[00:00:12] Speaker 00:
Good morning and may it please the court.

[00:00:14] Speaker 00:
David Peters on behalf of the Secretary of Health and Human Services.

[00:00:18] Speaker 00:
I'd reserve five minutes if possible.

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

[00:00:22] Speaker 00:
The rates hospitals are paid for providing certain inpatient services under Medicare is governed by a multi-factor formula.

[00:00:30] Speaker 00:
One element of which is the wage index, which adjusts hospital payment rates to account for regional differences in labor costs.

[00:00:38] Speaker 00:
Congress granted the Secretary considerable discretion over the establishment and operation of the wage index.

[00:00:44] Speaker 00:
For fiscal year 2020, the Secretary exercised that authority by issuing a temporary policy to modify the index to address the growing disparities between high and low-wage hospitals.

[00:00:56] Speaker 00:
Two separate provisions of the Medicare statute, both codified as part of 42 USC Section 1395-WW, independently authorized the Secretary to adopt that policy.

[00:01:08] Speaker 00:
Section D3E provides the secretary express flexibility to establish the wage index and Section D5I empowers the secretary to make exceptions and adjustments to wage index values.

[00:01:19] Speaker 04:
Can you counsel spend a little bit of time explaining to me where this case is at procedurally because the district court granted the hospital summary judgment but didn't order Victor

[00:01:36] Speaker 04:
So what is the understanding of the Secretary on where you're at right now with respect to the calculations and the rule?

[00:01:47] Speaker 00:
Yes, Your Honor.

[00:01:47] Speaker 04:
There's no processing of reimbursement or anything like that?

[00:01:51] Speaker 04:
Is this policy going to be implemented going forward or is it just a one-off?

[00:01:55] Speaker 04:
Where are we at right now?

[00:01:56] Speaker 04:
Because it was remanded for further proceedings, but what are those further proceedings according to the agency?

[00:02:05] Speaker 00:
A few things here.

[00:02:06] Speaker 00:
Well, first, the secretary appealed the district court's order because we think that they just got the statutory interpretation question wrong.

[00:02:12] Speaker 00:
And the secretary is, in terms of additional steps the secretary is doing, it's evaluating what steps would need to be taken to kind of rectify the purported violation that occurred here.

[00:02:27] Speaker 00:
Part of the complication

[00:02:28] Speaker 00:
right, is that these payments affects hospitals.

[00:02:30] Speaker 00:
The low-wage index policy and the corresponding budget neutrality adjustment affect hospitals nationwide.

[00:02:36] Speaker 00:
The secretary is considering what steps would be taken if the district court's decision was affirmed.

[00:02:41] Speaker 00:
But again, the secretary believes the district court's decision is wrong, and the secretary has the authority to do this if this court were to affirm.

[00:02:49] Speaker 00:
Right.

[00:02:49] Speaker 04:
No, I understand that.

[00:02:50] Speaker 04:
You're appealing the statutory interpretation question.

[00:02:53] Speaker 00:
Of course.

[00:02:53] Speaker 04:
But there's complicated jurisdictional analysis that we need to go through because you yourself took the position that there's no jurisdiction over the cross-appeal.

[00:03:01] Speaker 04:
So the remand is for the secretary to take further proceedings.

[00:03:06] Speaker 04:
And my question is, well, in the secretary's view, what further proceedings are required, setting aside the fact that you are challenging the accuracy or the correctness of the statutory interpretation?

[00:03:18] Speaker 00:
Correct.

[00:03:20] Speaker 00:
We did raise the jurisdictional challenge to the cross appeal.

[00:03:23] Speaker 00:
To be clear, this court's precedent is well established that it has jurisdiction over the secretary's appeal from the remand order.

[00:03:31] Speaker 00:
But the additional steps that would need to be taken is if the district court's judgment were affirmed, the secretary would have to make a determination about what it would do to offset the payments that were made to hospitals nationwide.

[00:03:47] Speaker 00:
and make a determination about if the budget neutrality adjustment is offset or taken away, whether there has to be steps to be taken to kind of claw back payments.

[00:03:56] Speaker 00:
that were made to hospitals in the lowest quartile of the index.

[00:04:00] Speaker 00:
And so the secretary hasn't determined yet what steps to be taken, in part because of this current pending appeal and the belief that the secretary had the authority to promulgate both the low wage index policy and the corresponding budget neutrality adjustment.

[00:04:13] Speaker 00:
And again, just to return to that quickly, the secretary has expressed flexibility under section.

[00:04:21] Speaker 03:
If I'm reading the policy and doing my math correctly, are those bottom 25% hospitals receiving a bump up of around 13% more payment than they would have if it was based purely on wage differences?

[00:04:34] Speaker 00:
No, I don't think that's quite right, Your Honor.

[00:04:37] Speaker 00:
What's the extra bump they're getting?

[00:04:40] Speaker 00:
The entire policy, I think the best way to measure it is that the offsetting budget neutrality adjustment is dollar for dollar offsetting the bump that the low-wage hospitals get.

[00:04:50] Speaker 00:
So what's the bump relative to?

[00:04:52] Speaker 00:
It's 0.2016% of all payments, so less than a quarter of a percentage point, which is kind of well of a kind with the type of adjustments.

[00:05:00] Speaker 02:
So basically you're taxing all hospitals in order to give more money

[00:05:06] Speaker 02:
to the people in the bottom quartile, and the people in the bottom quartile get differing amounts of improvement.

[00:05:14] Speaker 02:
If you were the absolutely lowest, you'd get a pretty big bump.

