Health Law Daily HHS designation of rural roads for critical access hospital definition not arbitrary nor capricious
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Wednesday, March 8, 2017

HHS designation of rural roads for critical access hospital definition not arbitrary nor capricious

The Secretary of the Department of Health and Human Services (HHS) properly acted within its authority in defining which rural roads were secondary versus primary, for the purpose of designating a facility as a critical access hospital, a federal appeals court has ruled. The hospital failed to qualify under the CMS road standards which were within CMS’ purview to interpret (Baylor County Hospital District v. Price, March 7, 2017, per curiam.).

Background. In 1997, Congress created a favorable Medicare reimbursement schedule for rural facilities designated as critical access hospitals, which provided special reimbursement for certain rural facilities serving Medicare beneficiaries. Such a hospital was defined in part by the type of roads that connected the facility to the next nearest hospital. Congress used the term ‘secondary roads’ in the definition, but it neither defined that term nor contrasted it with ‘primary roads.’ To fill that gap, CMS issued a manual that defined a primary road as a numbered federal highway and a secondary road as a non-primary road.

In 2013, a hospital in Seymour, Texas (Seymour) applied to CMS for designation as a critical access hospital. However, CMS determined that the hospital did not satisfy either of the two statutory road thresholds and therefore denied them the critical access hospital designation. The hospital requested a hearing before an ALJ in which it disputed the validity of CMS’ determination and the rationale for it, however, the ALJ’s decision rejected the appeal and noted that CMS was entitled to give considerable deference to the manual. HHS’ Department of Appeals Board (DAB) affirmed the ALJ decision, and upon further appeal for judicial review the district court granted summary judgment in favor of HHS (see Hospital comes to the end of its CAH road, February 23, 2016). The appeals court has now affirmed that decision.

CMS’ state operations manual. The CMS manual articulated three types of primary roads including inter alia, a numbered federal highway, a numbered state highway with 2 or more lanes in each direction, or a road shown on a U.S. Geological Survey map as a primary highway with a dividing median strip. As a result, in order to qualify as a critical access hospital under the secondary roads provision, the Seymour hospital had to be separated from the nearest hospital by more than 15 miles in which there was no primary road as defined in the CMS manual. The nearest hospital was located 31.8 miles away in Throckmorton, Texas, but approximately 28.4 miles of the road directly connecting Seymour and Throckmorton were designated as U.S. Highway 183/283, rendering that 28.4-mile stretch a primary road under the numbered federal highway provision in the manual.

Manual not only a guidance. Seymour asserted that U.S. Highway 183/283 was a secondary road due to the fact that it was a two lane rural road with no shoulders, and that its dimension and condition were those of a poor quality farm road. However, although they acknowledged that their characterization of the road as a secondary road conflicted with the numbered federal highway provision in the CMS manual, they dismissed the manual as merely guidance and not controlling, nor the law in the matter. They further challenged the numbered federal highway provision as being unreasonable, arbitrary and capricious. The ALJ however, found that the manual was entitled to considerable deference, while the DAB held that CMS’ interpretation provided a bright-line test for what constituted a primary road based on objective criteria.

Agency deference. The district court cited well-established case law that a court will grant deference to an agency’s final decision if it is supported by substantial evidence and lacks any clear error of law. But going beyond that baseline, the court also ruled that they would accord deference to agency interpretations of statutes that they administer that do not carry the force of law including CMS’ interpretation of the statute contrasting primary and secondary roads. Far from being arbitrary and irrelevant, the court found that HHS considered more than a road’s mere alphanumeric designation, and it premised its definitions on the notion that numbered federal highways are generally likely to be more suitable for travel than state highways.

Not in the business of classifying roads. Finally, the hospital argued that HHS was not acting within its area of expertise in attempting to classify roads and that such a function was far afield from the agency’s core expertise of administering a health care program. The court rejected that argument noting that because HHS bears the burden of implementing Medicare’s complex programs and regulatory scheme, it is within that framework that the activity of classifying roadways is intricately intertwined with broader Medicare policies. Congress commissioned HHS to facilitate rural health care and designated rural facilities locations and it was therefore HHS’s duty to consider roads connecting facilities in rural areas.

For the foregoing reasons, the appeals court found HHS’ interpretation of the secondary roads provision to be persuasive and entitled to agency deference. Accordingly, they affirmed the district court’s summary judgment in favor of HHS.

The case is No. 16-10310.

Attorneys: Britton Dale McClung (Hedrick Kring, PLLC) for Baylor County Hospital District d/b/a Seymour Hospital. Brian Walters Stoltz, U.S. Attorney's Office, for Thomas E. Price, M.D., Secretary of Health and Human Services.

Companies: Baylor County Hospital District d/b/a Seymour Hospital; Department of Health and Human Services

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