preference for reclassification, is approximately 27 miles. The distance
between Geisinger and the East Stroudsburg CBSA, its second preference
for reclassification, is approximately 15.8 miles. Thus, Geisinger satisfies the
proximity requirement set forth at 42 C.F.R. §412.230(b)(1) for hospitals
located in the rural area of a state. Geisinger’s three-year AHW is 86.38% of
the Allentown CBSA AHU, and 86.45% of the East Stroudsburg CBSA. Thus,
the hospital satisfies the element at 42 C.F.R. §412.230(d)(1)(iv)(E).
Geisinger’s three-year AHW is 96.51% of the AHW of the Scranton-WilkesBarre-Hazelton, PA CBSA, where the hospital is physically located, and
101.28% of the AHW of the Pennsylvania rural area, where the hospital is
required to be treated as being located pursuant to Section 401. As an RRC,
however, the hospital is exempt from this requirement.
To the extent Geisinger is dissatisfied with any decision of the Board

14

on its applications5 , it can seek review of the Board’s decision from the
Administrator of CMS. Any decision by the Administrator is final and not
subject to further administrative or judicial review.
By way of this action, Geisinger challenges the Secretary’s regulation,
42 C.F.R. §412.230(a)(5)(iii), which Geisinger claims would unlawfully
prevent the Board from considering its application to be reclassified to the
Allentown urban area for purposes of payment under the IPPS. In their
motion for summary judgment, the defendants initially argue that this court
lacks subject matter jurisdiction to consider the plaintiff’s claims. To this
extent, the defendants argue that Geisinger has not received a final decision
of the Secretary on its reclassification requests and, even if it had received
such a decision, that decision would be unreviewable under the plain terms
of the Medicare statute. (Doc. 16, pp. 12-17).
Absent clear and convincing evidence of congressional intent to
preclude judicial review, the court must give effect to the well-settled
presumption of judicial review of an administrative action. See Kucana v.
Holder, 558 U.S. 233, 252 (2010). In determining whether a statute precludes
judicial review, the court considers the express language of the statute, as

5

In this case, the parties have stipulated and agreed that the Board will
not issue any decision regarding Geisinger’s pending Board applications
before January 1, 2015.
15

well as the structure of the statutory scheme, its objectives, its legislative
history, and the nature of the administrative action involved. Block v. Cmty.
Nutrition Inst., 467 U.S. 340, 345 (1984).
Here, Geisinger concedes that the plain language of the Medicare Act
precludes judicial review of a final Board decision. Geisinger argues,
however, that it is not seeking to challenge any decision by the Board, but the
method by which the Board’s decision is made. For this, judicial review is not
precluded. See Bowen v. Michigan Acad. of Family Physicians, 476 U.S.
667, 677-78 (1986) (holding that although the Medical Act precluded judicial
review of individual benefit determinations, challenges to the Secretary’s
instructions and regulations governing those determinations were subject to
judicial review). See also ParkView Med. Assocs. v. Shalala, 158 F.3d 146,
148 (D.C.Cir. 1998) (finding that although judicial review of the denial of the
plaintiff’s application was barred, the plaintiff was free to challenge the
general rules leading to the denial); Universal Health Servs. v. Sullivan, 770
F.Supp. 704 (D.C. Cir. 1991) (finding that the Medicare Act does not
preclude judicial review of the guidelines used by the Board and the
Secretary in deciding upon reclassification requests and holding that the
Act’s preclusion of judicial review of the Board’s reclassification
determinations did not imply a congressional intent to preclude review of the

16

underlying guidelines)6.
Despite the defendants’ argument to the contrary, in this case, the
court finds that Geisinger is challenging the regulation governing
consideration of Board applications, rather than the denial of its application
for classification. In fact, the parties have stipulated and agreed that the
Board will not render any decision on Geisinger’s applications before January
1, 2015. As such, there is no Board determination to challenge. Geisinger is
seeking to challenge the general regulation which renders ineligible for
reclassification any hospital which has already been reclassified under
Section 401. This challenge seeks to bar the application of the regulation in
general, not just to Geisinger specifically. Geisinger seeks to invalidate the
Secretary’s regulatory scheme, which it argues is in direct conflict with
Section 401; it is not seeking to reverse any decision by the Board or to
challenge the general rules used by the Board in rendering decisions. As
such, the court finds that it has subject matter jurisdiction over the plaintiff’s
claims and the defendants’ motion for summary judgment arguing to the
contrary will be denied on this basis.
Next, the defendants argue that, substantively, the Secretary’s
6