[00:05:19] Speaker 02:
If you were at 24th percentile, you'd get a pretty tiny bump, right?

[00:05:25] Speaker 00:
A few things.

[00:05:26] Speaker 00:
I don't think taxing and that's the right way to think about it here.

[00:05:30] Speaker 00:
It's true that the secretary has offset the low wage index policy by reducing the standardized amount for all hospitals, but the secretary did that because it reckoned the secretary recognized that there.

[00:05:42] Speaker 00:
The payments for low-wage hospitals in particular were being artificially depressed by the way in which the wage index was calculated.

[00:05:49] Speaker 00:
And so the secretary made a technical adjustment to the wage index to ensure that it more accurately represented what future regional wage differences would be.

[00:05:59] Speaker 02:
Do we have to get into deciding whether that's just BS or whether it's accurate?

[00:06:06] Speaker 02:
in the sense that their argument, I take it, is you don't have authority to adjust this at all, and to, quote, adjust this at all, which is, you know, it's basically Robin Hood, right?

[00:06:16] Speaker 02:
You take from the rich and give to the poor.

[00:06:18] Speaker 00:
I think you're right in one sense, Your Honor, in that

[00:06:23] Speaker 00:
plaintiffs have an argument here that the secretary just got it wrong as to like the prediction about what was causing growing disparities between high and low-wage hospitals and that really... You're calling growing disparities just sounds like high-wage people are getting more wages than low-wage people faster and that's that's what the basic is supposed to adjust to, right?

[00:06:49] Speaker 02:
The basic wage index

[00:06:52] Speaker 02:
because it's a low-wage index, but it's also a high-wage index, right?

[00:06:56] Speaker 00:
The wage index is meant to capture regional differences between low and high-wage hospitals, which is why... And if they actually, disparities actually grow, then it's a feature, not a bug.

[00:07:07] Speaker 00:
Certainly, Your Honor.

[00:07:08] Speaker 00:
It would be the case that

[00:07:10] Speaker 00:
It is meant to capture regional wage differences.

[00:07:12] Speaker 00:
What the secretary determined here was that the wage index wasn't only capturing that.

[00:07:17] Speaker 00:
It was also being affected by the way in which the index was calculated.

[00:07:21] Speaker 00:
To go back to your earlier question, though.

[00:07:23] Speaker 04:
It's the historical data because you're always lagging a few years behind.

[00:07:26] Speaker 04:
So the change is really to account for that.

[00:07:30] Speaker 04:
But I don't think of that as a technical adjustment.

[00:07:34] Speaker 04:
It really is.

[00:07:38] Speaker 04:
Almost like a policy determination, right?

[00:07:42] Speaker 04:
The question really is, does the statute allow the breadth of that discretion?

[00:07:47] Speaker 04:
Because the statute does grant the discretion to the secretary to reflect the hospital wage levels in various geographical areas.

[00:07:58] Speaker 00:
how that's done you're saying it's very discretionary yeah i mean it's it's it's not as the secretary saying it's very discretionary it's it's the language that's in the statute itself right the wage index is established by the secretary it is only to reflect regional wage differences but how if you're giving a bump up to certain hospitals only beyond what they would be entitled to

[00:08:20] Speaker 03:
on a pure basis of regional wage differences, how can that reflect the regional wage differences when you're in fact giving a bump above those wage differences?

[00:08:30] Speaker 03:
I just don't understand that in a textual.

[00:08:32] Speaker 00:
A few things, Your Honor.

[00:08:34] Speaker 00:
The justification for the low-wage index policy was that low-wage hospitals' wages were being artificially depressed by the nature of the index calculation itself, that they weren't capturing regional wage differences.

[00:08:48] Speaker 00:
And so the correction was being made by the secretary to that fact.

[00:08:51] Speaker 00:
But just, again, to return to Judge Bogda's earlier question, the district court didn't

[00:08:58] Speaker 00:
validate the rule on the ground that the secretary just got that prediction wrong.

[00:09:03] Speaker 00:
We think the secretary got it right, but the district court and the plaintiff's argument here is that even if the secretary was absolutely right, that the index itself, something inherent in the index was causing a problem that was artificially deflating low-wage hospitals' wage indexes, it wouldn't matter.

[00:09:21] Speaker 00:
That incorrection would have to be carried through year on year because the secretary just simply had no authority

[00:09:26] Speaker 02:
Or the Congress could fix it.

[00:09:28] Speaker 02:
Let me ask about the lag point, though, because it seems to me that the lag being a problem only makes sense if the lag itself is differential, because the high-wage hospitals, they're lagged just as much.

[00:09:45] Speaker 02:
If their wages are going up fast,

[00:09:48] Speaker 02:
then the lag hurts them, isn't that right?

[00:09:51] Speaker 02:
Did you have any evidence that there was a differential in the rate of lag?

[00:09:55] Speaker 02:
I didn't see anything of that sort.

[00:09:58] Speaker 00:
It's true none of the lag affects all hospitals.

[00:09:59] Speaker 00:
The secretary has never suggested otherwise.

[00:10:02] Speaker 00:
The key is the interaction between the lag and the problem of circularity.

[00:10:05] Speaker 00:
So the problem of circularity, as the secretary explained, is that for low-wage hospitals, their index values start low, and because of the

[00:10:15] Speaker 00:
the fact that it's reliance on historic data, they stay low.

[00:10:18] Speaker 00:
And the lag exacerbates that problem because low-wage hospitals, if they want to increase their wage index values, to raise their values, they have to maintain above average increases for years because of the lag.

