[00:00:01] Speaker 01:
Case number 14-5125, Anna James Hospital at L Appellants v. Sylvia Matthews Burwell.

[00:00:09] Speaker 01:
Mr. Barber for the appellants, Ms.

[00:00:10] Speaker 01:
Allen for the appellate.

[00:00:43] Speaker 06:
Good morning, Your Honors.

[00:00:44] Speaker 06:
My name is Keith Farber.

[00:00:45] Speaker 06:
May it please the Court, I represent the appellants in this case.

[00:00:50] Speaker 06:
The Secretary in this case seeks to isolate words to torture ambiguity into them.

[00:00:58] Speaker 06:
But when the words are placed in the context of the sentence with which they appear, there really is no ambiguity.

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The Secretary must establish

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wage indexes reflecting the relative hospital wage level in the geographic area of the hospital.

[00:01:20] Speaker 01:
I just want to clarify a couple things so I understand your claim exactly and that is you don't challenge the secretaries

[00:01:36] Speaker 01:
process of collecting information and that it takes three years, I guess it's taken roughly three years, because the hospital would have to get all their information together, which is a lot of information, and then it goes to intermediaries and has to get audited, and then it eventually lands, and then the secretary does whatever the secretary does.

[00:01:52] Speaker 01:
You're not challenging that process.

[00:01:54] Speaker 06:
That is correct, Your Honor.

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Mechanically, that process.

[00:01:56] Speaker 06:
We do not challenge the process that was used to collect the wage data.

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We challenge where that data was used.

[00:02:04] Speaker 01:
Okay, and so you don't challenge the reporting process either that hospitals use?

[00:02:09] Speaker 01:
No, we do not, Your Honor.

[00:02:11] Speaker 06:
The data from our perspective, at least for purposes of this case, can be accepted as completely accurate.

[00:02:17] Speaker 01:
And your position wouldn't be that geography is a clear and unambiguous term, because I take it you don't challenge that for some period of years it was the metropolitan

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What is it, statistical?

[00:02:30] Speaker 06:
The metropolitan statistical areas and then it's now core-based statistical areas.

[00:02:36] Speaker 01:
And the secretary could make that transition.

[00:02:38] Speaker 01:
So how to understand the, to draw the lines for collecting this information for hospitals with the discussion.

[00:02:44] Speaker 06:
We can see that the secretary has wide discretion in defining what constitutes the geographic area.

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But the Secretary exercised that discretion in this case.

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And the information that the Secretary used for the years in question here, the 2006 and 2007, would have been collected in 2002 and 2003?

[00:03:10] Speaker 06:
Approximately four years earlier than that.

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But they would have reflected

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the actual wage costs about four years earlier in Nashville.

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And at the end of those cost reporting years, the hospital would have prepared their cost reports and submitted them to the fiscal intermediary or Medicare administrative contract.

[00:03:31] Speaker 01:
And at the time, so at the time the information

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at issue here was produced and given the relevant time period for the secretary, it came from a time when the hospitals were still working under the metropolitan statistical areas, correct?

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That's true.

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The hospitals would have been in the same geographic area at the time that

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those costs were incurred.

[00:03:58] Speaker 01:
So the information, and at that time then, all three of South Coast facilities were within the same Metropolitan Statistical Area as your clients.

[00:04:09] Speaker 06:
They would have been in the Boston Quincy Metropolitan Statistical Area.

[00:04:14] Speaker 01:
Right.

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And so you don't challenge that information.

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You don't challenge that at the time it was submitted to the secretary, audited, and used by the secretary, that it was

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consistent with the statute and that it came from the geographic area as defined at the time it was produced.

[00:04:30] Speaker 06:
That's true, but that's not when... So then the point is that at... once the core-based statistical areas came along... The core-based statistical area, which is a renaming of other terms, and it was a decision by the Census Bureau, in essence,

[00:04:47] Speaker 06:
that said that due to the commuting patterns, if you will, of the various communities involved, that the south coast hospitals, or the Bristol County, where these two south coast facilities were, really were no longer part of

[00:05:13] Speaker 06:
the wage, you know, the wage cost area associated... That year, but at the time, the information was reported and given to the secretary.

[00:05:20] Speaker 01:
The information on which she calculated for 2006 and 2007 was from a unified geographical area.

[00:05:27] Speaker 01:
Yes, I mean, that's right, correct?

[00:05:28] Speaker 06:
And I think, yes, that's true.

[00:05:30] Speaker 01:
And geographically, as a matter of fact, these hospitals are not far apart, right?

[00:05:35] Speaker 01:
I mean, I got, isn't, isn't, isn't

[00:05:38] Speaker 06:
But they are, I mean, they are in separate geographic areas, as defined by the Secretary.

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And the fact of the matter is, is the reasons that you're suggesting, or at least I think that you're suggesting, aren't the ones that the Secretary has given for lumping the South Coast hospitals in wage data into the Boston Quincy wage index determination.

[00:06:02] Speaker 01:
To be clear, what I'm

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trying to figure out here is that the secretary, you don't dispute that the secretary in setting the wage rates for 2006 and 2007 was perfectly entitled to rely on information from 2002-2003.

[00:06:15] Speaker 01:
That's correct.

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That's part of the process you're on.

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And that information was provided at a time they were all in the same geographical area.

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If the small sliver of the South Coast system

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that happened to be, you know, the 10% of it that happened to be in the Boston, Quincy area had been across the river or down the street, so to speak, and in Bristol County, then all of that wage data would have been counted in the New Providence, New Bedford wage index area.

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And only because basically the hospital headquarters... Going forward, but not those years.

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Yes, they would have for those years 2006 and 2007, if that small portion...

[00:07:05] Speaker 01:
I mean, my understanding is that you said across the country, the 2006 and 2007 years would have relied on 2002 and 2003 data, and nobody else had to go back and change that.

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But your position is, I think, please tell me if I'm wrong, that when they looked and said, oops, look what happened with, now that we've changed this prospectively, we need an immediate change

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using information that doesn't go through this three-year process.

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How would they have adjusted for you without having some sort of immediate gathering of wage information?

[00:07:43] Speaker 06:
Well, they could have done a lot of things.

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They could have done what they did in 2008, which was simply to prorate the weight of the data based upon the number of discharges from the various facilities.

[00:07:54] Speaker 04:
That's what they still do, right?

[00:07:56] Speaker 06:
That's what they still do.

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And in fact, what they could have done, since 90% of the system was in the Providence, New Bedford, CBSA, they could have counted all of the wage data for that

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geographic area.

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That would have made a whole lot more sense.

[00:08:15] Speaker 01:
I guess I'm just having trouble seeing, though, where you started out with a textual argument, and given that she relied on information that was provided at a time when they were in the same geographic area, and she's entitled to rely on three-year-old and four-year-old information and do it, that she don't have to sort of stop in 2007 and use 2006 data.

[00:08:37] Speaker 01:
then I don't understand what your textual argument is.

[00:08:39] Speaker 06:
Because she's calculating the wage costs for 2006 and 2007, and she's doing it based upon, and this is what she's supposed to be doing for the whole country, for the geographic areas that the Secretary defined.

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And she didn't do that.

[00:08:57] Speaker 01:
They need to be in the same geographic area at the time of payment, not the time the information establishing the wage rate is calculated.

[00:09:04] Speaker 06:
It's at the time they make the determination of the wage index.

[00:09:09] Speaker 01:
I mean, the secretary basically said... But they have to make that determination based on the information they have.

[00:09:13] Speaker 01:
We've held that in the Methodist Hospital case.

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And so if the information you have has an error in it because of something that happened in the past, we don't make them recalculate.