See Lawrence v. Memorial Hosp. v. Sebelius, 986 F.Supp.2d 124,
131-32 (D.Ct. 2013), for further discussion of the case law cited herein
finding that judicial review is not precluded for challenges to regulations
governing agency determinations.
17

interpretation of the Medicare statute must be upheld. (Doc. 16, pp. 17-29).
The parties agree that the plaintiff’s challenge to the Secretary’s regulation
should be evaluated under the deferential analysis set forth in Chevron
U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837
(1984). Pursuant to the Chevron analysis, at the first step, when analyzing
an agency’s interpretation of a statute, the court must determine whether
Congress has directly spoken to the precise question at issue. Id. at 842. If
Congress has, the court and the agency must give effect to Congress’ intent.
Id. at 842-43.
If, however, the statute is silent or ambiguous as to the issue, Chevron
dictates that the court determine whether the agency’s interpretation is based
on a permissible construction of the statute. Id. at 843. At the second step of
Chevron, the court is to give considerable weight to an agency’s
interpretation unless it is arbitrary and capricious. Id. at 844. Deference is
given to the agency’s interpretation of the statute so long as the construction
is “a reasonable policy choice for the agency to make.” Nat’l Cable &
Telecommunications Ass’n v. Brand X Internet Servs., 545 U.S. 967, 986
(2005) (citing Chevron, 467 U.S. at 845). This is so “even if the agency’s
reading differs from what the court believes is the best statutory
interpretation.” Id. at 980 (citing Chevron, 467 U.S. at 843-44 & n.11).

18

In this case, at the first step of the Chevron analysis, the issue is
whether Congress, in Section 401, has directly spoken to whether a hospital
that has been redesignated as rural under Section 401 is precluded from
“receiv[ing] an additional reclassification by the Board based on this acquired
rural status for a year in which such redesignation is in effect.” 42 C.F.R.
§412.230(a)(5)(iii). If Congress has and its intent is clear, the court must give
effect to the expressed intent of Congress. In so determining, the court must
look to the statutory language to determine if such language contains the
unambiguous intent of Congress.
Geisinger concedes in its brief in opposition to the defendants’ motion
for summary judgment that Section 401 does not explicitly require by its
terms that Section 401 hospitals be treated the same as hospitals physically
located in rural areas for all purposes, but argues that Section 401 requires
the Secretary to permit urban hospitals with acquired rural status under that
provision to participate in the Board process, which is governed by a different
statutory provision, 42 U.S.C. §1395ww(d)(10), on the same basis as a
geographically rural hospital. In so arguing, Geisinger relies, in part, upon the
language of Section 401(a), which provides that “[f]or purposes of this
subsection,” which Geisinger argues includes all provisions of subsection (d),
the Secretary shall treat a Section 401 hospital as located in the rural area

19

of the State. Geisinger argues that Section 401 directs the Secretary to apply
Section 401 to inpatient reimbursement for subsection (d) hospitals such as
Geisinger and that subsection (d) also includes the requirements for wage
index adjustments and the process for hospitals to be reclassified by the
Board. Thus, by its terms, Geisinger argues that a Section 401 hospital
applying to the Board must be treated for purposes of that application as
though the hospital were part of the rural area of the State in which the
hospital is located. In other words, Geisinger argues that the geographic
reclassification criteria that apply to hospitals located in rural areas must be
applied to Section 401 hospitals.
Further, Geisinger argues that Section 401 is equally clear in terms of
what “rural area” means, referring to the definition of “rural area” in
“paragraph (2)(D).” That paragraph defines “rural area” as “any area outside
an urban area.” 42 U.S.C. §1395(d)(2)(D). Geisinger argues, therefore, that
Section 401 amends the definition of “rural area” to include hospitals that
qualify under Section 401.
Taking the “shall” mandatory language of Section 401 and the
reference to the definition of “rural area” together, Geisinger argues that the
Secretary is required to treat a Section 401 hospital as though it were a
hospital geographically located in a rural area.

