     Case: 19-10334    Document: 00515320212     Page: 1   Date Filed: 02/24/2020




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT
                                                                United States Court of Appeals
                                                                         Fifth Circuit

                                  No. 19-10334                         FILED
                                                               February 24, 2020
                                                                  Lyle W. Cayce
HENDRICK MEDICAL CENTER,                                               Clerk

             Plaintiff - Appellant

v.

ALEX M. AZAR, II, SECRETARY, U.S. DEPARTMENT OF HEALTH AND
HUMAN SERVICES,

             Defendant – Appellee


                 Appeal from the United States District Court
                          Northern District of Texas


Before HIGGINBOTHAM, STEWART, and ENGELHARDT, Circuit Judges.
CARL E. STEWART, Circuit Judge:
      Healthcare provider Hendrick Medical Center (“Hendrick”) brought this
suit challenging Medicare payments it received for the 2015 federal fiscal year.
After the review board dismissed its appeal, Hendrick appealed to the district
court which rendered summary judgment in favor of Appellee Alex M. Azar, II,
Secretary (“the Secretary”) of the U.S. Department of Health & Human
Services (“DHHS”). For the following reasons, we AFFIRM.
                       I. Facts & Procedural History

      This action arises under Title XVIII of the Social Security Act, 42 U.S.C.
§§ 1395 et seq. (“the Medicare Act”) and the Administrative Procedure Act
(“APA”), 5 U.S.C. §§ 551 et seq. The Secretary is the federal official responsible
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for administration of the Medicare program. 42 U.S.C. § 1395hh(a)(1). The
Secretary delegates this responsibility to the Centers for Medicare & Medicaid
Services (“CMS”), a federal agency located within the DHHS. Id. at § 1395b-9.
CMS contracts with Medicare Administrative Contractors (“MAC”) to perform
services necessary for the daily operation of the Medicare program. Id. at §
1395kk-1. Each hospital is assigned to a MAC that collects wage data from the
hospital and submits it to CMS for calculation of a “wage index.” See 42 U.S.C.
§ 1395ww(d)(3)(E)(i).

      In simplified terms, the wage index is a ratio of each geographical area’s
labor cost to the national average. Id. The wage index is used to calculate the
payments that each hospital will receive for treating Medicare patients—the
higher the wage index, the higher the payment. Id. Any adjustments to the
wage index must be budget neutral, meaning that an increase in payment to
one provider requires an offsetting decreased payment to another provider. Id.
CMS updates the wage index once a year. Id.

      The wage index is calculated using the wage data correction process. The
wage data correction process involves publication of a “timetable” containing a
list of important dates during that Federal Fiscal Year (“FFY”), including two
separate notices in the Federal Register—(1) a proposed rule in April or May
and (2) a final rule in August. The timetable references public use files
(“PUFs”) which are compiled by CMS and made available online to hospitals
on certain dates. The hospitals are then instructed to review the data and
request any necessary corrections by specified deadlines. Hospitals are given
several opportunities to request corrections throughout the process, but their
last chance is in June. If hospitals do not request revisions of the proposed rule
that is published in April or May by the June deadline, the proposed rule



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becomes final and is published in the Federal Register in August, setting the
wage index for the next FFY beginning on October 1.

      Hendrick operates under the Medicare program and is located in the
Abilene, Texas geographical area. In this case, Hendrick challenges the wage
index applied to it during the 2015 FFY. 1 It is undisputed that the wage index
data applicable to Hendrick was incorrect because the MAC—here, Novitas
Solutions, Inc.—transmitted Hendrick’s final wage data to CMS and the data
contained errors. In the earlier stages of the wage data correction process,
Hendrick noticed errors and successfully utilized the correction process to
correct them. However, once that data was corrected, the MAC then
erroneously provided CMS with the original uncorrected wage data, and that
data was used to calculate the Abilene wage area index. To compound the
problem, although the incorrect wage index was posted publicly for notice and
correction as provided by the wage data correction process, Hendrick never
reviewed the data or requested to correct it by the June 2, 2014 deadline.
Because Hendrick missed the final deadline to request corrections to the data,
the incorrect wage index became the final wage index that was set and
subsequently published in the Federal Register in August 2014. To further
complicate matters, Hendrick’s wage data is utilized to calculate the wage
index for the entire geographical area of Abilene, Texas, where a separate
group of hospitals—Anson General Hospital, ContinueCare Hospital, Stamford
Memorial Hospital, and Southern Oaks Healthcare, Inc. (collectively, “the
Hospitals”)—is located. Consequently, Hendrick’s incorrect wage index skewed
the wage index applicable to both Hendrick and the Hospitals, resulting in an
incorrect calculation of the wage index applicable to all. As a consequence,




