Case: 16-10310    Document: 00513900349      Page: 1   Date Filed: 03/07/2017




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT     United States Court of Appeals
                                                                            Fifth Circuit

                                                                            FILED
                                  No. 16-10310                           March 7, 2017
                                                                         Lyle W. Cayce
                                                                              Clerk
BAYLOR COUNTY HOSPITAL DISTRICT, doing business as Seymour
Hospital,

                         Plaintiff - Appellant

v.

THOMAS PRICE, SECRETARY, U.S. DEPARTMENT OF HEALTH AND
HUMAN SERVICES,

                         Defendant - Appellee


                 Appeal from the United States District Court
                      for the Northern District of Texas


Before JONES, BARKSDALE, and COSTA, Circuit Judges.
EDITH H. JONES, Circuit Judge:
      In 1997, Congress created a favorable Medicare reimbursement schedule
for rural facilities designated as “critical access hospitals.” 42 U.S.C. §§ 1395i-
4, 1395f. A critical access hospital is defined in part by the type of roads that
connect the facility to the next nearest hospital. Congress used the term
“secondary roads” in the definition, but it neither defined that term nor
contrasted it with “primary roads.” To fill that gap, an agency within the
Department of Health and Human Services (DHHS) issued a manual that
defines “primary roads” as, inter alia, numbered federal highways and defines
“secondary roads” as non-primary roads. Appellant Baylor County Hospital
District d/b/a Seymour Hospital (Seymour), located in Seymour, Texas,
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challenges DHHS’s decision, founded on the manual, that it is not a critical
access hospital. The district court, in a thorough and thoughtful opinion,
granted DHHS’s motion for summary judgment.                     We accord Skidmore
deference, find nothing arbitrary or capricious in the agency’s decisionmaking,
and AFFIRM.
                                I.      BACKGROUND
      For 20 years, the Medicare Rural Hospital Flexibility Program has
provided a special reimbursement scheme for certain rural facilities that serve
Medicare beneficiaries.     See generally 42 U.S.C. §§ 1395i-4, 1395f.          These
“critical access hospitals,” 

must meet several criteria,
including geographical, staffing, and services requirements. See 

4(c)(2)(B). At issue in this case is the geographical requirement measured by
a facility’s distance from another hospital and the types of roads available to
travel that distance:
      A State may designate a facility as a critical access hospital if the
      facility . . . is a hospital that . . . is located more than a 35-mile
      drive (or . . . in areas with only secondary roads available, a 15-
      mile drive) from a hospital, or another facility described in this
      subsection[.]

       Within that criterion, Congress created two
standards—a 15-mile standard if “only secondary roads [are] available”
between facilities, and a 35-mile default standard if roads other than secondary
roads are available. Despite the reference to “secondary roads,” Congress
defined neither that term nor its comparator, “primary roads.”                    The
implementing regulations are similarly blank. See 42 C.F.R. § 485.610(c).
      To remedy the lack of formally binding definitions, the Centers for
Medicare and Medicaid Services (CMS), the agency within DHHS charged with
administering Medicare, issued “guidance” in a State Operations Manual (the
Manual). The Manual explains that a facility falls within the “secondary