[00:10:32] Speaker 00:
And so the secretary explained that the lag particularly affects low-wage hospitals, which is why

[00:10:38] Speaker 00:
Again, the policy is designed to allow those hospitals to increase wages in the way that we would expect if there weren't these systemic barriers to those hospitals increasing values.

[00:10:48] Speaker 00:
But again, just to make the point one more time, even if the court was to disagree with that, it wouldn't mean or shouldn't mean that the secretary lacked statutory authority to issue a policy of this type, which is what the district court concluded.

[00:11:04] Speaker 00:
The secretary all the time

[00:11:06] Speaker 00:
makes adjustments to the wage index because of the kind

[00:11:09] Speaker 00:
inherent inaccuracy in the data the secretary is relying on.

[00:11:13] Speaker 00:
The secretary always has to promulgate the policy to calculate future regional wage disparities.

[00:11:19] Speaker 00:
But the data the secretary is relying on is always several years old.

[00:11:24] Speaker 00:
And so the secretary has to make a determination about whether that always inaccurate data accurately captures what regional differences will be.

[00:11:32] Speaker 00:
And so I point to the DC search decision in the first Anna Job case, the 2009 one from Judge Griffith.

[00:11:38] Speaker 00:
You know, there the secretary removed wage data from subsection D hospitals that were, at the time of the data being collected, covered hospitals, but that the time of the wage index were no longer covered hospitals.

[00:11:52] Speaker 00:
And the secretary concluded, you know, that was accurately reported data at the time, but those hospitals are no longer in the index, and it removed that data because it would skew wage index values.

[00:12:02] Speaker 03:
But that's more technical adjustments in the belief that will accurately reflect the regional wage differences or whatever it may be.

[00:12:08] Speaker 03:
Here this seems to be, it's not technical adjustments or rounding off numbers.

[00:12:13] Speaker 03:
It seems like this is really reflecting a policy rationale and it may make good sense to provide that bump up to certain hospitals and rural areas.

[00:12:22] Speaker 03:
But again, it seems quite different from the other cases where there are really more technical adjustments applied

[00:12:28] Speaker 03:
walk across all the hospitals to represent a more accurate regional wage differences or other requirements under the statute.

[00:12:36] Speaker 00:
I don't think that's true, Your Honor.

[00:12:37] Speaker 00:
I mean, I would point to 84 Federal Register 42331, where the secretary was absolutely clear that this was not driven by policy considerations.

[00:12:44] Speaker 03:
But I know that's what the secretary says, but I mean, that's to be real here.

[00:12:47] Speaker 00:
I would even point to, like, the second Anajah case in 2015, right?

[00:12:51] Speaker 00:
You know, there the secretary was treating data from Rhode Island as part of the wage index calculation for Massachusetts.

[00:12:58] Speaker 00:
And of course, that is not accurate in one sense, because hospitals in Rhode Island aren't hospitals in Massachusetts.

[00:13:05] Speaker 00:
But the secretary recognized, or the secretary did so, applying a rule for multi-campus hospitals.

[00:13:13] Speaker 00:
And courts have recognized that the secretary isn't required to kind of calculate the index with an exactitude and can sacrifice, in some sense, its accuracy for other considerations.

[00:13:23] Speaker 00:
And again, we think that the secretary here

[00:13:27] Speaker 00:
correctly concluded that the change would increase the accuracy.

[00:13:32] Speaker 00:
But again, even if the court just kind of disagrees with the reasoning of the secretary's conclusion, it doesn't mean the secretary lacks statutory authority to do so.

[00:13:42] Speaker 00:
I will also point out, we've been talking primarily about section D3E, but the secretary also had authority under D5I.

[00:13:51] Speaker 00:
That provision allows the secretary to make adjustments and exceptions as the secretary deems appropriate,

[00:13:56] Speaker 03:
And what's the intellectual principle here?

[00:13:58] Speaker 03:
Is there anything in the statute that cabins in the as-appropriate language?

[00:14:02] Speaker 00:
You know, I think there's several kind of limitations on the Secretary's authority.

[00:14:05] Speaker 00:
You know, first it has to be adjustment or an exception.

[00:14:08] Speaker 00:
It has to be promulgated by rule.

[00:14:10] Speaker 03:
So I think... But substantively, what limits it?

[00:14:13] Speaker 03:
Because otherwise, there's a non-delegation issue, right?

[00:14:16] Speaker 00:
Your Honor, no court has ever held that a delegation of this type is kind of lax in the Intelligent Principal.

[00:14:23] Speaker 03:
But what's the Intelligent Principal here?

[00:14:25] Speaker 03:
What's as appropriate is basically meaningless.

[00:14:27] Speaker 03:
What's the Intelligent Principal?

[00:14:28] Speaker 00:
No, Your Honor, I mean, as the district court concluded in rejecting this exact same argument, deems appropriate is

[00:14:34] Speaker 00:
other courts have appellated delegations of that type before.

[00:14:37] Speaker 03:
But what does it mean?

[00:14:38] Speaker 03:
I mean, how do we judge whether something's as appropriate if the secretary exercised his or her power as appropriate?

[00:14:45] Speaker 00:
It's within the context of the kind of 1395 WWD more broadly about calculating payments to hospitals.

[00:14:52] Speaker 00:
Again, no court has ever held that a delegation of this nature violates the non-delegation clause.

