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March 1, 1991


The opinion of the court was delivered by: Cholakis, District Judge.[fn1]

This case involves a challenge to one aspect of the Medicare hospital reimbursement scheme. Plaintiff alleges that the portion of the regulatory scheme which characterizes hospitals as "urban" or "rural" for purposes of reimbursement under the Prospective Payment System, or PPS, violates the statute under which the regulations were promulgated, is arbitrary and capricious and, as applied to plaintiff, violates the Due Process Clause of the 5th Amendment. Plaintiff challenges its level of reimbursement for 1986 only. Presently before the Court are cross-motions for summary judgment.

Plaintiff essentially challenges the Secretary's use of Metropolitan Statistical Areas, or MSAs, as a basis for the "rural/urban" determination. MSAs are statistical standards derived from Bureau of Census data to show demographic and commuter patterns, delineated by county boundaries. The use of MSAs in the determination of whether a hospital is "urban" or "rural" under the PPS program is specifically called for by the relevant statute.

Notwithstanding the statutory authorization, or mandate, that MSAs be used for purposes of Medicare reimbursement, plaintiff argues that the regulations implementing the statute bear no rational relationship to Congress' intent that the PPS system reflect economic realities facing all hospitals. This Court finds such argument unpersuasive. Where Congress has directly spoken to the precise question at issue, the Court must give effect to the unambiguously expressed intent of Congress. Congress has clearly spoken on this issue.

First, Congress need not have provided that MSAs would be used in the urban/rural determination. Congress could have instead directed the Secretary to create his own basis by which to make such determination. Second, it is instructive that Congress did specify the use of MSAs, especially when considering that the purpose of the creation of the PPS, including the use of Diagnostic Related Groups, or DRGs, was to provide for more efficient and cost-effective delivery of health care services.

This Court therefore rejects plaintiff's contention that the Secretary somehow violated the controlling statute by promulgating regulations that called for the use of MSAs in the urban/rural determination. The statute is clear, and the Secretary merely implemented the specific congressional directives.

Plaintiff further argues that the Secretary was duty-bound to create an alternative to the MSA-based system. First, plaintiff argues that the inadequacy of the MSA-based system was made apparent to the Secretary in comments made during the notice-and-comment process prior to the adoption of the MSA-based regulations, as well as by the Prospective Payment Assessment Commission. Plaintiff argues that such awareness mandated that, to give effect to Congress' intent that the reimbursement scheme accurately reflect the economic realities in the provision of health care, the Secretary exercise its discretion to create an alternative system.

Plaintiff apparently bases its argument that the Secretary had the power and the duty to create an alternative to the MSA-based system by reference to two statutory provisions. First, plaintiff cites 42 U.S.C. § 1395ww(d)(2)(D), which states "the term `urban area' means an area within a [MSA] . . . or within such similar area as the Secretary has recognized under subsection (a) by regulation." (emphasis added). As defendant points out, however, this is not a general grant of discretion to ignore the statutory reference to MSAs and create some other scheme. Instead, the section specifically refers to "similar areas" as the Secretary has recognized under § 1395ww(a).

According to defendant, the "similar area" to which the statute refers is a New England County Metropolitan Area, or NECMA, which was recognized by regulation as an urban area separate from MSAs under § 1395ww(a). This section, known as the Tax Equity and Fiscal Responsibility Act of 1982, or TEFRA, was the reimbursement methodology that predated PPS. Defendant asserts that only one schedule of TEFRA limits was ever issued under § 1395ww(a), and it was this schedule that recognized as "urban" the NECMA. Defendant further alleges that, since the Secretary has not recognized any other "urban" areas under § 1395ww(a), the "similar area" reference to that section in § 1395ww(d)(2)(D) must be to the NECMA.

This argument is persuasive. TEFRA was enacted on September 3, 1982, as part of Public Law No. 97-248. Regulations promulgated pursuant to TEFRA, effective October 1, 1982, utilized the NECMA, in addition to the predecessor of MSAs, to determine urban location. See 47 Fed.Reg. 43296. Section 1395ww(d)(2)(D) was added by Public Law No. 98-21, on April 20, 1983. Therefore, the only "similar area" that had been recognized by the Secretary when § 1395ww(d)(2)(D) was enacted was the NECMA.

Even if this Court were to find that the Secretary retained discretion to make an exception to the use of MSAs under the "or . . . similar area" language of § 1395ww(d)(2)(D) and § 1395ww(a), that does not mean that the Secretary's adoption of the MSA-based system, as provided in the statute, or his failure to make an exception in plaintiff's case, was unlawful. As stated above, Congress clearly and unequivocally stated that the urban/rural distinction was to be made with reference to MSAs. That is what the Secretary has done, and, in this Court's opinion, that is lawful.

Plaintiff further claims that the Secretary was in effect required to exercise its discretion under § 1395ww(d)(5)(C)(iii), which states that "[t]he Secretary shall provide by regulation for such other exceptions and adjustments to such payment amounts under this subsection as the Secretary deems appropriate. . . ." (emphasis added). The reviewability of this discretion under the Administrative Procedure Act, or APA, must first be addressed.

Defendant contends that the Secretary's decision to provide for exceptions (or not to so provide) was a decision committed to agency discretion by law under the APA, thus not reviewable, under APA § 701(a)(2). Plaintiff argues that, because reviewability is presumed, and there is here no clear and convincing evidence that Congress sought to preclude review, the APA is applicable, and the standard of review is found at APA § 706(2)(A).

The Second Circuit has clearly stated that statutory language allowing regulation "as the Secretary believes appropriate" constitutes clear and convincing evidence of Congressional intent that the agency action is unreviewable. See New York Racing Association, Inc. v. NLRB, 708 F.2d 46, 50-51 (2d Cir. 1983), cert. denied, 464 U.S. 914, 104 S.Ct. 276, 78 L.Ed.2d 256 (1983). Absent the inclusion in the statute of parameters or other standards guiding the exercise of the discretion, the Court has quite literally been given no indicia by which to evaluate the exercise, that is, no law to apply.

The statutory language at issue here falls squarely within the Second Circuit holdings. This Court therefore finds that the creation of exceptions under ยง 1395ww(d)(5)(C)(iii) is committed to agency discretion by law. The Secretary's ...

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