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roads” provision when “there are more than 15 miles between the [facility] and
any hospital or other [critical access hospital] where there are no primary
roads.” The Manual then articulates three types of “primary roads:”
      1. A numbered federal highway, including interstates,
         intrastates, expressways or any other numbered federal
         highway;
      2. A numbered state highway with 2 or more lanes each way; and
      3. A road shown on a map prepared in accordance with the U.S.
         Geological Survey’s Federal Geographic Data Committee
         (FGDC) Digital Cartographic Standard for Geologic Map
         Symbolization as a “primary highway, divided by median strip.”
CMS, State Operations Manual, ch. 2, §2256A. The end result is that to qualify
under the “secondary roads” provision, a facility must be separated from the
nearest hospital by more than 15 miles in which there is no primary road—a
numbered federal highway, a numbered state highway with two or more lanes
each way, or a road shown on a particular map as a “primary highway, divided
by median strip.”
      In 2013, Seymour applied to CMS for designation as a critical access
hospital. The nearest hospital is located 31.8 miles away in Throckmorton,
Texas. Approximately 28.4 miles of the road directly connecting the small
towns of Seymour and Throckmorton are designated as U.S. Highway 183/283,
rendering that 28.4-mile stretch a “primary road” under the “numbered federal
highway” provision in the Manual. U.S. Highway 183/283 is designated a
“Primary Highway,” “Principal Highway,” and “Major Road” by official sources
such as the U.S. Geological Survey and the Texas Department of
Transportation.     Seymour does not satisfy the alternate 35-mile standard
because Seymour lies less than 35 miles away from Throckmorton.              But
Seymour also fails to qualify under the “secondary roads” provision because for
only approximately three miles (31.8 miles minus 28.4 miles) of the distance
between Seymour and the Throckmorton hospital are “only secondary roads []
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available”—well short of the 15-mile “secondary road” threshold.           CMS
rejected Seymour’s application based on the plain language of the “guidance.”
      Seymour then requested a hearing from an administrative law judge
(ALJ), “disput[ing] the validity of CMS’ determination and the rationale for it.”
Seymour asserted that U.S. Highway 183/283 is a secondary road because it
“is a two lane rural road,” has “no shoulders,” and its “dimension and condition”
are those “of a poor quality farm road.”      Seymour acknowledged that its
characterization of U.S. Highway 183/283 as a secondary road conflicted with
the “numbered federal highway” provision in the Manual, but Seymour
dismissed the Manual as “only guidance,” “not controlling,” and “not law.”
Seymour additionally challenged the “numbered federal highway” provision as
“unreasonable, arbitrary and capricious.”
      Applying the Manual, the ALJ rejected Seymour’s position. The ALJ
found that the Manual was entitled to “considerable deference” and “justified
in this case by practical considerations,” such as CMS’s “lack [of] resources and
capacity for making case-by-case judgments about the driving characteristics
of every stretch of highway in the United States.” Further, the ALJ stated that
“making a policy determination that a numbered United States Highway is a
‘primary road’ not only makes sense, but it may be the only reasonably
objective way, along with the other criteria listed in the [Manual], of
determining what is ‘primary’ and what is ‘secondary.’”
      The DHHS Department of Appeals Board affirmed, holding
      CMS’s interpretation provides a bright-line for what constitutes a
      primary road, based on objective criteria. CMS could reasonably
      assume that federal highways are likely to be bigger, better-
      maintained, and more well-traveled than state highways, and that
      state highways are more likely to have those characteristics than
      undesignated roads. Given those general expectations, CMS could
      reasonably require that state highways and undesignated roads be
      treated as equivalent to federal highways only when they

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      demonstrated specific characteristics typical of most federal
      highways. Thus, CMS’s decision to categorize as primary roads all
      federal highways, but only state highways with two or more lanes
      in each direction, and only “primary highways” divided by a
      median strip, is reasonable.
The Board emphasized that “CMS was not required to conduct case-by-case
surveys of all the characteristics and traffic patterns of each stretch of road
connecting two rural hospitals.” According to the Board, “[a]dministrative
efficiency justified developing a bright-line rule that would balance the goals
[of the Program] without individual inquiry into each case.”
      Seymour sought judicial review of the Board’s decision, and the district
court, in turn, granted summary judgment for DHHS, “find[ing] that the
Skidmore [v. Swift & Co., 

(1944)] factors counsel the Court to
grant deference to the Secretary’s final decision, as it is supported by
substantial evidence and lacks any clear error of law.” Seymour appeals,
arguing that Skidmore deference is unwarranted and DHHS’s final decision is
arbitrary and capricious. (Seymour concedes that the decision is factually
consistent with the Manual’s definition of “primary roads.”)
                              II.   ANALYSIS
A. Standard of Review
      This court reviews a grant of summary judgment de novo, applying the
same standard to review the agency’s decision that the district court used.
E.g., Hayward v. U.S. Dep’t of Labor, 

, 379 (5th Cir. 2008). But
the parties dispute the nature of that standard of review. Seymour advocates
arbitrary and capricious review under the Administrative Procedure Act
(APA). See 5 U.S.C. § 706(2)(A) (requiring a reviewing court to hold unlawful
and set aside agency action, findings, and conclusions found to be “arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with law”).



