August 30, 2010
ADVENTIST GLENOAKS HOSPITAL, ADVENTIST HINSDALE HOSPITAL, ADVENTIST LAGRANGE MEMORIAL HOSPITAL, ADVOCATE BETHANY HOSPITAL, ADVOCATE CHRIST HOSPITAL & MEDICAL CENTER, ADVOCATE GOOD SAMARITAN HOSPITAL, ADVOCATE ILLINOIS MASONIC HOSPITAL & MEDICAL CENTER, ADVOCATE LUTHERAN HOSPITAL, ADVOCATE SOUTH SUBURBAN HOSPITAL, ADVOCATE TRINITY HOSPITAL, ALEXIAN BROTHERS MEDICAL CENTER, BAPTIST REGIONAL MEDICAL CENTER, CHRIST HOSPITAL & MEDICAL CENTER, CONDELL MEDICAL CENTER, DELNOR-COMMUNITY HOSPITAL, EDWARD HOSPITAL, ELMHURST MEMORIAL HOSPITAL, EVANSTON NORTHWESTERN HEALTHCARE, GOOD SHEPHERD HOSPITAL, GOTTLIEB MEMORIAL HOSPITAL, HARRISON MEMORIAL HOSPITAL, HOLY CROSS HOSPITAL, HOLY FAMILY MEDICAL CENTER, INGALLS MEMORIAL HOSPITAL, JOHN H. STROGER, JR. HOSPITAL OF COOK COUNTY, KATHERINE SHAW BETHEA HOSPITAL, KENT COUNTY HOSPITAL, KISHAWAUKEE COMMUNITY HOSPITAL, LAKE FOREST HOSPITAL, LANDMARK MEDICAL CENTER, LITTLE COMPANY OF MARY HOSPITAL & HEALTH CARE CENTERS, LORETTO HOSPITAL, LOYOLA UNIVERSITY MEDICAL CENTER, MEMORIAL HOSPITAL OF RHODE ISLAND, MEMORIAL MEDICAL CENTER, MICHAEL REESE HOSPITAL & MEDICAL CENTER, MORRIS HOSPITAL, MOUNT SINAI HOSPITAL & MEDICAL CENTER, NEWPORT HOSPITAL, CENTEGRA HOSPITAL -- MCHENRY F/K/A NORTHERN ILLINOIS MEDICAL CENTER, NORTHWEST COMMUNITY HEALTHCARE, NORTHWESTERN MEMORIAL HOSPITAL, OUR LADY OF THE RESURRECTION MEDICAL CENTER, PALOS COMMUNITY HOSPITAL, PINEVILLE COMMUNITY HOSPITAL, PROVENA SAINT THERESE MEDICAL CENTER N/K/A VISTA MEDICAL CENTER WEST, PROVIDENT HOSPITAL OF COOK COUNTY, RESURRECTION MEDICAL CENTER, RHODE ISLAND HOSPITAL, ROGER WILLIAMS HOSPITAL, RUSH NORTH SHORE MEDICAL CENTER, RUSH UNIVERSITY MEDICAL CENTER, RUSH-COPLEY MEDICAL CENTER, SAINT ANTHONY HOSPITAL, SAINT BERNARD HOSPITAL, SAINT FRANCIS HOSPITAL -- EVANSTON, SAINT FRANCIS HOSPITAL & HEALTH CENTER -- BLUE ISLAND N/K/A METROSOUTH MEDICAL CENTER, SAINT JOSEPH HOSPITAL & HEALTH CARE CENTER, SAINT MARGARET MERCY HEALTHCARE CENTERS, INC. NORTH CAMPUS, SAINT MARY OF NAZARETH HOSPITAL CENTER N/K/A STS. MARY & ELIZABETH MEDICAL CENTER -- ST. MARY'S CAMPUS, SHERMAN HOSPITAL, SILVER CROSS HOSPITAL, SOUTH COUNTY HOSPITAL HEALTHCARE SYSTEM, SOUTH SHORE HOSPITAL, ST. ALEXIUS MEDICAL CENTER, ST. ANTHONY MEDICAL CENTER, ST. ANTHONY MEMORIAL HEALTH CENTERS, ST. CATHERINE HOSPITAL, INC., ST. ELIZABETH'S HOSPITAL N/K/A STS. MARY & ELIZABETH MEDICAL CENTER -- ST. ELIZABETH CAMPUS, ST. JAMES HOSPITAL & HEALTH CENTERS, ST. JOSEPH HEALTH SERVICES OF RHODE ISLAND, ST. MARGARET MERCY HEALTHCARE CENTERS, INC. SOUTH CAMPUS, ST. MARY MEDICAL CENTER, SWEDISH COVENANT HOSPITAL, T.J. SAMSON COMMUNITY HOSPITAL, THE COMMUNITY HOSPITALS, THE METHODIST HOSPITALS, INC. -- NORTHLAKE, THE METHODIST HOSPITALS, INC. -- SOUTHLAKE, THE MIRIAM HOSPITAL, THE WESTERLY HOSPITAL, UNIVERSITY OF CHICAGO HOSPITALS, UNIVERSITY OF ILLINOIS HOSPITAL, VALLEY WEST COMMUNITY HOSPITAL, VICTORY MEMORIAL HOSPITAL N/K/A VISTA MEDICAL CENTER EAST, WEST SUBURBAN HOSPITAL MEDICAL CENTER AND WESTLAKE COMMUNITY HOSPITAL, PLAINTIFFS,
KATHLEEN SEBELIUS, SECRETARY, UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, DEFENDANT.
