On December 11, 2024, the Ninth Circuit struck down an HHS policy that boosted the wage index, and therefore the Medicare reimbursement rate, for hospitals in low-income communities in Kaweah Delta Health Care District v. Xavier Becerra, No. 23-55157 (9th Cir. Dec. 11, 2024).
In August 2019, HHS adopted its 2020 low-wage-index policy, which increased Medicare payment rates for the bottom quartile of hospitals by reducing payments to all other hospitals by a small percentage. The policy was intended to help hospitals in lower-income communities recruit and retain medical staff. In July 2020, fifty-three California hospitals sued the then-Secretary of HHS, Alexander Azar, in the Central District of California under the Administrative Procedure Act for an unlawful reduction in their Medicare inpatient hospital payments. The hospitals alleged that the low-wage-index policy: (i) violated relevant statutory provisions; (ii) is arbitrary and capricious; (iii) results from faulty administrative procedure; and (iv) is unsupported by evidence in the record." U.S. District Judge Consuelo B. Marshall granted the hospitals’ motion for summary judgement and ruled that HHS lacked authority to implement the policy through the “wage index” provision of the Medicare Act or “exceptions and adjustments” provision of the Medicare Act. Judge Marshall remanded the case back to the agency without vacating the policy. Judge Marshall acknowledged that the Secretary “exceeded his authority under the Medicare Act in violation of the APA,” but also stated that vacating the policy could create a serious disruption to the Medicare Prospective Payment System and the operation of hospitals.
On appeal, on December 11, 2024, Judge Kenneth K. Lee, on behalf of a 2-1 panel, agreed with Judge Marshall that the Secretary exceed his statutory authority, but also vacated the HHS policy. Judge Lee highlighted the requirement that the wage index “reflect” regional wage differences, so that a hospital in a higher wage area receives a higher reimbursement rate for its services. Judge Lee emphasized that the artificially boosted wage index does not “reflect” regional wage differences. Judge Lee further stated that Congress has the “power to bless” the wage index, not HHS. In regard to the “exceptions and adjustments” provision, Judge Lee said that the broad provision could not override the specific “wage index” provision. Judge Jacqueline H. Nguyen dissented and said that the majority "improperly constrains the agency's ability to address a serious structural problem, with dire consequences for the rural communities that will lose access to health care." In Judge Nguyen’s view the low-wage-index policy is consistent with the statutory text.
In Bridgeport Hospital v. Becerra, the D.C. Circuit reached the same conclusion as the Ninth Circuit and recognized that increasing the wage index for low-wage hospitals by applying a decrease in the wage index for high-wage hospitals violated statutory requirements. 108 F.4th 882 (D.C. Cir. 2024). Further, CMS has already capitulated to the Bridgeport Hospital decision and discontinued the low-wage-index policy for fiscal year 2025 in the interim final rule, “Medicare Program; Changes to the Fiscal Year 2024 Hospital Inpatient Prospective Payment System (IPPS) Rates Due to Court Decision.”
The Ninth Circuit’s opinion can be found here.