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We let them use the information they have.

[00:09:27] Speaker 06:
The secretary basically said, for 2006, for the determination of the 2006 wage index, we're going to redraw the geographic lines and do it this way.

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And then she didn't do it, at least not for Boston Quincy.

[00:09:44] Speaker 06:
She did not, having drawn it, the secretary said, we're going to do it for that year, for 2006, and then obviously subsequently in 2007.

[00:09:52] Speaker 06:
This is how we're going to define what constitutes a geographic area.

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Doesn't matter when we collected the data and the fact that we know.

[00:10:02] Speaker 06:
And the secretary didn't grandfather in any other way like that.

[00:10:08] Speaker 06:
The secretary said, we're going to draw our geographic areas this way.

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and then didn't do it.

[00:10:15] Speaker 01:
My understanding is that the reason we ended up using the Toby Hospital information is that under the practice at the time, South Coast was allowed to decide which provider number to use.

[00:10:33] Speaker 06:
Is that right?

[00:10:33] Speaker 06:
It was based, Your Honor, simply on the address

[00:10:39] Speaker 06:
uh... mailing address effectively of the system i thought the records and south coast the provider number and i don't think that's what the uh... the secretary playing right now i think you're going to some degree i don't know well i i didn't hear so we don't really i i think some degree that the hospital can obviously decide where it's headquarters it's a system can find separate head orders is where it's mail constant but beyond that

[00:11:06] Speaker 06:
You know, that doesn't alter the fact that the wage costs, only 10% of them occurred in Toby.

[00:11:14] Speaker 06:
Only 10% of them occurred in the Boston Quincy wage index area.

[00:11:19] Speaker 05:
What is your argument with respect to the discretion of the secretary to declare that a hospital group can be treated as one institution?

[00:11:33] Speaker 05:
You're not saying that that's a Chevron 1 problem?

[00:11:37] Speaker 06:
If that results, as it did in this case, Your Honor, in the wage determination, in the wage index determination, no longer reflecting the wage costs of hospitals,

[00:11:50] Speaker 06:
in that geographic area, then it's in plain and unambiguous violation of the statute, which mandates that the wage costs reflect the wage costs from the hospitals in that geographic area.

[00:12:06] Speaker 05:
Well, you started out your argument by saying, in your brief as critical of the Secretary, by saying that they're trying to create ambiguity, you know, in commonly understood terms like hospital.

[00:12:19] Speaker 05:
But the fact of the matter is, I didn't see any clear definition of hospital that would define hospital the way that you say it should be defined.

[00:12:30] Speaker 05:
I mean, what am I missing?

[00:12:33] Speaker 06:
You know, I don't think you're missing anything.

[00:12:36] Speaker 06:
But other than the fact that only 10%, if you want to view the three campuses of the South Coast system as one hospital, OK?

[00:12:49] Speaker 06:
Then, and if you want to say that based upon that, that all of the wage data for it has to be counted in one place, in one geographic area, then would it be, would it fit any sense of rationality to make that one place where only 10% of that one hospital is?

[00:13:13] Speaker 06:
As opposed to where the vast bulk of it is, over 90% of it, is in a different geographic area.

[00:13:21] Speaker 05:
We're not going to have perfection in these matters.

[00:13:27] Speaker 04:
Close enough for government work.

[00:13:31] Speaker 06:
Close enough for government work cost the hospitals involved in this case about $30 million, Your Honor.

[00:13:38] Speaker 06:
Every inpatient

[00:13:41] Speaker 06:
treated in every hospital in the Boston Quincy area resulted in under reimbursement for that hospital for those services.

[00:13:50] Speaker 05:
That gets me to the question of what would happen if we were to rule for you and we were to reverse and just were to go back.

[00:13:58] Speaker 05:
You represent about 40-some hospitals.

[00:14:02] Speaker 05:
Yes, Your Honor.

[00:14:02] Speaker 05:
But wouldn't there have to be recalculations and reimbursements or collecting more from the geographic area, the Providence, whatever geographic area that you say that most of the South Coast hospitals are?

[00:14:20] Speaker 05:
And wouldn't the Secretary have to readjust

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downward, their rates, they're going to be a concomitant adjustment made?

[00:14:33] Speaker 06:
Normally the wage index determination is a budget neutral determination.

[00:14:37] Speaker 06:
Had this been done properly, it would not have cost the government a dime.

[00:14:44] Speaker 06:
Yes, it means that in conformity with what the intent and the whole purpose of the statute is, the hospitals in the Boston Quincy area would have been paid some more money.

[00:14:55] Speaker 06:
And that means that other hospitals would have been, you know, spread across the nation would have been paid a little bit less.

[00:15:03] Speaker 06:
In terms of the remedy and how the government would pay and whether or not that would be budget neutral, Your Honor, I honestly don't know.

[00:15:16] Speaker 06:
I don't know how the government would pay this.

[00:15:20] Speaker 06:
and whether or not that they would offset it in some way to achieve budget neutrality, and I would suggest that that question is probably better directed to them.

[00:15:30] Speaker 01:
I just don't know how they would do it.

[00:15:35] Speaker 01:
very similar scenario where there was a reporting mistake by a single hospital.

[00:15:40] Speaker 01:
Here it was a reporting decision by South Coast to use the Tobey Hospital provider number that was then alleged to have caused a miscalculation.

[00:15:50] Speaker 01:
And the argument was to the secretary,

[00:15:54] Speaker 01:
you're violating the statute because of this error.

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And I think it was an admitted error.

[00:15:58] Speaker 01:
And the geography didn't work out right.

[00:16:02] Speaker 01:
The payments weren't tied properly to the geographic area because of this hospital, this misreporting and the data the Secretary had to work with.

[00:16:10] Speaker 01:
And we said,

[00:16:11] Speaker 01:
No, because we aren't going to insist that the Secretary go back and retroactively fix something as long as the Secretary reasonably relied on the information in hand at that time to the best Secretary could at that time with the information she had.

[00:16:28] Speaker 01:
We just can't, in part because it's one pie and whatever goes to someone gets taken out of someone else's mouth.

[00:16:35] Speaker 06:
There have been other cases where remedies have been provided for wage index errors.

[00:16:42] Speaker 06:
I just don't know what pot the government paid out of or how it did that.

[00:16:48] Speaker 01:
How would you distinguish our reasoning in Methodist Hospital?

[00:16:52] Speaker 06:
But in Methodist Hospital, the government and the court may have properly found that the government used the best available information that it had then and only later

[00:17:06] Speaker 06:
determined that there was an error.

[00:17:08] Speaker 06:
The government, in this case, had the information that it was using wage data from outside of the Boston Quincy area to determine what the Boston Quincy wage index would be.

[00:17:22] Speaker 06:
They knew that.

[00:17:23] Speaker 06:
We commented on it.

[00:17:24] Speaker 06:
It's in the record.

[00:17:25] Speaker 05:
That raises a question to me, sir, which is that the government's brief discusses

[00:17:32] Speaker 05:
that whole process, that rule-making process of setting the wage index, and it points to statements that the Secretary made in response to comments in talking about reclassification and what can and can't happen in reclassification.

[00:17:50] Speaker 05:
In your opening brief, you said, well, that's irrelevant.

[00:17:53] Speaker 05:
And then in your reply brief, you didn't respond to anything that the government said with respect to kind of the secretary's rationale that was spelled out there in the Federal Register.

[00:18:06] Speaker 05:
Why is it?

[00:18:07] Speaker 06:
Well, I believe we did respond.

[00:18:13] Speaker 06:
The reclassification arguments advanced by the secretary are indeed just smoke.

