Health Law Daily Hospital did not waive its challenge to Core Based Statistical Area assignment
Friday, October 19, 2018

Hospital did not waive its challenge to Core Based Statistical Area assignment

By Elizabeth M. Dries, J.D.

A hospital did not waive its challenge to a Core Based Statistical Area (CBSA) assignment by failing to submit comments to a Proposed rule. Furthermore, HHS failed to adequately explain the CBSA assignment and application of the relevant and implementing regulation requiring an examination of commuting data. East Texas Medical Center—Athens’s (East Texas) motion for summary judgment was granted in part and the case was remanded to HHS for further explanation of assignments (East Texas Medical Center-Athens v. Azar, October 18, 2018, Walton, R.).

The Lugar Statute. East Texas, a 127-bed acute care hospital, was designated as an urban hospital for the purpose of calculating its wage index. East Texas qualified as a "Lugar Hospital" under the Lugar Statute (42 U.S.C. §1395ww(d)(8)(B)(i)), which is a provision of the Medicare Act instructing HHS to treat certain rural hospitals located adjacent to urban areas as being located in the urban Metropolitan Statistical Area (MSA) to which the greatest number of workers in the county commute. East Texas sought review of the decision to assign East Texas to Tyler, Texas CBSA rather than to the Dallas-Plan-Irving, Texas CBSA for purposes of adjusting East Texas’s wage index under the Medicare Act for the 2015 fiscal year.

Procedural background. On May 15, 2014, CMS published a Proposed rule in which it proposed revisions to the wage index for acute care hospitals and the annual update of wage data including the CBSAs for the first time for the fiscal year 2015. As a result of the revision, CMS proposed designating Henderson County Texas as part of the Tyler, Texas CBSA for the fiscal year 2015. CMS published its Final rule regarding the fiscal year 2015 wage index in August 2014 without receiving any public comments with regard to the new delineations to identifying rural counties. East Texas appealed to the Provider Reimbursement Review Board (PRRB) disputing its redesignation to the Tyler CBSA on the grounds that CMS should have redesignated it to the Dallas CBSA because that CBSA is the urban area to which the greatest number of workers in Henderson County commute, thus increasing both its wage index and its Medicare reimbursement. The Medicare Administrative Contractor (MAC) assigned to East Texas disagreed, arguing that East Texas was correctly assigned to the Tyler CBSA because more commuters from Henderson County commute to the central county of the Tyler CBSA than to the central counties of the Dallas CBSA. In January 2017, the PRRB issued its decision concluding that it lacked authority to redesignate Henderson County from the Tyler CBSA to the Dallas CBSA, stating that CMS intended Lugar redesignations to be binding and not subject to review.

Judicial review and holding. East Texas filed for judicial review asserting two claims under the Medicare Act and the APA. In Count I East Texas alleged that the Secretary’s assignment of East Texas to the Tyler CBSA violated the Administrative Procedural Act (APA) in three respects: (1) the assignment was contrary to the Lugar Statute’s plain language and implementing regulations because the Secretary failed to assign it to the CBSA to which the greatest number of workers in the its county commute; (2) the assignment was not supported by substantial evidence as required by the APA because more Henderson County workers commute to the Dallas CBSA than to the Tyler CBSA; and (3) the assignment violated the notice and comment rulemaking requirements of the APA. In Count II, East Texas alleged that the PRRB decision that it lacked authority to grant relief violated the APA because the PRRB possessed authority to grant East Texas’s petition as a matter of law. Both East Texas and HHS filed cross motions for summary judgment.

HHS argued that East Texas waived the opportunity to challenge its assignment of Henderson County to the Tyler CBSA because it failed to submit any comments questioning the assignment. The Court disagreed, holding that a failure to raise challenges through comments to the proposed regulation during the rulemaking process does not constitute a waiver. East Texas properly challenged its assignment when it filed a request for hearing before the PPRB. Furthermore, the Secretary failed to adequately explain his interpretation and application of the Lugar Statute and implementing regulation. While a 1988, 2001, and 2004 Final rule provide information in regards to Lugar county qualification determinations, they fail to explain how qualifying Lugar counties are assigned. Accordingly, the Court granted East Texas’ motion for summary judgment on Count I reasoning that the Secretary’s failure to explain the methodology for assigning qualified Lugar counties to CBSAs was unlawful under the APA standard. The Court denied remainder of East Texas’ motion for summary judgment regarding Count II and denied the entirety of HHS’ cross-motion for summary judgment. The Court remanded the case to the HHS to provide a meaningful explanation and an opportunity for the public to comment on how qualified Lugar counties are assigned to CBSAs under the Lugar Statute.

The case is Civil Action No. 17-543 (RBW).

Attorneys: Andrew David Ruskin (Morgan, Lewis & Bockius LLP) for East Texas Medical Center Athens. Melanie Dyani Hendry, U.S. Attorney's Office, for Alex M. Azar II.

Companies: East Texas Medical Center Athens

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