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Seymour also urges us to deny Skidmore deference to the Manual’s “numbered
federal highway” provision.
     For its part, DHHS relies on section 405(g) of the Social Security Act,
which authorized judicial review in this case. See 42 U.S.C. § 1395cc(h) (citing
42 U.S.C. § 405(g)). Section 405(g) states in relevant part that “[t]he findings
of [DHHS] as to any fact, if supported by substantial evidence, shall be
conclusive[.]” 

Quoting Estate of Morris v. Shalala, 

,
745 (5th Cir. 2000), which ruled on the appeal of an individual Medicare
claimant, DHHS contends that our review under section 405(g) “is limited to
two issues: (1) whether [DHHS] applied the proper legal standards; and
(2) whether [DHHS’s] decision is supported by substantial evidence on the
record as a whole.” But DHHS also contends that it would prevail even under
the arbitrary and capricious standard of review that Seymour prefers.
Although it probably makes no difference, we assume only for the sake of
argument that the APA’s arbitrary and capricious standard applies.
       Beyond that baseline, this court accords Skidmore deference to “agency
interpretations of statutes they administer that do not carry the force of law[.]”
Luminant Gen. Co., L.L.C. v. EPA, 

, 928 (5th Cir. 2012) (citing
Skidmore, 

, and United States v. Mead Corp., 

, 234–
35 (2001)). The degree of deference depends on “the thoroughness evident in
[the agency’s] consideration, the validity of its reasoning, its consistency with
earlier and later pronouncements, and all those factors which give it power to
persuade, if lacking power to control.” 

. 1 Framed in



       1 Reflecting widespread uncertainty over the standards of review for informal
rulemaking activities of administrative agencies, DHHS argued in the trial court that both
Skidmore deference and Chevron deference should apply to the Manual’s informal but
intended-to-be-decisive “guidance” interpreting “secondary” and “primary” roads. See
Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 

(1984). The trial court
rejected DHHS’s Chevron argument but accorded deference anyway according to the
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Skidmore terms, the issues before us are how persuasively CMS interpreted
the statute in contrasting primary and secondary roads and whether the
DHHS decision against Seymour properly reflects the dichotomy. 2
           We must also note the “distinct but potentially overlapping”
relationship between the arbitrary and capricious standard of review and
Skidmore deference. Compare Fox v. Clinton, 

, 74–75, 80 (D.C. Cir.
2012) (referring to the standards as “distinct but potentially overlapping,” then
finding an agency’s interpretation arbitrary and capricious because of “[t]he
same flaws” that made Skidmore deference inappropriate), with 

–30 (affording “minimal” Skidmore deference to the
Environmental Protection Agency’s interpretation of the Clean Air Act, but
holding the interpretation arbitrary and capricious). According some measure
of Skidmore deference to an agency’s informal action does not assure the action
will survive arbitrary and capricious review. Following this court’s decision in
Luminant, we analyze the appeal under both standards.
B. Discussion
       Whether a facility can be a critical access hospital turns in part on its
location “in areas with only secondary roads available.” 42 U.S.C. § 1395i-
4(c)(2)(B)(i)(I). The term “secondary roads” is ambiguous. Congress did not
define it or contrast “primary roads,” and the implementing regulations
likewise offer no guidance.          Dictionary definitions offer little help.            For
example, one definition of “secondary” is “of less than first value or
importance.” Webster’s Third New International Dictionary 2050 (1961). And


Skidmore sliding scale. In essence, DHHS has taken three positions, including those noted
in text above, concerning the applicable standard.
       2 Ironically, both the ALJ and the Department Appeals Board expressly viewed the
Manual’s guidance as non-binding but persuasive, yet the consequence of our according
Skidmore deference is that this court’s decision will be binding on federal courts in the Fifth
Circuit.
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a definition of “secondary road” is “a road not of primary importance whose
classification and maintenance vary according to township, county, and state
regulations.” 