[00:18:20] Speaker 06:
They are irrelevant.

[00:18:21] Speaker 06:
They have nothing at all to do with this issue.

[00:18:24] Speaker 05:
Why?

[00:18:25] Speaker 05:
Why don't they?

[00:18:26] Speaker 06:
Because nobody involved in this case requested or qualified for reclassification.

[00:18:32] Speaker 05:
It's simply... But wasn't that the Secretary saying, look, if there's a problem, the reclassification process can fix it?

[00:18:42] Speaker 06:
This kind of problem has reclassification as a completely independent process for which this type of problem has no fix.

[00:18:53] Speaker 06:
And if the Secretary's argument is,

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that you could use reclassification to fix this kind of issue, that is simply in error.

[00:19:05] Speaker 05:
Explain to me, I guess, in the Medicare 101 level.

[00:19:13] Speaker 06:
If, for example, Your Honor, the South Coast system, I guess they would be the ones who would have sought reclassification in this case.

[00:19:21] Speaker 06:
For starters, they have no reason to do so.

[00:19:26] Speaker 06:
They're not really hurt by this.

[00:19:29] Speaker 06:
Okay, so and where are they going to be asked to be reclassified to?

[00:19:35] Speaker 05:
They don't, but somebody else might who, you know, weren't smart enough to pick their headquarters in the more expensive area.

[00:19:43] Speaker 05:
They picked their headquarters, they merged and they picked their headquarters in the less expensive area.

[00:19:49] Speaker 06:
I'm keeping the facts specific to our concern here.

[00:19:53] Speaker 05:
But they weren't, she wasn't setting

[00:19:56] Speaker 05:
the wage index just based on South Coast or any one hospital, it was that the decision had to be made on nationwide how are we going to deal with this, right?

[00:20:09] Speaker 06:
My point is the notion that reclassification could have provided a remedy or solution to this problem for the hospitals in the Boston Quincy area, that's simply not true.

[00:20:22] Speaker 06:
And the secretary – if that's what the secretary is suggesting in their briefs, that's not accurate.

[00:20:32] Speaker 06:
And the reclassification is just – the sole reason that the secretary gave, at least in 2006 and 2007 for following this, was

[00:20:46] Speaker 06:
My interpretive manual provisions, the Provider Reimbursement Manual and the State Operations Manual, says that we treat multi-campus facilities as one hospital when they have a single provider.

[00:20:59] Speaker 06:
That was it.

[00:21:00] Speaker 06:
That was the extent of the Secretary's careful consideration of this.

[00:21:07] Speaker 06:
In 2008,

[00:21:09] Speaker 06:
the secretary finally carefully considered this problem and came to an appropriate solution.

[00:21:16] Speaker 01:
I don't think that's exactly fair.

[00:21:19] Speaker 01:
I mean, they did come to a solution in 2008, but as I read the record, they threw out ideas for trying, but they didn't realize there was going to be this issue when they shifted to the CB essays.

[00:21:30] Speaker 01:
And it's only four or five of these campuses that exist across the country amongst the

[00:21:37] Speaker 01:
You tell me hundreds of thousands or millions of hospitals that are out there?

[00:21:40] Speaker 06:
There's about 3,500, 4,000 hospitals.

[00:21:43] Speaker 01:
All right.

[00:21:44] Speaker 01:
So this was a little blip that they just hadn't realized was going to happen.

[00:21:49] Speaker 01:
And then they threw out an idea, got comments, and said, no, that's not going to work.

[00:21:54] Speaker 01:
Much like Methodist Hospital, we just can't get the information in a reliable way.

[00:21:58] Speaker 01:
We don't think we can get the information in a reliable way.

[00:22:00] Speaker 01:
We've got to keep thinking about this.

[00:22:02] Speaker 01:
And we are thinking about it.

[00:22:03] Speaker 01:
We're aware of it.

[00:22:04] Speaker 01:
We're going to do the best we can, as fast as we can.

[00:22:06] Speaker 01:
And by 2008, they had a solution for you.

[00:22:10] Speaker 01:
Why isn't that the type of thing that would ordinarily fall within an agency's discretion?

[00:22:18] Speaker 06:
Because the statute says that you can't use wage data from something outside of the geographic area to calculate

[00:22:27] Speaker 01:
But the wage data that they relied on was in the geographical area at the time they provided it to the secretary.

[00:22:35] Speaker 06:
That's what I have trouble with.

[00:22:36] Speaker 06:
But that's not relevant.

[00:22:37] Speaker 06:
The secretary herself redefined the geographic area.

[00:22:41] Speaker 01:
I know, but you said it's probably consistent with the statute.

[00:22:44] Speaker 06:
As I suggested, if the small sliver of the South Coast system that was in the Boston Quincy area had simply been in Bristol County with those other two, there is no question here

[00:22:58] Speaker 06:
that that wage data would have been used to calculate the Providence and New Bedford wage index and not the Boston Quincy wage index, even though it was collected when they were all in the same wage index area.

[00:23:15] Speaker 01:
Am I right that they merged in the mid-90s?

[00:23:18] Speaker 01:
And so between, I guess, about seven or eight years, these three hospitals were all part of your geographic area and were under the MSA system and were influenced.

[00:23:30] Speaker 01:
And so, I mean, nothing

[00:23:33] Speaker 01:
change geographically on the ground and the real world that was really just different circles being drawn.

[00:23:37] Speaker 06:
Nothing ever changes geographically on the ground.

[00:23:40] Speaker 06:
Lines get drawn by people.

[00:23:42] Speaker 01:
But they were driving your wage determinations for seven or eight years?

[00:23:47] Speaker 06:
What did change, at least according to the Census Bureau, was commuting patterns, which meant that the cluster of wage costs

[00:23:56] Speaker 06:
For those facilities, we're now more associated, similar to, if you will, with the wage costs of New Providence and New Bedford rather than Boston Quincy.

[00:24:08] Speaker 06:
And in fact, if you look at the numbers, Your Honor, of the wage costs, you can see that.

[00:24:15] Speaker 06:
If you look at the different wage index calculations,

[00:24:17] Speaker 06:
for the hospitals, you can see that the average hourly wage in 2007, for example, for Boston Quincy, was $34.89.

[00:24:27] Speaker 06:
For the Providence New Bedford and CVSA, it was $31.86.

[00:24:38] Speaker 01:
It just strikes me that this is

[00:24:44] Speaker 01:
Not sort of scientifically geographic, right?

[00:24:47] Speaker 01:
One of your clients is the Memorial Hospital of Rhode Island, which I would think would be closer to those wage rates than the Boston rates, but it's in your group, and so... And that was due to reclassification, but for which they qualified for.

[00:25:00] Speaker 06:
But the point here is, is that the wage costs of the South Coast system are more similar to the wage costs of Providence and New Bedford, and not the Boston Quincy area.

[00:25:18] Speaker 06:
And because New Bedford, Providence and New Bedford has less expensive wages, that's why it deflated the Boston Quincy wage.

[00:25:26] Speaker 04:
Why don't we hear from the government?

[00:25:28] Speaker 04:
Thank you.

[00:25:28] Speaker 04:
We'll give you time on rebuttal.

[00:25:29] Speaker 06:
Thank you, Your Honor.

[00:25:39] Speaker 00:
May it please the Court?

[00:25:40] Speaker 00:
The statute at issue here gives the Secretary broad discretion to establish a factor for adjusting wages and wage-related costs by geographic area.

[00:25:50] Speaker 00:
And just to give the Court some context about what was going on when this issue arose, the agency was in the midst of implementing a major transition from the old MSA definitions to the new CBSA definitions.

