Kaweah Delta Health Care District v. Becerra, __ F.4th __, Nos. 22-55157 & 23-55209, 2024 WL 5063933 (9th Cir. Dec. 11, 2024)

Kaweah Delta Health Care District v. Becerra, __ F.4th __, Nos. 22-55157 & 23-55209, 2024 WL 5063933 (9th Cir. Dec. 11, 2024)

HHS Secretary may not manipulate wage-index for hospital reimbursement rates to assist low-wage hospitals recruit and retain staff.

A group of California hospitals sued the Secretary of Health and Human Services (HHS) challenging a policy designed to increase Medicare reimbursements to hospitals operating in geographic areas (primarily rural) where wages are generally low (so-called “low-wage hospitals”). The Medicare Act requires HHS to establish and use a wage index to adjust the national average cost of treatment to reflect actual costs in different localities. HHS’s new policy increased the lowest quartile of wage index values, which had the effect of increasing reimbursements to low-wage hospitals to improve their ability to recruit and retain medical staff. To maintain budget neutrality, the policy reduced payments to all other hospitals. A federal district court granted summary judgment for the California hospitals, ruling HHS did not have authority to implement the new policy. HHS appealed and the California hospitals cross-appealed.

The Ninth Circuit affirmed in a split decision. The majority held HHS’s new policy violated the Medicare Act’s Wage Index Provision, which requires that hospital reimbursement adjustments “reflect” the regional wage level, because the policy intentionally deviated from actual wage-level differences to boost payments to low-wage hospitals. The court rejected HHS’s arguments that adjusting the wage index reflects a predictive judgment of regional wage differences that accounts for the time lag in collecting actual wage data, since this data lag would necessarily exist for all hospitals, not just low-wage hospitals. The court further held that the new HHS policy violated the statutory requirement that HHS apply a single wage index equally to all hospitals. The court rejected the Secretary’s argument that the new policy was authorized by Medicare Act’s Exceptions and Adjustments provision—it would violate the nondelegation doctrine to construe that provision to give the Secretary unconstrained authority to sweep aside the reimbursement scheme approved by Congress.

The bulletin describing this appellate decision was originally prepared for the California Society for Healthcare Attorneys (CSHA) by H. Thomas Watson, Peder K. Batalden, and Lacey Estudillo at the appellate firm Horvitz & Levy LLP, and is republished with permission. For more information regarding this bulletin, please contact H. Thomas Watson, Horvitz & Levy LLP, at 818-995-0800 or htwatson@horvitzlevy.com