[00:14:59] Speaker 00:
I mean, these types of kind of broad

[00:15:02] Speaker 00:
These types of adjustment authority are very common in the Medicare statute.

[00:15:08] Speaker 00:
There's one in Part B, for example, that is almost entirely similar.

[00:15:13] Speaker 00:
So I think it quite easily passes muster under the intelligible principle doctrine that has existed for, I think, 80 years.

[00:15:22] Speaker 04:
I know you want it to save your time.

[00:15:24] Speaker 00:
Oh, sorry.

[00:15:24] Speaker 00:
I realize that I am at my five minutes.

[00:15:27] Speaker 00:
Thank you.

[00:15:37] Speaker 01:
Good morning, and may it please the court, Lloyd Bookman, Huperlundian Bookman, on behalf of the appellees and cross-appellants.

[00:15:44] Speaker 01:
I'd like to start by addressing the substantive merits and hopefully have a little bit of time to address the remedy issue, including the jurisdictional issue, because I think that's very critical to the resolution of this case, as Your Honor's initial questions were probing.

[00:15:58] Speaker 01:
The government, as you heard this morning, argues that the low-wage adjustment, which is what led to the payment reduction that we are challenging here today, is justified under D3E, the wage index provision,

[00:16:14] Speaker 01:
as well as the exceptions and adjustments authority.

[00:16:16] Speaker 01:
But as both Judge Marshall below and Judge Nicol in the District of Columbia in the Bridgeport case found, D3E does not authorize, in fact, this type of predictive guesswork adjustment

[00:16:32] Speaker 01:
is not authorized by D3.

[00:16:34] Speaker 01:
In fact, it's totally in conflict with D3, the wage index provision.

[00:16:38] Speaker 04:
Well, I'm looking at—I think the secretary does have a textual argument.

[00:16:43] Speaker 04:
Do you agree with the district court that one of the key words in this provision is reflecting, and what it means to reflect?

[00:16:49] Speaker 01:
I do think reflecting is a critical word.

[00:16:52] Speaker 01:
And if you look at what reflecting means, Your Honor, one of the definitions, the definition that Judge Marshall relied on, was to mirror.

[00:17:02] Speaker 01:
If you take what the Secretary is doing here, going through the entire wage adjustment process, relying on the wage survey that the Secretary conducted, determining the ratios of

[00:17:16] Speaker 01:
average hourly wages for a particular region to the national average hourly wage, which is what the secretary did, and then you put the thumb on the scale and change the calculation, you're not mirroring the formula that the secretary, that D3E is required, has required of the secretary.

[00:17:37] Speaker 01:
You're not mirroring it.

[00:17:39] Speaker 01:
If anything, you're distorting it completely.

[00:17:40] Speaker 01:
That's not mirroring it.

[00:17:41] Speaker 03:
But the reflect isn't the same as equal, so it allows some adjustment, right?

[00:17:45] Speaker 01:
Absolutely, Your Honor.

[00:17:46] Speaker 01:
It's not reflect and equal are clearly different terms, but reflect means a whole lot closer.

[00:17:51] Speaker 04:
then they're going like like a funhouse mirror right it can still accurately reflect even if proportionally images large or small.

[00:17:59] Speaker 04:
It's still an accurate reflection and you're narrowing the definition.

[00:18:02] Speaker 01:
I'm saying a funhouse mirror is not an accurate reflection, it's a distorted reflection of what congress has told the secretary to do.

[00:18:14] Speaker 01:
Congress has said very clearly that

[00:18:17] Speaker 01:
One, you're supposed to reflect.

[00:18:19] Speaker 01:
Yes, reflect means mirror means the average hourly wages.

[00:18:25] Speaker 01:
you know, for a region to the national average hourly wages.

[00:18:29] Speaker 01:
And you're supposed to do it based on certain data.

[00:18:32] Speaker 01:
You're supposed to do it based on a wage survey.

[00:18:35] Speaker 01:
Putting those concepts together tells you that Congress, reading them together tells you that Congress intended that the wage index be based on a survey.

[00:18:45] Speaker 01:
You gather the data.

[00:18:47] Speaker 01:
The data isn't necessarily old data.

[00:18:49] Speaker 01:
That's how, you know, that's how you have to collect this three-year-old data.

[00:18:53] Speaker 01:
And then it tells you what fraction to use.

[00:18:55] Speaker 01:
It tells you the fraction is average hourly wages in the region over the national average hourly wage.

[00:19:05] Speaker 04:
The factor is established by the Secretary.

[00:19:08] Speaker 04:
It seems to me that the statute contemplates some discretion on the Secretary's part.

[00:19:13] Speaker 04:
in setting the factor.

[00:19:15] Speaker 04:
So under your theory, even if the factor reflects the way the data is gathered and the age of the data, it doesn't accurately capture regional differences.

[00:19:27] Speaker 04:
You're saying that the statute doesn't allow any adjustments by the secretary.

[00:19:33] Speaker 01:
The Secretary's allowed, in our view, to make technical adjustments, has the discretion to do the adjustments that Council had just discussed, and an adjustment to scrub the data to make sure the data is accurate, gets rid of aberrational data.

[00:19:49] Speaker 01:
secretary can decide what wages, wage data is.

[00:19:53] Speaker 01:
What is a wage?

[00:19:54] Speaker 01:
What is wage data that should be included in the survey?

[00:19:57] Speaker 01:
Has the discretion completely in our view to do that?

[00:20:00] Speaker 02:
Presumably he's getting it from some kind of labor statistics index, but there could be several of those that he could choose among.