The opinion of the court was delivered by: Judge Ronald A. Guzmán
MEMORANDUM OPINION AND ORDER
Plaintiffs seek review of a final administrative decision denying their claims that the wage indices used to calculate payments made to them for Medicare services they provided in federal fiscal years 2003 through 2006 were too low.
Medicare is a federal program that provides payment for covered services provided to elderly and disabled people. See generally 42 U.S.C. § 1395. Hospitals are reimbursed for covered services on a per-discharge basis depending on the diagnosis related group ("DRG") into which each patient falls. 42 U.S.C. § 1395ww(d)(2). The Secretary*fn1 sets the reimbursement rate for each discharge by determining a base payment rate (the average allowable costs per discharge for each participating hospital, adjusted for certain variables), dividing that rate into labor-related and non-labor shares, adjusting the labor-related share by the wage index applicable to the market area in which the hospital is located and multiplying the labor-adjusted base rate by the weight assigned to the applicable DRG. See 42 U.S.C. § 1395ww(d); 42 C.F.R. §§ 412.60-64.
The Secretary determines the wage index by dividing the average hourly wage for each labor market by the national average hourly wage. 55 Fed. Reg. 36040 (Sept. 4, 1990). The average hourly wages are calculated by dividing the total wage costs reported by the hospitals in the region or nation, as the case may be, by the total employee hours they report having paid. Id.
Plaintiffs Stroger Hospital, which is in the Chicago market area, St. Joseph Health Services of Rhode Island and Landmark Medical Center, which are in the Providence-Warwick-Pawtucket, Rhode Island ("Rhode Island") market area, and T.J. Samson Community Hospital, which is in the rural Kentucky market area, pay their employees for a one-half hour lunch break and include those breaks in the paid hours they report to the Secretary. (See Administrative Record ("AR") 7-8.) The other plaintiffs are in the same market areas, but do not pay for lunch breaks or include them in the paid hours they report. (AR 8.) Stroger, Samson, St. Joseph and Landmark asked the Secretary to remove the lunch breaks from the reports used to determine the wage indices for the Chicago area for federal fiscal years ("FFY") 2004-2006, the rural Kentucky market area for FFY 2004 and the Rhode Island area for FFY 2003. (See AR 274, 973, 1402, 2068, 2593, 2611.) The Secretary refused, and her decision to include paid lunch breaks in the calculation of the contested wage indices was upheld by the Provider Reimbursement Review Board. (See AR 6-10.)
Review of Medicare reimbursement decisions is governed by the Administrative Procedures Act ("APA"). 42 U.S.C. § 1395oo(f)(1). Under the APA, an agency's legal determinations will be upheld unless they are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). "The arbitrary and capricious standard is highly deferential, and even if we disagree with an agency's action, we must uphold the action if the agency considered all of the relevant factors and we can discern a rational basis for the agency's choice." Israel v. U.S. Dep't of Agric., 282 F.3d 521, 526 (7th Cir. 2002). Moreover, an agency's findings of fact will be upheld unless they are "unsupported by substantial evidence." 5 U.S.C. § 706(2)(E). Substantial evidence is that which "a reasonable mind might accept as adequate to support a conclusion." Richardson v. Perales, 402 U.S. 389, 401 (1971) (quotation omitted).
In relevant part, the Medicare statute provides:
[T]he Secretary shall adjust the proportion... of 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.... [T]he Secretary shall update the factor... on the basis of a survey... of the wages and wage-related costs of... hospitals in the United States.
42 U.S.C. § 1395ww(d)(3)(E)(i). The statute does not prescribe a method for adjusting wage costs but explicitly delegates authority to the Secretary to do so. See id.; H.R. Rep. No. 100-495, at 22 (1987), reprinted in 1987 U.S.C.C.A.N. 2313-1267 (noting that "[n]o particular methodology" for wage adjustment "is specified"). The regulations the Secretary has adopted pursuant to that authority "are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute." Chevron, U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837, 844 (1984).
The method the Secretary developed is the wage index, which she calculates by using the paid employee hours the hospitals report. See, e.g., Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 1994 Rates, 58 Fed. Reg. 46299 (Sept. 1, 1993). Consequently, if a hospital reports lunch breaks as paid, that time is included in the wage index calculation. See id. ("We have always used total paid hours because they more appropriately reflect what is included in total salary.").
Plaintiffs contend that lunch breaks, which are non-productive time, should not be included in paid hours because they do not impact the actual number of employee hours for which a hospital pays. In their view, a hospital that compensates its employees for seven and one-half productive hours and a half-hour lunch break pays for the same amount of work as one that pays only for productive time. Thus, plaintiffs argue, the Secretary's treatment of non-productive breaks as paid hours for some hospitals but not others violates the statute.
The regulatory record shows that the Secretary specifically considered, and rejected, this ...
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