Lawrence and Mem’l Hosp. v. Burwell — Feb. 2016 (Summary)

MEDICARE – RECLASSIFICATION RULE

Lawrence and Mem’l Hosp. v. Burwell
Docket No. 15-164-cv (2d Cir. Feb. 4, 2016)

The United States Court of Appeals for the Second Circuit held that a regulation issued by the Secretary of Health and Human Services violated the Medicare Act and the Administrative Procedure Act. The regulation in question is known as the “reclassification rule,” which provided that a hospital that has been reclassified from “urban” to “rural” may not receive additional reclassification by the Medicare Geographic Classification Review Board. Certain hospitals are able to be reclassified as “rural” in order to qualify for preferable drug pricing under Medicare’s Drug Discount Program. Without the “reclassification rule,” the same hospital could reclassify a second time back to “urban” to receive an increased wage index as an additional benefit, while keeping the preferable drug pricing status.

A hospital challenged the regulation in order to attempt to receive both “urban” and “rural” classifications. The court agreed with the hospital, reasoning that the plain language of the statute, and its legislative history, supported the hospital’s interpretation. The regulation was held to be invalid and the case was remanded to the district court to impose appropriate remedies.