Secretary's Reasoned Decision Was Not "Arbitrary Or Capricious"
ADVENTIST GLENOAKS HOSPITAL v. SEBELIUS (December 15, 2011)
The federal Medicare program reimburses hospitals for the care they provide to eligible patients. The reimbursement amount is calculated through the application of a rather complicated formula. One element of the formula is a hospital’s "wage index," which, in turn, depends on the average hourly wage in the hospital's Metropolitan Statistical Area. The average hourly wage is computed using actual hospital wage and hour data. Most hospital employees are not paid for lunchtime. Some hospitals, however, pay their employees for a half-hour lunch. All other things being equal, including a half-hour paid lunchtime in the data results in a lower average hourly wage and less Medicare reimbursement. A number of hospitals asked the Secretary of the Department of Health and Human Services to exclude paid lunchtime hours from the formula. When she refused, the hospitals appealed to the Provider Reimbursement Review Board. The Board upheld the Secretary's decision. The hospitals sought review in the district court. Judge Guzman (N.D. Ill.) concluded that the Secretary's decision was not arbitrary or capricious or otherwise unlawful and granted summary judgment in her favor. The hospitals appeal.
In their opinion, Seventh Circuit Judges Cudahy, Manion, and Sykes affirmed. The Court first noted that its review was quite limited. The Secretary's decision will stand unless it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." The Court conceded that there was some logic in the hospitals’ position -- as did the Secretary. Indeed, the Secretary supported her decision principally on administrative convenience grounds. She decided to include not only paid lunchtime, but also other paid leave time such as military leave, jury duty, sick leave, etc. The last time the Secretary solicited public comment, there was significant disagreement among the commentators over how to treat things like paid lunchtime. Given that the Secretary has considered her alternatives and adequately explained her decision, the approach is reasonable and legal and will stand.
Prior to 1980, the federal Medicare program treated teaching hospitals and non-teaching hospitals the same for reimbursement purposes. Teaching hospitals, however, had higher service costs. The Secretary established an adjustment for teaching hospitals in 1980. The adjustment was based on the number of full-time equivalent (FTE) residents employed on a particular date. When Congress further amended the Medicare reimbursement program in 1983, it included an indirect medical education (IME) adjustment to replace the Secretary's 1980 directive that also was based on the number of FTEs. The regulations in effect in 1996 required a resident to be assigned to the outpatient department of a hospital or the "portion" of the hospital subject to the 1983 program. Further amendments in 2001 excluded time spent in research not associated with treatment or diagnosis even if the resident was assigned to one of those two departments. The 