[00:20:08] Speaker 01:
Correct.

[00:20:08] Speaker 01:
I think the secretary here gets them from Medicare cost reports, but there could be other data sources, and that's totally within the secretary's discretion to choose what the most appropriate data source is, and again, what wage-related data means.

[00:20:21] Speaker 01:
The secretary can decide, as the secretary did in the Anazak case that was discussed, to say, well, it doesn't make sense to include

[00:20:30] Speaker 01:
in the wage calculation a hospital that was in the database when we collected the data but is no longer subject to this payment mechanism.

[00:20:40] Speaker 01:
That makes sense.

[00:20:40] Speaker 01:
So the secretary has a lot of discretion.

[00:20:43] Speaker 01:
We don't disagree with that.

[00:20:44] Speaker 03:
They say the wage lag, they should take into account because they'll more accurately reflect the regional wage differences.

[00:20:52] Speaker 03:
What's the impact of any of the wage lag for hospitals and the other 75 percent?

[00:20:58] Speaker 01:
I don't know.

[00:21:01] Speaker 01:
To be honest with you, I don't have data that I can tell you what the exact impact is, but it's the same idea.

[00:21:08] Speaker 01:
Hospitals at the upper end, their data has the same wage lag.

[00:21:12] Speaker 01:
They increase wages.

[00:21:14] Speaker 01:
The question then becomes, are their wages increasing faster than the wages for the hospitals in the bottom half?

[00:21:21] Speaker 01:
But even if they are,

[00:21:22] Speaker 01:
That's supposed to be taken into account.

[00:21:24] Speaker 01:
Isn't it the other way around?

[00:21:25] Speaker 02:
If the costs of the low-wage hospitals are increasing faster, then they're going to fall behind.

[00:21:35] Speaker 02:
That's the argument.

[00:21:36] Speaker 02:
Don't I have the direction of effect right?

[00:21:40] Speaker 02:
If the lag needs to be corrected, then it must be because the lag is hurting the low-wage hospitals more, their wages are increasing faster, and they're not being, quote, reflected.

[00:21:54] Speaker 01:
You have the order right, Your Honor.

[00:21:56] Speaker 01:
The math correct?

[00:21:57] Speaker 01:
Your math is correct there, Your Honor.

[00:21:58] Speaker 01:
All right.

[00:21:58] Speaker 01:
So there are two fundamental questions.

[00:22:01] Speaker 01:
One is, does the wage index statute extend to that type of predictive guesswork flexibility?

[00:22:08] Speaker 02:
And our reading is to be- So what you call predictive guesswork flexibility, they call accurate reflection.

[00:22:16] Speaker 02:
Do we need to decide that as a factual matter, or do we just say how far does the secretary's accurately reflect wording go?

[00:22:27] Speaker 02:
Because if it really did more accurately reflect, if he had some basis for saying that indeed it's a better guess for 2020 by doing some magic based on 2017, wouldn't that be what he should do?

[00:22:48] Speaker 01:
I'll answer two ways.

[00:22:51] Speaker 01:
First, I think not.

[00:22:52] Speaker 01:
I think the statute, that kind of fundamental change to the formula that's set forth in D3E, which appears to be based on actual historical data,

[00:23:07] Speaker 01:
is something that goes beyond the level of discretion that D3E affords the secretary.

[00:23:13] Speaker 01:
It's the kind of change that Congress certainly can make.

[00:23:17] Speaker 01:
It should be addressed to Congress.

[00:23:18] Speaker 01:
That's exactly, if there truly is that type of problem with the wage index and it's got the cyclical problem where it's depressing the ability of low wage hospitals to raise their wages, that's something Congress can address.

[00:23:34] Speaker 01:
Congress hasn't addressed that.

[00:23:36] Speaker 01:
Secondly,

[00:23:37] Speaker 01:
If you disagree with me and you say, well, I think D3E is sufficiently broad for the secretary this type of discretion to include predictions.

[00:23:49] Speaker 01:
Then we're faced with the question as to whether the secretary's prediction is arbitrary and capricious.

[00:23:54] Speaker 01:
We're into the second part of this case that wasn't decided below by the district court.

[00:23:59] Speaker 04:
At this point, we're just trying to figure out the scope of the statutory authority, right?

[00:24:05] Speaker 01:
Correct.

[00:24:05] Speaker 01:
That's correct.

[00:24:07] Speaker 01:
You know, again, we think that the discretion doesn't extend as far as the Secretary thinks it extends.

[00:24:13] Speaker 01:
Again, we think this is a fundamental difference and fundamentally a conflict with a carefully worked formula that Congress established and the data Congress told the Secretary to use, that it's incompatible, that this adjustment is incompatible with D3E.

[00:24:30] Speaker 01:
But if this Court, at the end of the day, disagrees,

[00:24:33] Speaker 01:
then we need to address the arbitrary and capricious issue, and that we would suggest since it wasn't addressed by the district court below.

[00:24:42] Speaker 03:
Just to clarify, if the secretary had used the wage lag for all the hospitals and said we're going to try to predict it accurately, in your view, that's not permissible?

[00:24:52] Speaker 03:
If the secretary believes and provides data, we think this is the more accurate representation of wage-level differences because of the lag and it's applied uniformly.

[00:25:02] Speaker 01:
I, I, the short answer is I think that's probably not, that's not permissible either, but it's better.

[00:25:10] Speaker 01:
You know, that ties, from a statutory interpretation perspective, I don't think that's what Congress has allowed in D3E.