20

In response to Geisinger’s argument, the Secretary provides that, while
Geisinger’s interpretation may be permissible under the language of Section
401, it is not compelled by the plain language of the statute.
In considering the parties’ arguments, upon review, Section 401
provides that for purposes of PPS, if a hospital qualifies for redesignation,
“the Secretary shall treat the hospital as being located in the rural area (as
defined in paragraph (2)(D)) of the State in which the hospital is located.” 42
U.S.C. §1395ww(d)(8)(E). While the use of the word “shall” in this provision
is certainly mandatory, see e.g., United States v. Monsanto, 491 U.S. 600,
607 (1989), this language does not expressly require that redesignated
hospitals be treated the same as hospitals actually located in rural areas for
purposes of the statutory provision that provides for Board reclassification.
In fact, the statute does not discuss the Board reclassification process at all,
nor does it discuss the intersection of redesignation and geographic
reclassification under the Medicare Act. See 65 Fed.Reg. 26282, 26308
(noting that the statute does not “address the issue of interactions between
changes in classification under section [1395ww(d)(8)(E)] and the MGCRB
reclassification process under [1395ww(d)(10)]”). Furthermore, there is no
discussion in Section 401 as to how the Board should evaluate a hospital’s
eligibility for geographic classification. Section 401 appears then to be silent

21

as to whether hospitals that have been redesignated as rural must be eligible
for geographic reclassification by the Board.
While silent as to the reclassification issue, Congress expressly
granted the Secretary broad discretion to develop guidelines for considering
Board applications providing “[t]he Secretary shall publish guidelines to be
utilized by the Board in rendering decisions on applications submitted under
this paragraph.” See 42 U.S.C. §1395ww(d)(10)(d)(i).
The silence of Congress as to the geographic reclassification process
in Section 401 coupled with the delegation of authority given to the Secretary
elsewhere in the Medicare Act to develop the standards by which hospitals
are evaluated before the Board, compels the court to find that Geisinger
cannot demonstrate the Secretary’s regulation, 42 C.F.R. §412.230, violates
the plain meaning of Section 401.
Moreover, although there is no plain or express language in Section
401 addressing the intersection between that statute and the Board
reclassification statute, in support of its position that Congress has, in fact,
spoken to the precise issue raised here, Geisinger cites to the text of a
conference report published in conjunction with the adoption of the legislation
enacting Section 401, which reads, in part, as follows:
A hospital in an urban area may apply to the Secretary to be
treated as if the hospital were located in a rural area of the State
22

in which the hospital is located. Hospitals qualifying under this
section shall be eligible to qualify for all categories and
designations available to rural hospitals, including sole
community, Medicare dependent, critical access, and referral
centers. Additionally, qualifying hospitals shall be eligible to apply
to the Medicare Geographic Reclassification Review Board for
geographic reclassification to another area. The Board shall
regard such hospitals as rural and as entitled to the exceptions
extended to referral centers and sole community hospitals, if
such hospitals are so designated.
H.R. Conf. Rep. No. 106-479, 512 (1999).
An attempt to rely on this same language at the first step of the
Chevron analysis was recently made and rejected by the court in Lawrence
& Memorial Hospital v. Sebelius, 986 F.Supp.2d at 136. In declining to adopt
the hospital’s attempt to rely on the above language, the court in Lawrence
noted that “adopting Plaintiff’s analysis would require the Court to rely on the
conference report to expand on the clear terms of Section 401 and create a
conflict with the challenged regulation where none exists on the face of the
statute. Other courts have rejected such attempts by plaintiffs to create
statutory ambiguity via legislative history when confronted with an otherwise
permissible agency interpretation.” Id. at 136 (citing San Bernardino
Mountains Cmty. Hosp. v. Sec’y, 63 F.3d 882, 887 (9th Cir. 1995) (“[B]ecause
the Secretary’s interpretations fall squarely within her statutorily granted
discretion, legislative history such as the Senate committee report cannot
defeat the regulation.”); Clinton Mem. Hosp. v. Shalala, 10 F.3d 854, 858
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(D.C.Cir. 1993) (“It is far from clear to us that anything in a Senate committee
report . . . could condemn as impermissible an interpretation fitting squarely
within statutory language.”); Macon Cnty. Samaritan Mem. Hosp. v. Shalala,
7 F.3d 762, 767 (8th Cir. 1993) (suggesting that an attempt to create
ambiguity via legislative history “puts the cart before the horse.”)). The Third
Circuit has also found that consideration of a statute’s legislative history has
no place in Chevron’s step one analysis, and this court finds no reason to
depart. See United States v. Geiser, 527 F.3d 288, 292-94 (3d Cir. 2008),
cert. denied, Geiser v. U.S., 555 U.S. 1102 (2009).
The above findings require the court to proceed to step two of the
Chevron analysis. Under the second step of Chevron, the defendants argue
that the Secretary reasonably interpreted the statute and reasonably resolved
the ambiguity in the statute regarding the interaction between Section 401
and the Board reclassification process by promulgating a rule that eliminates
the potential for inconsistent reclassifications of the same hospital for the
same period, as well as the potential for unintended consequences. For its
part, Geisinger argues that, even if the analysis properly proceeds to step
two of Chevron, the Secretary does not have carte blanche to interpret the
statute as she pleases. In this respect, Geisinger argues that the Secretary
offered inappropriate and invalid reasons to prevent Section 401 hospitals