[00:26:03] Speaker 00:
And in context,

[00:26:05] Speaker 00:
the agency's incremental response as it gathered more information through implementing the new CBSAs was perfectly reasonable.

[00:26:13] Speaker 00:
And just to pick up on the question.

[00:26:15] Speaker 00:
Why?

[00:26:15] Speaker 04:
I mean, I'm not buying that.

[00:26:18] Speaker 04:
You draw a circle in a geographic area, you know that's the circle, and you say we're going to count hospitals outside the circle.

[00:26:26] Speaker 04:
That just strikes me as a simple case of the government not doing what the statute requires.

[00:26:32] Speaker 00:
Well, I think, I mean, under a... Why am I wrong?

[00:26:34] Speaker 04:
I mean, we're making this case complicated.

[00:26:36] Speaker 04:
It seems to me, when I got the statute, draw a little circle.

[00:26:40] Speaker 04:
Pretty elementary.

[00:26:41] Speaker 04:
You could do this in kindergarten.

[00:26:42] Speaker 04:
Draw a circle.

[00:26:43] Speaker 04:
Who's in the circle?

[00:26:43] Speaker 04:
Who's outside the circle?

[00:26:46] Speaker 04:
The hospitals that the government was counting are outside the circle.

[00:26:49] Speaker 00:
Well, Your Honor, the Southwest Hospital Group is one hospital for Medicare purposes.

[00:26:55] Speaker 00:
Right.

[00:26:55] Speaker 04:
They submit one cost report, but now the Secretary then figured out, okay, that's a problem, or we're going to change how we do that.

[00:27:04] Speaker 04:
We're going to prorate it so that if we do the best we can, to your point about the word reflect, which you argued in the brief, I think they're doing the best they can, but they're not just saying,

[00:27:14] Speaker 04:
now, as they did for 06 and 07, forget it, we're gonna count the Providence Hospital as if it were in Boston.

[00:27:23] Speaker 00:
Well, Your Honor, first, just to give you an idea of the scope of the problem.

[00:27:27] Speaker 04:
What does it mean to be a campus, too?

[00:27:29] Speaker 00:
That's exactly where I was going.

[00:27:31] Speaker 04:
It sounds like a kind of modern term to describe common corporate ownership.

[00:27:37] Speaker 00:
So 42 CFR 413.65.

[00:27:42] Speaker 00:
defines a remote location of a hospital.

[00:27:45] Speaker 00:
And there are a number of requirements that a remote location has to satisfy in order to use the main location's provider number.

[00:27:52] Speaker 00:
And those include being financially integrated, being clinically integrated, being under the same ownership and management as the main provider, and being in close proximity to the main provider.

[00:28:04] Speaker 00:
They have to be in the same state or adjacent state.

[00:28:06] Speaker 04:
It just seems like that could screw up the whole wage index, because you counting

[00:28:11] Speaker 04:
a remote location of this hospital that might be in a really different wage area, and then it screws up the wage index for all the hospitals in some metropolitan area, that just strikes me as unreasonable or drink aprecious, whatever you want to call it, in terms of government work, which is no doubt why the government changed.

[00:28:32] Speaker 00:
Well, Your Honor, the agency has always treated multi-campus hospitals as one provider.

[00:28:38] Speaker 00:
They've always submitted a single cost report, and I think the regulations... So why did the government change?

[00:28:44] Speaker 04:
Well, they still submit one cost report.

[00:28:45] Speaker 04:
Why did the government change how... I know, that's a good point.

[00:28:48] Speaker 04:
So why did the government change how it applies to the statute, then, if they're still submitting one cost report?

[00:28:55] Speaker 00:
Sure.

[00:28:55] Speaker 00:
Well, in the fiscal year 2008 rule, the agency explained that it had received several inquiries about this particular issue.

[00:29:02] Speaker 00:
And so it considered three different alternatives as a way to approximately allocate the wage data across campuses.

[00:29:10] Speaker 00:
Because still, the same reasoning it had given in the previous rules was still true, that there was no campus-specific wage data.

[00:29:18] Speaker 00:
at that time.

[00:29:19] Speaker 00:
And so it could not perfectly allocate the wage data across campuses.

[00:29:23] Speaker 00:
So instead, it considered three alternatives to approximately allocate that data.

[00:29:28] Speaker 00:
It considered beds, it considered Medicare discharge data, and the agency proposed to use the number of full-time equivalent staff at each location as sort of the best way to approximate what the staffing needs were across the campuses.

[00:29:41] Speaker 00:
And so in the proposed rule, the agency explained that

[00:29:45] Speaker 00:
It didn't have in the Medicare database the information about the number of beds or Medicare discharge data, and neither of those was a good way of estimating the staffing needs, particularly with beds, because just the number of beds a hospital has doesn't necessarily indicate

[00:30:04] Speaker 00:
you know, how full those beds are and what the staffing needs would be.

[00:30:07] Speaker 00:
And so in the final rule, the agency adopted the full-time equivalent staff measure, but then also temporarily allowed hospitals to use Medicare discharge data, but only until the cost report could be changed to collect campus-specific full-time equivalent staff data.

[00:30:25] Speaker 01:
And that was done... Is it in your position that the statute required you to make that

[00:30:29] Speaker 01:
recalculation, that alternative calculation in 2008 or that you could have kept going as you did in 2006 and 2007, but you just, as part of your discretion, chose, your discretion would have let you take either course, keep going, counting them as one hospital.

[00:30:46] Speaker 00:
Your Honor, we believe that the plain text of the statute gives the Secretary the discretion to choose what method to use, but of course the agency is always

[00:30:54] Speaker 00:
trying to make the wage index and all these calculations, which are incredibly complex, you know, more precise and more accurate.

[00:31:01] Speaker 00:
And so the agency is constantly balancing accuracy with administrability.

[00:31:06] Speaker 00:
And, you know, when this seemed to be, you know, a larger problem and the agency had received several inquiries about it, the agency sensibly continued to refine its approach and considered these alternatives

[00:31:17] Speaker 00:
and adopted what was still an imperfect but reasonable solution.

[00:31:21] Speaker 05:
I think it's hard for me to wrap my head around all of this, but I thought that I understood from reading the record and the materials

[00:31:36] Speaker 05:
that part of the issue is that wages are only one small part of costs.

[00:31:45] Speaker 05:
So this cost data, it's lots of things.

[00:31:49] Speaker 05:
It's equipment and trying to break that cost data apart.

[00:31:56] Speaker 05:
is very difficult when you've got a hospital and labs you know lab work for one hospital might be done in another hospital and all that kind of thing and so it's it's not it's I mean the appellate tries to make it simple by just focusing on well you know you've got two hospitals in one place and one in another place

[00:32:23] Speaker 05:
This is all very simple, but costs are not that easily divisible, and that's why, that's part of the reason why each institution is treated as kind of, you know, it's treated as one institution for cost purposes, isn't it?

[00:32:39] Speaker 00:
That's absolutely correct, Judge Wilkins.

[00:32:42] Speaker 00:
These institutions, a multi-campus hospital or a remote location of a main provider, it's all one financially integrated institution.

[00:32:50] Speaker 04:
But it's not impossible or you wouldn't be doing it differently now.

[00:32:53] Speaker 00:
Well, I'm not trying to suggest that it's impossible.

[00:32:57] Speaker 04:
What I'm explaining is... So as long as it's not impossible, it's doable.

[00:33:01] Speaker 04:
Well, it's doable to get at least a better approximation of Boston versus Providence, because you're doing it now.