[00:25:19] Speaker 01:
The discretion, I don't think, extends to predictions.

[00:25:22] Speaker 01:
I think the discretion extends to using hard data.

[00:25:26] Speaker 02:
Just as a technical or possible matter,

[00:25:29] Speaker 02:
You know, if this were not a government program, if it were a private program of some sort, wouldn't you think that the right answer is you apply the old formula and then when the real data comes in, you make an adjustment.

[00:25:42] Speaker 02:
You add credits to some people or debits to others to reflect the real data.

[00:25:48] Speaker 02:
Has that ever been contemplated or would you think that would be permissible?

[00:25:52] Speaker 01:
I don't think that would be permissible under the Medicare inpatient prospective payment system.

[00:25:58] Speaker 01:
The system is designed to have rates prospectively determined by the secretary.

[00:26:04] Speaker 02:
And once they're prospectively determined, they can't be adjusted even by real data.

[00:26:09] Speaker 01:
Correct.

[00:26:10] Speaker 01:
There are a few exceptions to what I just said, but the whole idea is hospitals should know in advance whether they're going to get paid.

[00:26:16] Speaker 02:
And it turns out that the old data is incorrect, either plus or minus, it's just tough, we do the best we can.

[00:26:26] Speaker 01:
Right, Methodist Hospital Sacramento decision says exactly that.

[00:26:32] Speaker 01:
Let me turn, unless you have more questions on D3E, I'd like to turn to D5I, which is the exceptions and adjustments.

[00:26:42] Speaker 04:
Can you, before you run out of time, address the further proceedings ordered by the district court and what the party's understanding of that is?

[00:26:51] Speaker 04:
Because I think that affects our determination in terms of where we're at and whether we have jurisdiction.

[00:26:57] Speaker 01:
Understood.

[00:26:58] Speaker 01:
My understanding of the remand order from Judge Marshall is that the Secretary now has wide discretion to decide how to implement Judge Marshall's ruling, which is that the low-wage adjustment is invalid, so the Secretary cannot continue to apply that going forward.

[00:27:22] Speaker 01:
Number one.

[00:27:22] Speaker 01:
Number two, that the concomitant

[00:27:25] Speaker 01:
reduction to the payments to particularly our hospitals, but the hospitals in general, to pay for it has to be changed.

[00:27:35] Speaker 01:
It has to be revised.

[00:27:35] Speaker 01:
But the secretary now has kind of the discretion to figure out how to do it.

[00:27:39] Speaker 04:
Well, it's all been paid out, and it has to be budget neutral.

[00:27:41] Speaker 04:
So what do you expect the secretary to do under this order?

[00:27:46] Speaker 01:
Well, for our clients, I expect the secretary to take a 0.2%, multiply it times the amount that our hospitals got paid for the federal fiscal year 2020, and reimburse the hospitals the underpayments as a result of that calculation.

[00:28:00] Speaker 01:
As to whether the secretary is required to reduce payments to the low-wage hospitals that were increased by the policy that we're arguing about today, I'm leaving that up to the secretary to decide.

[00:28:13] Speaker 01:
The secretary can decide whether the secretary must make it budget neutral.

[00:28:17] Speaker 01:
And there are a couple of answers to that question.

[00:28:19] Speaker 01:
And if the secretary has to make it budget neutral, is the way to make it budget neutral simply to reverse the adjustment, or is there another approach?

[00:28:27] Speaker 01:
The secretary, under Judge Marshall's order, has a discretion to figure that out.

[00:28:30] Speaker 04:
It's kind of a done deal as to prior years.

[00:28:33] Speaker 04:
So your position is you want the secretary to turn over the $3.8 million, even if it means clawing back from the lowest

[00:28:42] Speaker 04:
a quartile of hospitals going forward.

[00:28:46] Speaker 01:
Yeah, I hear you.

[00:28:47] Speaker 01:
Our position is we want our hospitals to be paid their extra 0.2%.

[00:28:52] Speaker 01:
Whether we, as a group of hospitals, do not desire that other hospitals receive less money from the Medicare program, of course.

[00:29:04] Speaker 01:
But if that's what's required, if the secretary determines on remand that that's what's required to fix what we think is the problem here and to

[00:29:13] Speaker 01:
pay our hospitals the 0.2% that they're owed, then the secretary may have to make a determination to claw back money from the hospitals that benefited from the policy.

[00:29:23] Speaker 01:
But that's right now within the secretary's discretion to decide how to handle it, which is why we think that remedy was wrong.

[00:29:32] Speaker 01:
And I know it gets to the jurisdiction over the cross-appeal, but we think this court should have done what the court in Alvarado did.

[00:29:40] Speaker 01:
the Alvarado Community Hospital case, which was another Medicare case, where the question was whether a certain type of Medicare payments called outlier payments were correctly computed.

[00:29:51] Speaker 01:
And the court, the Ninth Circuit, ultimately decided no, they were not correctly computed.

[00:29:56] Speaker 01:
They were computed in a way that was arbitrary and capricious and remanded

[00:30:00] Speaker 01:
back to the secretary, but with instructions.

[00:30:03] Speaker 01:
We're remanding to the secretary.

[00:30:05] Speaker 01:
Secretary, recompute these outlier payments without this, and fix the difficulty in your formula.

[00:30:12] Speaker 01:
Recompute the payments and pay the hospitals the additional amounts that they're owed.

[00:30:17] Speaker 01:
And, by the way, also pay them interest.

[00:30:20] Speaker 01:
That's what the Ninth Circuit did in the Alvarado case in their amended order.

