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appealsummary judgmentjudicial review
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Cape Cod Hosp. v. Sebelius, 630 F.3d 203, 394 U.S.App.D.C. 59

Facts

The case arose when five hospitals sought judicial review of rules set by HHS that determined Medicare payment rates for inpatient services for the fiscal years 2007 and 2008. The hospitals argued that the Secretary of HHS improperly implemented a statutory provision, leading to progressively reduced Medicare payments. They contended that the Secretary's method of calculating budget-neutrality adjustments was flawed, resulting in lower payments than mandated by the Balanced Budget Act's rural-floor provision.

In calculating prospective payment rates, CMS begins with a figure called the “standardized amount,” which roughly reflects the average cost incurred by hospitals nationwide for each patient they treat and then discharge.

Issue

Did the Secretary of Health and Human Services violate the Balanced Budget Act's rural-floor budget-neutrality provision by failing to provide a reasoned response to the hospitals' comments regarding the challenged rules?

The Court of Appeals, Tatel, Circuit Judge, held that Secretary failed to provide a reasoned response to the hospitals' comments regarding challenged rules, and therefore, court could not determine whether challenged rules violated Balanced Budget Act's rural-floor budget-neutrality provision.

Rule

The court applied the principle that agency actions must not be arbitrary or capricious and that agencies are required to adequately explain their decisions and respond to significant public comments.

The Secretary administers the program through the Centers for Medicare and Medicaid Services (CMS). Originally, Medicare reimbursed hospitals based on the “ ‘reasonable costs' ” they incurred in providing services to Medicare patients.

Analysis

The court determined that the Secretary's failure to respond to the hospitals' comments regarding the 2007 rule was significant. The hospitals argued that the Secretary's method of calculating budget-neutrality adjustments was flawed, leading to reduced payments. The court found that the Secretary's approach mixed cumulative and noncumulative methodologies, which resulted in progressively lower payments over time, thus violating the budget-neutrality requirement.

The hospitals argue that CMS's 2007 and 2008 rules were arbitrary and capricious and violated BBA section 4410(b), the rural-floor budget-neutrality provision. In response, the Secretary contends that she acted within the scope of the discretion Congress afforded her in achieving budget neutrality.

Conclusion

The Court of Appeals vacated the district court's summary judgment in favor of HHS and remanded the case for further proceedings, emphasizing the need for a reasoned response to the hospitals' comments.

Vacated and remanded.

Who won?

The hospitals prevailed in the appeal because the court found that the Secretary failed to adequately respond to their comments, which was a critical aspect of the case.

The five hospitals that are appellants herein challenge how the Secretary has implemented this budget-neutrality provision.

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