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
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
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 §
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 § 1395ww(d)(5)(C)(iii) is
committed to agency discretion by law. The Secretary's ...