[00:30:25] Speaker 01:
And we think that's the exact right thing that should be done here.

[00:30:28] Speaker 01:
that the, we would, you know, that's what we're asking this court to do is to, if the court finds for us on the substance, we would ask the court to be more definitive in its remedy to the secretary so that the hospitals can be assured of getting paid.

[00:30:44] Speaker 01:
Otherwise, our experience with the Medicare program, if there's just a blanket remand, is that those cases can take for years.

[00:30:52] Speaker 01:
You'll see this case again if it goes back to the secretary

[00:30:56] Speaker 01:
and the secretary has left carte blanche to determine the remedy, we'll be here again in probably three or four years, arguing over what the secretary did on remand, and that's happened repeatedly in the Medicare program.

[00:31:08] Speaker 01:
So that's what we would ask this court to, at the very least, consider issuing an alvarado-type order, a more definitive, instructive order to the secretary.

[00:31:20] Speaker 04:
You didn't seek declaratory or injunctive relief in this case, right?

[00:31:24] Speaker 01:
Correct.

[00:31:24] Speaker 01:
We just, we sought judicial review under the 1395-00, which is for GSC 1395-00, which is the provision affording judicial review of decisions made by the Medicare Provider Reimbursement Review Board.

[00:31:41] Speaker 01:
And that's the path to judicial review that we chose and that we sought.

[00:31:45] Speaker 01:
So no, we didn't seek additional injunctive relief.

[00:31:49] Speaker 01:
Generally, Medicare cases that go through the PRB process are year-by-year cases.

[00:31:54] Speaker 01:
We are seeking or review of what we got paid for a particular time period.

[00:32:02] Speaker 01:
And none of the cases ever allow injunctive relief in a Medicare, this type of a Medicare Part A case,

[00:32:09] Speaker 01:
prevent the secretary in the future from adopting the same rule.

[00:32:13] Speaker 01:
We hope if a court says a rule is invalid the secretary will stop and the secretary would stop continuing to use the rule.

[00:32:19] Speaker 01:
Do you want me to address the jurisdictional issue on the remedy?

[00:32:22] Speaker 04:
Is that something?

[00:32:24] Speaker 04:
I know you're running short on time and you wanted to discuss the other provision.

[00:32:28] Speaker 01:
Yep, the other substantive provision.

[00:32:29] Speaker 01:
Okay, so I think your comments, Judge Lee, were exactly right, which is we haven't heard a limiting provision on how D5I works.

[00:32:41] Speaker 01:
D5I, broad language, is

[00:32:43] Speaker 01:
exceptions and adjustments the disk judge marshall and the district court out in the district of columbia and bridgeport both said wait a minute there has to be some limiting principle can't be Just the secretary can do anything that the secretary thinks is appropriate because that secretary is obviously not going to do something the secretary thinks is not appropriate and

[00:33:01] Speaker 01:
So that gives the secretary complete discretion to do whatever the secretary wants with respect to Medicare payments to hospitals, and that can't be.

[00:33:10] Speaker 01:
So both Judge Marshall and the Court and Bridge Board correctly determined a limiting principle, which is that if there is a specific statute that has been enacted by Congress on a specific component of the Medicare program, the secretary doesn't have the authority to enact

[00:33:31] Speaker 01:
a provision, an adjustment that is inconsistent with that specific statute.

[00:33:35] Speaker 01:
Again, specific, taking precedence over the general.

[00:33:38] Speaker 01:
And that, in our view, is absolutely essential in order to have some limitation on the Secretary's ability to make adjustments under D5I.

[00:33:47] Speaker 01:
Otherwise, and I know delegation cases, you know, I think there have been two delegation cases that have decided that a delegation is invalid.

[00:33:55] Speaker 01:
But in order to prevent this

[00:33:59] Speaker 01:
a grant of authority to the secretary for being questionable and in our view unconstitutional under delegation analysis.

[00:34:10] Speaker 01:
The court needs to set forth a limiting principle, and we think the appropriate limiting principle is if there's, again, a specific enactment by Congress that the adjustment the secretary's proposing is inconsistent with, the secretary can't make it.

[00:34:26] Speaker 01:
The secretary certainly has the discretion where Congress has been silent.

[00:34:30] Speaker 01:
As in the Adirondack case, for example, where Congress has been silent on a particular topic, the secretary can, under D5I, certainly make an adjustment.

[00:34:42] Speaker 01:
But it's not where we have something as specific as the wage index statute.

[00:34:48] Speaker 01:
Unless there are any other questions?

[00:34:51] Speaker 04:
All right.

[00:34:52] Speaker 04:
Thank you, counsel.

[00:34:52] Speaker 01:
Thank you very much.

[00:34:58] Speaker 00:
May it please the court?

[00:34:59] Speaker 00:
I just have a few points I'd like to make.

[00:35:02] Speaker 00:
Plaintiffs say that the district court, I mean, that secretary can't make predictive judgments, that that can't be right.

[00:35:09] Speaker 00:
The secretary is always making predictive judgments when they're determining the wage index because they're relying on historic data to determine what regional wage differences will be for the forthcoming fiscal year.

[00:35:20] Speaker 00:
So they always have to make a determination about to what degree that historic data

[00:35:25] Speaker 00:
accurately captures future-looking wage differences, and it makes no sense to think that Congress would have required the Secretary to calculate a wage index, wrotely based on historic, years-old data, and to carry forward historical or systematic issues with that data into the future wage index.