[00:33:11] Speaker 04:
We know it's doable, even though the cost data is still submitted the same way it was back in the day.

[00:33:16] Speaker 00:
Yes, it's possible to do an approximation.

[00:33:19] Speaker 00:
But my point is simply that the agency is still not requiring

[00:33:24] Speaker 00:
these integrated institutions to submit their cost data by campus.

[00:33:28] Speaker 04:
I know.

[00:33:29] Speaker 04:
But you're not then just saying, well, we're going to count them all in Boston.

[00:33:38] Speaker 04:
for the wage index.

[00:33:39] Speaker 00:
That's correct.

[00:33:40] Speaker 00:
Now they're allocating it based on, I mean, today it's based solely on the full-time equivalent staff at each hospital.

[00:33:46] Speaker 00:
But even when the agency proposed that solution, it got pushed back.

[00:33:50] Speaker 04:
The point I'm trying to make is, I think there is a flavor in your briefs, which I understand while you're making this argument, but a flavor of, gee, this is really hard.

[00:33:59] Speaker 04:
to disaggregate the data because it was a unified unitary cost report for the different hospitals' facilities on the campus.

[00:34:08] Speaker 04:
And my point in response to that, or my reaction when I read that was, well, they're still getting the same kind of data, yet now they are able to at least make a better approximation of what should count in Boston and what should count in Providence, which shows

[00:34:22] Speaker 04:
that it's not impossible to do what the plaintiffs are asking for.

[00:34:27] Speaker 00:
That's true.

[00:34:27] Speaker 00:
And we think that it's reasonable for the secretary to have taken two years to figure this out.

[00:34:33] Speaker 00:
The fiscal year 2006 rule was the first time that the agency was aware that a multi-campus hospital was located in more than one CBSA.

[00:34:42] Speaker 00:
And so, you know, the agency sensibly dealt with

[00:34:44] Speaker 04:
The negative- It's two years where, and there's real money involved.

[00:34:47] Speaker 04:
I mean, so this is not just some game.

[00:34:49] Speaker 04:
There's $30 million for the hospitals in Boston that they're out and therefore not providing, you know, I assume if you played this out, they're not providing the kind of care they otherwise could because they're $30 million out.

[00:35:02] Speaker 04:
And so it's not just a balance sheet issue.

[00:35:07] Speaker 04:
There's real people at the end of the day who are affected by the $30 million they were supposed to get that they didn't get because these Providence hospitals in a totally different wage index situation were not properly counted.

[00:35:18] Speaker 00:
Well, just to put it in context, I mean, the adoption of the MSAs, sorry, the adoption of the core-based statistical areas in fiscal year 2005 was a major change that impacted not just the wage index calculation, but a number of calculations that the agency is making for Medicare reimbursements.

[00:35:38] Speaker 00:
And it significantly affected individual hospitals, their wage indexes, just within the wage index.

[00:35:47] Speaker 00:
And so in the 2006 rule, the agency first dealt with the negative impacts of that.

[00:35:52] Speaker 00:
And that's why it allowed this temporary reclassification for a campus, of a multi-campus hospital, sort of back to the area that it had previously been in.

[00:36:01] Speaker 00:
And that's what happened with South Pacific.

[00:36:04] Speaker 05:
Why is that your friend on the other side says that that's irrelevant?

[00:36:10] Speaker 05:
Why is that relevant?

[00:36:12] Speaker 00:
Well, so what happened in the 2006 rule with respect to reclassification is that previously the agency hadn't explained what would happen if a particular campus wanted reclassification, and campuses don't have campus-specific wage data because the hospital submits only one cost report.

[00:36:29] Speaker 00:
And so what the agency did in the fiscal year 2006 rule was it temporarily allowed a campus of a multi-campus hospital to use the wage data from the entire hospital system

[00:36:40] Speaker 00:
to get reclassified into the area that other of the campuses were.

[00:36:44] Speaker 00:
So, for example, here had the two Bristol County, the St.

[00:36:48] Speaker 00:
Luke's and Charlton, could have sought reclassification back into Boston Quincy based on the full data for the whole hospital system.

[00:36:56] Speaker 00:
And so that was a temporary fix that the agency

[00:37:01] Speaker 00:
the agency did in order to mitigate the negative impact that happened when hospitals like South Coast Hospital Group had previously been in one geographic area but because of the new definitions were split between two geographic areas and so some of the campuses were being paid at a lower rate.

[00:37:20] Speaker 04:
Can I just try to understand, are you arguing that the

[00:37:23] Speaker 04:
The problem here or the issue here is that the Secretary had time to get itself in line with the statute, and so it's appropriate for us to allow a couple years.

[00:37:35] Speaker 04:
Or is your argument actually that what the Secretary did would still be permissible today?

[00:37:41] Speaker 00:
Well, we think that as a matter of the statute... Because I hear both arguments coming out, and I'm just curious what you're going... Just to explain, we think that the statute leaves the secretary of discretion to do what it did in 2006 and 2007.

[00:37:54] Speaker 00:
So it can still do it today.

[00:37:55] Speaker 00:
It could still do that today.

[00:37:57] Speaker 00:
Okay.

[00:37:57] Speaker 00:
But in terms of the reasonableness of what the agency was doing, we think that the fact that it was in this period of transition and the agency was sensibly

[00:38:05] Speaker 00:
you know, acting in an incremental fashion and addressing problems as they come up, that that adds to the reasonableness of what the agency was doing here.

[00:38:13] Speaker 00:
And it was addressing the negative impacts of the new definitions first, and it did that in the fiscal year 2005 rule, where it had transition relief so that hospitals, for example, that had been urban hospitals but were now rural hospitals, could keep using their prior

[00:38:28] Speaker 00:
wage index, and so, you know, sort of the secretary's prioritizing of dealing with these negative impacts before reaching, you know, this isolated issue.

[00:38:36] Speaker 00:
But this is a money case.

[00:38:37] Speaker 04:
So if we were talking about injunctive relief of some kind, I get that, and it takes, I'm well aware, it takes agencies time to kind of move the ship in a different direction when something changes.

[00:38:47] Speaker 04:
But we're talking here about a recalculation of money owed, so it doesn't really

[00:38:53] Speaker 04:
The temporary fix thing doesn't really work in the same way because once you figure out, oh, we were counting hospitals outside the geographic area and therefore we owe them more money.

[00:39:06] Speaker 00:
Well, Your Honor, in Methodist Hospital, which this court affirmed, there was an error in the wage index calculation.

[00:39:12] Speaker 00:
And this court said that it was within the bounds of the statute and it was reasonable for the agency, based on

[00:39:17] Speaker 00:
you know, finality reasons and administrability reasons to only make the change prospectively.

[00:39:22] Speaker 00:
And we think that under this Court's decision in Methodist Hospital, which recognizes that the statute does not instruct the Secretary how to calculate the wage index and the statute allows for reasonable approximations, that what the agency did here fits comfortably within that.

[00:39:37] Speaker 04:
So if I wanted to say

[00:39:41] Speaker 04:
that I disagree that the Secretary could do this now.

[00:39:45] Speaker 04:
So if that's my position, you would still come back.

[00:39:48] Speaker 04:
I'm hearing and say, well, even if you think the Secretary couldn't do this now, you should at least allow the two years as some kind of temporary transition period to get itself together.

[00:40:00] Speaker 00:
Yes, Your Honor.

[00:40:00] Speaker 00:
Because what the plaintiffs are asking for here is for this Court to require the Secretary to immediately address a very isolated problem that did not have an obvious solution.

[00:40:10] Speaker 00:
And there's simply nothing in the statute that required the Secretary to fix this immediately.