      1   The 2015 FFY begins October 1, 2014 and ends September 30, 2015.
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Hendrick and the Hospitals received lowered Medicare reimbursements for the
2015 FFY. 2
      Hendrick appealed to the Provider Reimbursement Review Board (“the
Board”) 3 seeking an additional $2 million for hospital inpatient services
furnished to Medicare beneficiaries in the 2015 FFY. The Board dismissed
Hendrick’s appeal for lack of jurisdiction because Hendrick had failed to adhere
to the statutory process for the correction of wage data by requesting correction
of the incorrect data by the June 2014 deadline. Specifically, the Board stated:
           The Board concludes that it lacks jurisdiction over
           Hendrick Medical Center because it failed to exhaust its
           administrative remedies when it failed to check the May 2,
           2014 PUF which contained the incorrect wage data for FFY
           2015. Although the Provider argues that it lacked notice of
           the issuance of the PUF, the Secretary advised providers to
           review the file in the May 15, 2014 Federal Register.

      Hendrick appealed the Board’s ruling to the district court. On March 7,
2019, the district court granted summary judgment in favor of the Secretary,
holding that the jurisdictional decision of the Board and subsequent
reconsideration denial did not violate the APA or the Medicare Act. The district
court explained that it was “undisputed that [Hendrick] failed to check its data
in the final public use file and failed to notice that its wage data included a
transmission error . . . [and] also failed to request a wage data correction by
the June 2, 2014 deadline.” The district court further observed that despite
Hendrick’s argument to the contrary, “the exhaustion requirement was a duly-
promulgated rule . . . designed . . . specifically to address the issue [Hendrick]
alleges caused the error—CMS or MAC errors made in the entry of the final


      2 The Hospitals have a separate, related appeal currently pending before this court.
See No. 19-10470, Anson Gen. Hosp., et al v. Azar.
      3 The Provider Reimbursement Review Board is a regulatory body authorized to make

substantive decisions regarding Medicare reimbursement appeals.
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wage index data that resulted from the correction process. See 79 Fed. Reg. at
28,081.” The district court concluded that the “results may be harsh, but the
deadline for administrative exhaustion was clearly set forth and properly
noticed.” This appeal ensued.

                           II. Standard of Review
      We review a district court’s grant of a summary judgment de novo,
applying the same standard as the district court. Forrest Gen. Hosp. v. Azar,
926 F.3d 221, 227 (5th Cir. 2019). “Under Rule 56, summary judgment is
proper if the movant shows that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law.” Id. (internal
quotation marks omitted) (quoting FED. R. CIV. P. 56(a)).

      Hendrick filed suit under 42 U.S.C. § 1395oo(f), which states that
“[p]roviders shall have the right to obtain judicial review of any final decision
of the Board, or of any reversal, affirmance, or modification by the Secretary,
by a civil action commenced within 60 days of the date on which notice of any
final decision by the Board or of any reversal, affirmance, or modification by
the Secretary is received.” Section 1395oo(f)(1) uses the standards for judicial
review established in the APA. Id. (“Such action shall be brought in the district
court of the United States for the judicial district in which the provider is
located . . . and shall be tried pursuant to the applicable provisions under
chapter 7 of Title 5 notwithstanding any other provisions in section 405 of this
title.”). “Under the APA, the [agency’s] action may be set aside if ‘arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with law.’”
See Tex. Tech. Physicians Assocs. v. U.S. Dep’t of Health & Human Servs., 917
F.3d 837, 844 (5th Cir. 2019) (quoting 5 U.S.C. § 706(2)(A)). However, we defer
to an agency’s decision and presume it to be valid. Id. “[T]he plaintiff bears the



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burden of showing otherwise.” Id. Additionally, “[w]e defer to the agency’s
findings of fact if they are supported by substantial evidence.” Id.