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from applying to the Board and being considered under the criteria applicable
to hospitals located in rural areas of the State. Geisinger argues therefore
that the Secretary’s regulations are invalid as arbitrary and capricious.
In promulgating 42 C.F.R. §412.230, the Secretary commented, in part,
that “some hospitals might inappropriately seek to be treated as being
located in a rural area for some purposes,” and that such cases could have
unintended consequences permitting some hospitals to receive inappropriate
reimbursements. See 65 Fed.Reg. 47054, 47088-89. The Secretary
explained:
This policy is consistent not only with the statutory language but
also with the policy considerations underlying the MGCRB
process. The MGCRB process permits a hospital to be
reclassified from one geographic area to another if it is
significantly disadvantaged by its geographic location and would
be paid more appropriately if it were reclassified to another area.
We believe that it would be illogical to permit a hospital that
applied to be reclassified from urban to rural under section
1886(d)(8)(E) of the Act because it was disadvantaged as an
urban hospital to then utilize a process that was established to
enable hospitals significantly disadvantaged by their rural or
small urban location to reclassify to another urban location. If an
urban hospital applies under section 1886(d)(8)(E) of the Act in
order to be treated as being located in a rural area, then it would
be anomalous at best for the urban hospital to subsequently
claim that it is significantly disadvantaged by the rural status for
which it applied and should be reclassified to an urban area.
Id. at 47088.
Alternative approaches to the final regulation were considered but

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rejected with the reasoning that, while the approaches “would limit to some
degree the possible inappropriate incentives for hospitals to become rural
under section [1395ww(d)(8)(E)], we are concerned that they would still allow
these hospitals to receive inappropriate payments, albeit on a more limited
basis.” 65 Fed.Reg. at 47089.
Thus, the Secretary decided to resolve the ambiguity in the statutes by
promulgating a regulation that does away with any potential for inconsistent
reclassifications of the same hospital for the same period, as well as the
potential for unintended consequences.
Geisinger argues that the Secretary’s various justifications for her
refusal to allow Section 401 hospitals to apply to the Board to reclassify to
another urban area for wage index purposes leaves out a key fact: A hospital
geographically located in a rural area of a State can apply to the Board to be
reclassified to an urban CBSA. If approved, the hospital will be treated as
part of that urban area for wage index purposes, but will be treated as
located in the rural area of the State for other purposes. Geisinger argues
therefore that the Secretary’s justifications for not allowing Section 401
hospitals to reclassify to an urban area for purposes of the wage index and
remain rural for all other purposes are invalid.
In considering Geisinger’s argument on this point, there is a significant

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difference between allowing a hospital which is geographically located in a
rural area and is significantly disadvantaged by its geographic location to be
reclassified to an urban area in order to be paid more appropriately and
allowing a hospital which is geographically located in an urban area to
reclassify to a rural area claiming that it was disadvantaged as an urban
hospital and then allowing that same hospital to reclassify under another
process which was established to allow hospitals which are significantly
disadvantaged by their rural status to reclassify to another urban location.
The latter hospital voluntarily obtained its rural status, whereas the former did
not.
It cannot be said that the Secretary’s regulation, which was
promulgated to avoid permitting a hospital to be treated as rural for some
purposes and as urban for others allowing the hospital to receive
inappropriate reimbursements, was unreasonable, even if the plaintiff can
point to other reasonable policy choices. Further, such regulation cannot be
labeled to be arbitrary and capricious.
Therefore, the court finds at the second step of the Chevron analysis
that the Secretary’s regulation should be upheld. As a result, the defendants’
motion for summary judgment will be granted and the plaintiff’s motion for
summary judgment denied.

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IV.

CONCLUSION
In light of the foregoing, an appropriate order shall issue.

s/ Malachy E. Mannion
MALACHY E. MANNION
United States District Judge
Date: December 22, 2014
O:\Mannion\shared\MEMORANDA - DJ\CIVIL MEMORANDA\2014 MEMORANDA\14-1763-01.wpd

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