[00:40:18] Speaker 04:
Even though there wasn't an obvious solution, isn't there an obvious non-solution, which is to count Providence facilities as if they're in Boston?

[00:40:26] Speaker 04:
I mean, that's just somewhat of a rhetorical question, I suppose.

[00:40:29] Speaker 04:
But it just seems to me that's still, OK, we have four solutions.

[00:40:33] Speaker 04:
How are we going to do this?

[00:40:34] Speaker 04:
Here's a good one.

[00:40:34] Speaker 04:
Let's count the Providence facilities as if they're in Boston.

[00:40:37] Speaker 04:
That just strikes me as outside the realm of the, you know, you have five options.

[00:40:41] Speaker 04:
OK, let's throw that one out, because that's not reasonable.

[00:40:43] Speaker 04:
And that's the one that we have for 06 and 07.

[00:40:46] Speaker 00:
But from the agency's perspective, the cost reports that were submitted are for one hospital.

[00:40:51] Speaker 00:
And so South Coast Hospital Group, in the agency's view, is one hospital, and it's located in the Boston Quincy area.

[00:40:58] Speaker 05:
Who decided that when they merged, that the one hospital would be considered the one that was chosen?

[00:41:07] Speaker 05:
Who picked that?

[00:41:08] Speaker 00:
My understanding is that it's up to the hospitals when they merge.

[00:41:11] Speaker 00:
The surviving corporate entity decides that, is my understanding.

[00:41:15] Speaker 03:
in 1996.

[00:41:18] Speaker 00:
And so they had been, you know, operating as a single hospital in the Boston area that was included with these other hospitals in the wage index for all of those years.

[00:41:27] Speaker 04:
So really... Is there a limit on the remote location, mileage limit?

[00:41:32] Speaker 00:
So there are a number of – there's sort of two requirements with respect to location.

[00:41:36] Speaker 00:
One is that they all have to be – for everyone has to be within the same state or adjacent states.

[00:41:42] Speaker 00:
And then there's a second location requirement that can be satisfied in a number of different ways, one of which is to be within 35 miles of each other.

[00:41:49] Speaker 00:
I think the other ones have to do with other sort of indications of integration.

[00:41:55] Speaker 00:
So here, according to Google Maps, at least the hospitals are all within 30 miles of each other.

[00:42:00] Speaker 00:
And really, just to drive home.

[00:42:01] Speaker 04:
They don't have to be, I might have missed that, but as long as they're in the same state, so they're both in Texas.

[00:42:07] Speaker 00:
So they have to be in the same state or different, sorry, the same or adjacent states.

[00:42:12] Speaker 00:
And then they also have to satisfy another proximity requirement.

[00:42:16] Speaker 00:
And there are a number of different ways to satisfy the other requirement, one of which is to be within 35 miles of each other.

[00:42:22] Speaker 04:
That's sufficient, not necessary.

[00:42:27] Speaker 00:
Yes, exactly.

[00:42:29] Speaker 04:
I think some of the other ones have to do with their other indications of integration to show that the hospitals... My point being you could have an urban area in Texas and not far away, a very rural area that has a very different wage index, not just somewhere here.

[00:42:47] Speaker 04:
Maybe we don't have that.

[00:42:48] Speaker 04:
It just sounds like this is almost a one-off case or close to a one-off case.

[00:42:52] Speaker 04:
But still, I'm trying to parse out the reasonableness, I guess, of this campus issue that Judge Wilkins raised.

[00:43:00] Speaker 00:
Hypothetically, that's possible.

[00:43:02] Speaker 00:
But again, they would have to satisfy all the requirements of financial integration, clinical integration,

[00:43:07] Speaker 00:
being under the same, you know, ownership and control.

[00:43:10] Speaker 00:
And also, just to put this in perspective, as of the fiscal year 2008 rule, there were only three hospitals, three multi-campus hospitals that were in two different areas.

[00:43:20] Speaker 00:
And even today, there are only six.

[00:43:23] Speaker 04:
Which way does that cut?

[00:43:25] Speaker 00:
I think it cuts in our favor.

[00:43:26] Speaker 00:
I thought you'd say that.

[00:43:29] Speaker 04:
I mean, another way to look at it is it's a pretty easily fixed problem without busting the budget.

[00:43:33] Speaker 00:
Well, it's not.

[00:43:34] Speaker 00:
I mean, it's not easily fixed, because the most obvious solution would have been to just separate the wage data.

[00:43:39] Speaker 00:
And that was not possible, because the wage data had already been submitted in fiscal years 2002 and 2003.

[00:43:44] Speaker 00:
I think it just underscores that this is an isolated problem, that the agency, there was no need for the agency to immediately jump on this problem out of all of the problems that the agency was facing.

[00:43:56] Speaker 01:
I'm sorry.

[00:43:58] Speaker 01:
I guess my assumption, and maybe I was, you can tell me if I'm right or wrong, is when you start dealing with these statutes that it's a little false to look like this, you could just look at this one number and it will just implicate the wage index.

[00:44:12] Speaker 01:
Does the same reporting system and the information you're getting on this single report from South Coast covering the three facilities affect other things?

[00:44:22] Speaker 01:
I thought somehow these numbers affected

[00:44:25] Speaker 01:
dish payments, GRE allocation, and so is that part of why you couldn't just sort of go in 2006, oops, break it up because it would have implications for other programs?

[00:44:36] Speaker 00:
It would have implications for other programs.

[00:44:38] Speaker 00:
The agency in the fiscal year 2006 rule talks about how even submitting a supplemental worksheet would have caused problems with respect to other calculations.

[00:44:49] Speaker 00:
And I think more importantly, the secretary explained that treating a multi-campus hospital as one institution is consistent with how the agency treats hospitals for purposes like graduate medical education payments, disproportionate share payments, and other payments that are really made at the provider level.

[00:45:07] Speaker 00:
And so we think that, you know, that further underscores the reasonableness of just continuing to treat multi-campus hospitals as a single institution.

[00:45:15] Speaker 01:
So when this flared on the scene in 2006, you had to not only try to see if there's some way to get the data, since we don't have the data, but also, well, if we do it for this, do we also have to do it

[00:45:27] Speaker 01:
for DISH and GRE and these other things, or would there be any kind of a way to do it just for this and not do it for this thing over here?

[00:45:34] Speaker 01:
I guess my sense is the statute is a spider web of interconnected events.

[00:45:37] Speaker 04:
I didn't see you arguing that in the brief.

[00:45:39] Speaker 00:
I believe that we do quote in our brief the fact that the agency noted that this was consistent with how the agency was treating multi-campus hospitals for other purposes.

[00:45:49] Speaker 04:
Right, so getting separate reports would be a problem, but the solution that you ultimately devised was not, going back in the circle again, but was not impossible to do in those six rows.

[00:46:00] Speaker 00:
That's true.

[00:46:01] Speaker 00:
It could have been done, but again, you know, the agency... Without implications for other programs.

[00:46:08] Speaker 00:
Yes, the agency could have allocated the wage data solely for purposes of calculation of the wage index.

[00:46:13] Speaker 04:
Which is what it does now, right?

[00:46:15] Speaker 00:
Yes, based on full-time equivalent staff data.

[00:46:18] Speaker 00:
And even when the agency proposed that, it did get pushback from hospitals about how difficult it is for an integrated institution to even figure out how to separate its staff among its campuses, because many people work at multiple campuses.

[00:46:33] Speaker 00:
And so again, I think that what ultimately happened in the 2008 rule emphasizes the fact that this was a very complicated problem.

[00:46:41] Speaker 00:
It didn't have an obvious solution.