                                III. Discussion

      Hendrick appeals to this court arguing that under the Medicare Act and
the APA the Secretary may not make Medicare payments based on incorrect
information, regardless of its failure to adhere to the administrative process
used to correct inaccurate data under the statute. Hendrick advances
numerous arguments against the exhaustion requirements the Board relied on
in determining that it lacked jurisdiction over Hendrick’s appeal. It also
submits policy, notice, and statutory construction arguments and requests that
this court require the Secretary to recalculate its 2015 FFY Medicare payments
if we determine that the Board had jurisdiction over its appeal. Our review of
the applicable statutory and case law reveals that Hendrick is not entitled to
the relief that it seeks.
      In 1965, Congress established the Medicare Act “and authorized the
Secretary to issue regulations defining the reimbursable costs and to otherwise
carry out the Medicare Act provisions.” See Lion Health Servs., Inc. v. Sebelius,
635 F.3d 693, 695 (5th Cir. 2011) (citing 42 U.S.C. §§ 1395x(v)(1)(A) &
1395hh(a)(1)). “[T]he statutory text [of the Medicare Act] expressly affords the
Secretary flexibility and discretion in compiling data and calculating the wage
index.” Anna Jacques Hosp. v. Burwell, 797 F.3d 1155, 1164 (D.C. Cir. 2015).
Section 1395oo(a) describes the Secretary’s authority (acting through CMS) to
require reports from hospitals desiring to challenge their assigned wage index
and to set deadlines for the submission of those reports. In turn, the notice set
forth in 79 Fed. Reg. 27978, 28081 (May 15, 2014), provided that the May 2014
PUFs were made available online “solely for the limited purpose of identifying
any potential errors made by CMS or the MAC in the entry of the final wage

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index data.” The notice made clear that “[a]fter the release of the May 2014
wage index data files, changes to the wage and occupational mix data will only
be made in those very limited situations involving an error by the MAC or CMS
that the hospital could not have known about before its review of the final wage
index data files.” 79 Fed. Reg. 27978, 28081 (May 15, 2014). (emphasis added).
The notice states that “[i]f, after reviewing the May 2014 final public use files,
a hospital believes that its wage or occupational mix data are incorrect due to
a MAC or CMS error in the entry or tabulation of the final data, the hospital
should notify both its MAC and CMS regarding why the hospital believes an
error exists and provide all supporting information, including relevant dates
(for example, when it first became aware of the error). The hospital is required
to send its request to CMS and to the MAC no later than June 2, 2014.” See id.
(emphasis added). This notice was clear and in no uncertain terms placed the
onus on Hendrick to review and request any corrections of its wage data by
June 2, 2014—which it did not.

      Providers such as Hendrick are deemed to have notice of the contents of
the Federal Register. See 44 U.S.C. § 1507 (stating that notice by publication
in the Federal Register “is sufficient to give notice of the contents of the
document to a person subject to or affected by it”). Moreover, although exact
dates for the 2015 FFY deadlines were provided in the Federal Register in
2014, the original wage data correction process timetable with the same
relevant deadlines has been published every year since 1997. See Final Rule,
62 Fed. Reg. 45966, 45993 (Aug. 29, 1997) (providing the early June final
deadline for correction of wage data, publication of the final rule in August,
and the effective date of the updated wage index in October).

      Additionally, 42 C.F.R. § 412.64(k)(1)-(2) further underscores a
provider’s duty to exhaust its administrative remedies by availing itself of the

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wage data correction process prior to obtaining review from the Board.
Subsection 412.64(k)(1) states that a hospital may obtain a “midyear”
correction of a wage index “only if a hospital can show that—(i) [t]he [MAC] or
CMS made an error in tabulating its data; and (ii) [t]he hospital could not have
known about the error, or did not have the opportunity to correct the error,
before the beginning of the Federal fiscal year.” Subsection 412.64(k)(2) has
similar limiting language in that it only allows retroactive changes to the wage
index when CMS determines that “the hospital knew about the error in its
wage data and requested the fiscal intermediary and CMS to correct the error
both within the established schedule for requesting corrections to the wage
data . . . and using the established process[.]”
      Under this court’s deferential standard of judicial review applicable here,
the agency’s action cannot be set aside unless we find it “arbitrary, capricious,
an abuse of discretion, or otherwise not in accordance with the law.” Tex. Tech.
Physicians Assocs., 917 F.3d at 844 (internal quotation marks omitted). The
agency’s action here, however, was supported by the statute and regulations.
Hendrick received notice via the Federal Register but failed to request
correction of its wage data by the published deadline in accordance with the
established process under the statute. Thus, the Board’s determination that it
did not have jurisdiction over Hendrick’s appeal for failure to exhaust
administrative remedies was correct. As the district court correctly observed,
the “results may be harsh, but the deadline for administrative exhaustion was
clearly set forth and properly noticed.” 4 The district court did not err in
dismissing Hendrick’s appeal.


      4  See also Baystate Franklin Med. Ctr. v. Azar, --- F.3d ---, No. 18-5264, 2020 WL
625214, at *7 (D.C. Cir. Feb. 11, 2020) (holding that the Secretary’s decision to enforce a
deadline and reject data submitted by a hospital months after the deadline to request
revisions had passed was within his statutory discretion and a permissible construction of
the statute).
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                              IV. Conclusion
      For these reasons, we affirm the district court’s summary judgment in
favor of the Secretary.




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