[00:35:44] Speaker 02:
So you think he has the general ability to, rather than reflecting, than using the data, to use it only to predict

[00:35:55] Speaker 02:
he can simply sit down and say okay it looks to me like michigan's gonna rise eight percent mississippi's gonna rise twelve percent and that's my prediction and that's what i'll do it two things are the city certainly has the authority to make determinations about

[00:36:10] Speaker 00:
you know, how accurate historical Michigan data will be for the forthcoming fiscal year.

[00:36:15] Speaker 02:
Of course, the Secretary's decision— As opposed to how accurate it is being reported?

[00:36:21] Speaker 02:
Not—it's not just about how accurate it's being reported.

[00:36:23] Speaker 02:
You have, after Katrina, he can say, by Louisiana looks bad, we're going to drop the reimbursement rate because I predict wages will go down.

[00:36:33] Speaker 00:
And this is my second point, Your Honor.

[00:36:35] Speaker 00:
Of course, the Secretary has to reasonably explain that why there is any decision to deviate from historic data.

[00:36:42] Speaker 00:
And we think that the Secretary reasonably explained that decision here.

[00:36:45] Speaker 04:
But the question about this... But in your view, there's statutory authority to make those adjustments.

[00:36:50] Speaker 04:
Whether those adjustments are accurate or not, it goes to the arbitrary and capricious question, really, not the scope of what the statute plainly allows the Secretary to do.

[00:37:01] Speaker 00:
Precisely, and that has a huge impact, Your Honor, because under the plaintiff's theory, even if the secretary got it right, there was nothing that the secretary could do.

[00:37:11] Speaker 00:
And we don't think this is true, but if the court was to say, you know, we actually think this was an unreasonable explanation, well, that means the secretary could go back and try again to determine, can we show that the prediction is true?

[00:37:22] Speaker 00:
And that's a huge difference about the ability of the secretary to make decisions.

[00:37:26] Speaker 00:
about how to calculate and structure the wage index, which goes to the second point.

[00:37:32] Speaker 00:
Plaintiffs have this theory that there is a formula in D3E that sets out the way in which the wage index has to be calculated.

[00:37:39] Speaker 00:
That's just simply not true.

[00:37:41] Speaker 00:
There isn't any formula.

[00:37:42] Speaker 00:
And if you compare, for example, the language of D3E to other provisions within the Medicare statute, to give one example, I would cite 1395WWD5F

[00:37:56] Speaker 00:
Two, and that's the provision for disproportionate share hospitals, their Congress very expressly laid out a precise formula that the secretary had to use and the data sources to be used.

[00:38:08] Speaker 00:
And that, you know, level of specificity is just missing from the D3E provision.

[00:38:15] Speaker 03:
on the d five i'd provisioned it before you go there uh... maybe this is in the record and that you know during notice and comment but that the secretary what the wage index would be if he had account for wage lag for all the hospitals

[00:38:30] Speaker 00:
I'm not sure that particular kind of example was evaluated, Your Honor.

[00:38:36] Speaker 00:
The Secretary did look at or particularly reference the 2019 petition for information or call for information about various reports that identified circularity, particularly affecting low-wage hospitals.

[00:38:52] Speaker 00:
I'm not aware of anything in the record to indicate that the Secretary

[00:38:55] Speaker 00:
you know, considered for the high-wage hospitals, but I think that's partially because the circularity problem has kind of a counter effect for high-wage hospitals.

[00:39:04] Speaker 00:
Their payments start high and stay high, right, because they're getting larger reimbursements for Medicare and maybe have other sources of income that they're able to use to kind of top up their wages.

[00:39:13] Speaker 00:
And so, again, the circularity issue has a particular effect on the low-wage quartile hospitals.

[00:39:18] Speaker 00:
I see my time is running out.

[00:39:20] Speaker 00:
I just wanted to address the non-delegation question, Your Honor.

[00:39:23] Speaker 00:
I point to ER 20.

[00:39:24] Speaker 00:
This is a portion of the district court's decision where the court, there's much that we don't agree with the district court, but we do agree with the decision to reject the non-delegation.

[00:39:34] Speaker 00:
And the district court sided to Humphrey v. Baker, which is 848F2nd.

[00:39:39] Speaker 00:
I don't have the full citation, apologies, but that was a delegation.

[00:39:43] Speaker 00:
where the requirement was to deem advisable.

[00:39:46] Speaker 00:
I see my time's running out, if I may just finish.

[00:39:48] Speaker 00:
No, go ahead and finish that point.

[00:39:49] Speaker 00:
Deem advisable.

[00:39:50] Speaker 00:
And that's the same kind of language that's here.

[00:39:52] Speaker 00:
And there, too, the DC Circuit rejected a non-delegation argument.

[00:39:56] Speaker 00:
So I think this is a kind of delegation that has been upheld in the past.

[00:39:59] Speaker 00:
And just as I was saying before, similar delegations exist throughout the Medicare provision, including

[00:40:06] Speaker 00:
39 FLT2E, which is another example of a kind of broad delegation to make adjustments to payment amounts.

[00:40:15] Speaker 00:
I see my time is up.

[00:40:15] Speaker 00:
Thank you so much.

[00:40:16] Speaker 00:
All right.

[00:40:16] Speaker 04:
Thank you very much, Council, for your helpful argument today for both sides.

[00:40:20] Speaker 04:
The matter is submitted, and that concludes our argument week.

[00:40:24] Speaker 04:
Court is adjourned.

[00:40:51] Speaker 02:
This court for this session stands adjourned.