[00:46:44] Speaker 00:
the agency had discretion to continue to refine its solution as it got more experience with these new geographic areas.

[00:46:52] Speaker 05:
Is there anything in the record that shows during these two fiscal years in question kind of whether the three South Coast hospitals actually paid

[00:47:10] Speaker 05:
the workers disperse them out.

[00:47:13] Speaker 05:
So in other words, the one hospital that's in the Quincy, Boston area, what were the wages there compared to the wages of the other two?

[00:47:23] Speaker 05:
Was that data in the record?

[00:47:26] Speaker 00:
No, that data is not in the record.

[00:47:28] Speaker 00:
I don't know whether the hospital would even collect it, since it has one accounting structure for all three campuses.

[00:47:37] Speaker 00:
And even under the ultimate kind of alternative that the agency adopted, it's not perfectly allocating wage data among campuses.

[00:47:45] Speaker 00:
Instead, what it's doing is it's applying a percentage to the salaries and then adding them to a particular geographic area.

[00:47:56] Speaker 00:
It's it's just it's still not you know doing what I understand.

[00:48:00] Speaker 05:
I guess my question is how do we For all we know I guess this one trying to figure out for all we know the south the three South Coast hospitals pay all their nurses and doctors the same at the three campuses

[00:48:17] Speaker 00:
That could be correct.

[00:48:24] Speaker 00:
We don't know, but in the fiscal year 2006 rule, when the secretary was further explaining why it's appropriate to allow one campus of a multi-campus hospital to use the full

[00:48:36] Speaker 00:
hospitals wage data to seek reclassification, the secretary explained that it would be reasonable to assume that the wages would be similar across campuses when you're talking about campuses that are in very close proximity and meet all of the other criteria for a multi-campus hospital.

[00:48:55] Speaker 05:
Why did the secretary pick

[00:48:59] Speaker 05:
pro-rating it based on BEDS instead of pro-rating it by FTEs or some other way of doing it?

[00:49:10] Speaker 00:
Just to clarify, the Secretary rejected pro-rating it based on BEDS.

[00:49:14] Speaker 00:
The Secretary adopted it as a long-term solution

[00:49:17] Speaker 00:
allocating based on full-time equivalent data.

[00:49:20] Speaker 00:
It also allowed, as a temporary solution, to allocate based on Medicare discharge data, just until the cost report could be revised so that hospitals would report full-time equivalent staff data on a campus-by-campus basis.

[00:49:35] Speaker 00:
And the reason that the Secretary gave in the 2008 rule was that the number of beds is just not a good measurement of the staffing needs of the different campuses.

[00:49:44] Speaker 00:
because without knowing how full the beds are, it just doesn't tell you much about the actual staffing requirements.

[00:49:51] Speaker 00:
And the agency explained that Medicare discharge data would be a better approximation of staffing needs, but it would still fluctuate from year to year.

[00:50:00] Speaker 00:
you know, based on what the Medicare discharges happen to be.

[00:50:03] Speaker 00:
And so it also is not a great measurement.

[00:50:06] Speaker 00:
And then the full-time equivalent staff data is what the agency thought was the best approximation of the staffing needs of the various campuses.

[00:50:14] Speaker 00:
And so it now collects full-time equivalent staff data on a campus-by-campus basis in the class report.

[00:50:19] Speaker 05:
So the secretary didn't even pick what she thought was the best, especially since we're talking about Medicare reimbursement.

[00:50:28] Speaker 05:
which is the Medicare discharge kind of prorating it based on that, because of the administrative difficulties.

[00:50:35] Speaker 00:
So she – as a long-term solution, the Secretary chose full-time equivalent staff data and – to allocate these.

[00:50:43] Speaker 00:
And that is what the Secretary initially proposed as the best solution.

[00:50:47] Speaker 00:
But the Secretary also allowed

[00:50:50] Speaker 00:
Medicare discharge data to be used on a temporary basis, but in the fiscal year 2008 rule, you know, the secretary explained that it had received, that the agency had received comments that all of these methods would present difficulties for, you know, present an administrative burden for the hospitals and, you know, the fiscal intermediaries auditing this information.

[00:51:10] Speaker 05:
If we rule for the appellants, what if any administrative difficulties would it present for the secretary?

[00:51:17] Speaker 00:
Well, if this court were to find a legal error, the appropriate remedy would be to vacate and send it back to the agency in order for the agency to determine the best solution.

[00:51:27] Speaker 00:
And one of the things the agency could do would be to try to get the data from South Coast Hospital Group under the current rule and try to figure out what the full-time equivalent staff data had been back in

[00:51:42] Speaker 00:
fiscal year 2002 and fiscal year 2003, but it would be up to the agency on remand to determine the appropriate course.

[00:51:50] Speaker 04:
Do you dispute or have a reason to dispute the number that's being thrown around of $30 million at issue?

[00:51:59] Speaker 00:
I do not.

[00:52:02] Speaker 00:
There's some confusion about whether it's based on the number of beds or the Medicare discharge data.

[00:52:07] Speaker 00:
I've seen different things in different filings, so I'm not sure, you know, because the agency ultimately rejected beds as a method of allocating.

[00:52:19] Speaker 04:
Okay.

[00:52:19] Speaker 04:
Thank you very much.

[00:52:19] Speaker 04:
Sure.

[00:52:28] Speaker 06:
Judge Kavanaugh, I think you were correct.

[00:52:31] Speaker 06:
It really is pretty simple.

[00:52:32] Speaker 06:
And while the Medicare texts are sometimes described as amongst the most impenetrable made by man, in this case,

[00:52:44] Speaker 06:
We drew a circle.

[00:52:45] Speaker 06:
The secretary drew a circle.

[00:52:46] Speaker 06:
The secretary could draw the circle.

[00:52:48] Speaker 01:
I think what the secretary just said is they drew the circle and the torso was in, but maybe a couple limbs were hanging out.

[00:52:54] Speaker 06:
Oh, oh, oh no, Your Honor.

[00:52:56] Speaker 06:
I would suggest that it was the torso.

[00:52:59] Speaker 06:
Well, I know that's what you suggest.

[00:53:00] Speaker 01:
That was out.

[00:53:01] Speaker 06:
A couple of toes were in.

[00:53:02] Speaker 06:
And a hang heel from a toe was in.

[00:53:04] Speaker 06:
The head was in.

[00:53:05] Speaker 06:
The torso was in.

[00:53:06] Speaker 01:
The head was in.

[00:53:06] Speaker 01:
Well, whatever.

[00:53:07] Speaker 01:
But how much was in and how much was out, you don't challenge, I haven't understood you to challenge the regulatory process that allowed South Coast to use Toby as the provider number here and fall within this circle, to have any body part fall within this circle.

[00:53:22] Speaker 06:
The metaphor I was actually going to proceed with was, as kids, we sometimes drew circles and we put marbles.

[00:53:29] Speaker 06:
out on the ground and on the floor.

[00:53:30] Speaker 06:
And for the sake of my discussion, let's make it 10 marbles.

[00:53:35] Speaker 06:
And we look at the marbles, and nine of them are outside of the circle, and one of them is inside of the circle.

[00:53:42] Speaker 06:
And the Secretary's approach

[00:53:45] Speaker 06:
was to say, and supposedly this is the most obvious approach, the secretary's approach was to say all ten marbles are inside the circle when in fact nine of them are outside and one of them is in.

[00:53:57] Speaker 01:
I don't want to spend all morning on metaphors, but I think you're just taking, you seem to be at war with the secretary's position that this in fact is the one hospital.

[00:54:07] Speaker 01:
Because it had one provider number and it has this system where it looks at geography, it looks at the state, it looks at where you are.

