D.C. District Court Sets Aside Medicare Low-Wage Index Redistribution Rule

• Published date: 14 March 2022
• Subject Matter: Employment and HR, Food, Drugs, Healthcare, Life Sciences, Employee Benefits & Compensation
• Law Firm: Ropes & Gray LLP
• Author: Ms Stephanie Webster, Alex J. Talley and Emma Coreno

On March 2, the U.S. District Court for the District of Columbia issued a favorable decision for the plaintiff hospitals in Bridgeport Hospital, et al. v. Becerra, in their challenge to the 2019 Department of Health and Human Services ("HHS") rule¹ that increased the Medicare wage index calculation for hospitals in the lowest quartile and offset this adjustment by reducing the wage index for all other hospitals.² The rule essentially redistributed Medicare payments from higher wage index to lower wage index hospitals.³

The plaintiffs, a number of hospitals outside of the lowest quartile of wage index values, asserted that the rule is inconsistent with the Medicare Act as the statute requires HHS to calculate the wage index based on data collected through hospital surveys, and the agency's decision to inflate the wage values for hospitals in the bottom quartile of wage index amounts violates that requirement.⁴ The Court agreed, finding "the rule must be set aside" and concluding the agency exceeded its statutory authority when it altered the wage index for hospitals in the bottom quartile.⁵ The Court, however, also ordered additional briefing on the specifics of the appropriate remedy.⁶ The Court's further decision on remedy will be key to understanding the implications of this decision for hospitals inside and outside of the lowest quartile of wage index values.

Background on Wage Index & HHS Rule

The central question in this case is whether HHS has the authority to alter the wage index values for hospitals in the lowest quartile at the expense of the remaining hospitals under the Medicare Act.⁷ The Medicare Inpatient Prospective Payment System reimburses hospitals based on a predetermined base payment rate related to the national average cost of treating any given ailment.⁸ The base rate includes both a non-labor related portion and a labor related portion, and the labor related portion of this rate consists of the proportion of hospitals' costs that are attributable to wages and wage-related costs.⁹ As Congress recognized that hospitals in different regions have different wage and labor costs, the statute directs HHS to multiply the labor-related portion by a wage index that is created by comparing the average hourly wage rate for hospitals in a given geographic area with the national average based on an annual survey.¹⁰ In 2018, HHS invited public comment on potential changes to how the wage index is calculated,¹¹ and in its 2019 proposed rule it...