[00:54:12] Speaker 06:
If we want to treat it as one hospital,

[00:54:15] Speaker 01:
Right, so part of it's in, part of it's out.

[00:54:17] Speaker 01:
We can find out how much.

[00:54:17] Speaker 06:
Then what is the most obvious solution to 90% of that hospital not being in the Boston Quincy MSA?

[00:54:27] Speaker 06:
Is the most obvious solution and the most reasonable allocation, even though just a bit of it is in the Boston Quincy MSA, to say if all of it gets treated as in the Boston Quincy MSA, or is the more reasonable

[00:54:45] Speaker 06:
approach to say, okay, if we absolutely must treat it as one unit.

[00:54:50] Speaker 06:
is it is it much more reasonable to say that that one unit will be where ninety percent of that unit actually or do you say ninety percent based on what based on f t e's based on beds based on revenue based on what?

[00:55:05] Speaker 06:
I would suggest that it's roughly about ninety percent your honor for all of those when it's ninety percent based on beds and in two thousand eight when CMS used

[00:55:19] Speaker 06:
discharges as the measure, it was 90% based on discharges.

[00:55:25] Speaker 06:
And they could have used discharges in 2006 and 2007 just as easily, that's easily measured, but they didn't.

[00:55:34] Speaker 06:
But once again, if you can't, if it's got to be treated as one unit, then for Pete's sake, at least treat it as one unit where most of it is, where almost all of it is.

[00:55:46] Speaker 05:
What about the fact that they allow reclassification so that the secretary made the decision to allow reclassification so that if you were part of a group and you were in kind of the lower wage group but you had been in the higher wage group, you know, to mitigate against that, you could move back in.

[00:56:08] Speaker 05:
So that was arbitrary and capricious.

[00:56:11] Speaker 06:
As explained by the secretary's counsel,

[00:56:15] Speaker 06:
that reclassification would have allowed the St.

[00:56:20] Speaker 06:
Luke's, the hospital or the campuses that were outside of the Boston Quincy wage index area to be paid as if they were in the Boston Quincy wage index area.

[00:56:32] Speaker 06:
That would not have assisted at all in the determination of the Boston Quincy wage index.

[00:56:38] Speaker 06:
Now, as it turned out, those hospitals did not request

[00:56:42] Speaker 06:
that kind of reclassification.

[00:56:44] Speaker 06:
And consequently, even though their wage data was used to calculate the Boston Quincy wage index, they were paid as if they were in the less expensive area of Providence New Bedford.

[00:56:58] Speaker 01:
I'm sorry.

[00:56:58] Speaker 01:
One thing I was curious about your briefing is I think you or she said there were a couple other of these multi-campus

[00:57:09] Speaker 01:
hospitals, whatever you want to call it, multi-campus entities that have the same problem.

[00:57:15] Speaker 01:
Do you know, or is there anything in the record that shows whether as to those other ones, because we can't have a rule just for you.

[00:57:20] Speaker 01:
I know that's the one thing Medicare can't do.

[00:57:23] Speaker 01:
Do we know if those other ones had the same, what you assert as a 90-10% or maybe for some of those other ones it was brain and torso that was in and legs that were out or toes that were in or out?

[00:57:33] Speaker 01:
Do we know anything?

[00:57:34] Speaker 06:
I think that the Boston Quincy example, the single case of Boston Quincy,

[00:57:41] Speaker 06:
produced the most dramatic difference in that regard by fault.

[00:57:47] Speaker 06:
And it was a dramatic difference that was amplified.

[00:57:51] Speaker 06:
because the difference in wage costs, the much lower wage costs for those 90% of the South Coast hospitals was so profoundly different and lower than the wage costs typical of Boston area hospitals.

[00:58:08] Speaker 06:
And so that produced the perfect storm for this case, where there would be enough money involved, I think, for the hospitals to appeal it and challenge it.

[00:58:23] Speaker 06:
The obvious solution in this case is they could have done in 2006 and 2007 what they did in 2008 and just used discharges of proxy.

[00:58:33] Speaker 06:
If that had happened, we wouldn't be here today.

[00:58:36] Speaker 06:
Another obvious solution would have been to simply treat the hospital, the South Coast system, as all being in the Providence and Bedford CBSA, because 90% of it was.

[00:58:51] Speaker 04:
The worst possible solution... Just out of curiosity, and this will prolong this, but that's okay.

[00:58:59] Speaker 04:
What if it were 60-40?

[00:59:03] Speaker 04:
In other words, or 5149, is there a point at which the Secretary has discretion under your theory of this?

[00:59:10] Speaker 04:
Because I know why you're arguing this way, and I'd probably do the same.

[00:59:14] Speaker 04:
But is there a point at which your theory on the number suggests that there are enough marbles in the circle that the Secretary could count it either way?

[00:59:24] Speaker 06:
You know, if it was 60-40, then the better solution would have still been to include where the 60 is versus the 40.

[00:59:33] Speaker 06:
If it had been 51-49, that still would have been the better solution, Your Honor, than doing what they did.

[00:59:39] Speaker 06:
In this case, given the particularly egregious imbalance in it, it's simply unjustifiable to say all of that goes into the geographic area

[00:59:53] Speaker 06:
of, you know, 10 percent of the hospital.

[00:59:57] Speaker 01:
That's... Is it arbitrary and capricious under precedent, if we look at all the multi-campus hospitals that had this issue, that the Secretary could have done better?

[01:00:09] Speaker 01:
Is there any case that holds that?

[01:00:11] Speaker 06:
I'm not aware of a case that would say... Probably not.

[01:00:15] Speaker 06:
Because it's been discussed, this is kind of a one-off case.

[01:00:18] Speaker 06:
It's a unique set of circumstances.

[01:00:21] Speaker 01:
You're a one-off scenario in a sort of one-off problem.

[01:00:25] Speaker 06:
I think this is a set of unusual circumstances, but what the Secretary did not comply with the statute that requires that you use the wage data

[01:00:35] Speaker 06:
for the hospitals in the wage area, the circle drawn by the secretary.

[01:00:40] Speaker 05:
It all seems to come back then to whether it was arbitrary and capricious for the secretary to define hospital the way that she did.

[01:00:54] Speaker 06:
No, certainly that's one approach.

[01:00:57] Speaker 06:
And if that definition is arbitrary and capricious, then the secretary has a real problem in this case.

[01:01:03] Speaker 06:
But even accepting the secretary's definition of it being one hospital, having done that and accepted that it must be treated as one hospital and that all of the wage data has to be counted in one geographic area, even accepting all of that, then you ask yourself the question,

[01:01:22] Speaker 06:
of what is the best allocation of where that geographic area of which geographic area should be in.

[01:01:32] Speaker 06:
Well, it surely should not be the geographic area where only 10% of the facility is.

[01:01:38] Speaker 06:
It should be the geographic area where the vast bulk of it is.

[01:01:43] Speaker 06:
and not the one.

[01:01:44] Speaker 06:
So I would disagree, you know, politely, that it hinges on whether or not the definition of hospital is by the secretary's arbitrary and capricious, because I think you could find that reasonable.

[01:02:01] Speaker 06:
And for the reason I just explained, to decide that what the secretary did was unreasonable.

[01:02:07] Speaker 01:
Just one quick fact question.

[01:02:08] Speaker 01:
You don't dispute

[01:02:10] Speaker 01:
just for you but for the other multi-campus hospitals that were out there that that workers do go back and forth workers can certainly go back and forth between facilities sure okay thank you to both council for well-done arguments and briefs appreciate it cases submitted