Thus, the “secondary roads” provision broadly refers
to roads having less value or importance than other roads. But what does
“lesser value or importance” mean and how does one distinguish between the
two types of roads?
      The CMS Manual attempted to answer those questions by defining a
secondary road as a road that is not (1) a numbered federal highway, (2) a
numbered state highway with two or more lanes each way, or (3) a road shown
on a U.S.G.S. map as a “primary highway, divided by median strip.”
      1. Skidmore Deference
      Seymour focuses on the Manual’s statement that no “numbered federal
highway” can be a “secondary road” and contends that DHHS’s decision based
on the Manual should not earn Skidmore deference “due to a lack of validity,
consistency, and expertise.” We consider separately each of these specific
complaints.
      First, according to Seymour, the “numbered federal highway” provision
is invalid because it is “arbitrary and based on irrelevant criteria,” and DHHS
“has not articulated a sufficient reason for categorizing identical roads
differently.”
      Instead of relying on the arbitrary and irrelevant criteria of U.S.
Highway designations, Seymour contends that DHHS should have considered
“factors directly impacting a patient’s ability to safely and efficiently travel on
the roads leading to a hospital.” DHHS’s decision, however, is not as blinkered
as Seymour suggests. To begin, CMS was interpreting the term used in the
statutory text (“secondary roads”), whereas Seymour’s “factors” approach,
while relevant, imprecisely correlates with the statute. Further, DHHS opted
for a bright-line rule after considering its lack of agency resources to make
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case-by-case judgments about the conditions of every stretch of rural highway
in the United States. DHHS factored in the statutory goal of “increas[ing]
[patients’] access to care” and sought to categorize roads to better serve
“patients seeking medical care in rural areas.” In sum, the statutory text had
to be articulated properly and in an administratively efficient way. As DHHS
put it, the Manual’s “numbered federal highway” provision reasonably struck
that balance because “federal highways are likely to be bigger, better-
maintained, and more well-traveled than state highways[.]” Moreover, it was
reasonable to “require that state highways and undesignated roads be treated
as equivalent to federal highways only when they demonstrated specific
characteristics typical of most federal highways.” Therefore, DHHS concluded
that it was reasonable to “categorize as primary roads all federal highways,
but only state highways with two or more lanes in each direction, and only
‘primary highways’ divided by a median strip[.]”
      Far from being arbitrary and irrelevant, DHHS considered more than a
road’s “alphanumeric designation,” as it worked on the premise, supported by
several official mapping sources, that numbered federal highways are
generally likely to be more suitable for travel than state highways. DHHS’s
premise was that ordinarily, federal highways “are likely to be bigger, better-
maintained, and more well-traveled than state highways.”                Seymour
acknowledges that “[t]he intent of Congress was to ensure that areas where
travel is generally harder and less efficient . . . are judged by the more
appropriate [secondary-road] 15-mile requirement.” DHHS’s approach was
neither arbitrary nor unreasoned nor did it rely on irrelevant considerations
in attempting to fulfill Congressional intent.
      Seymour’s second invalidity argument is that DHHS “has not articulated
a sufficient reason for categorizing identical roads differently.” Seymour notes
that U.S. Highway 183/283 would be considered a secondary road pursuant to
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the Manual if it were a state highway, because its characteristics—no median
strip, no double lanes in each direction—do not fall within the Manual’s
description of non-federal-highway primary roads.                This is a fact-specific
quarrel with a general rule. DHHS’s decision reflected the general conclusion
that federal highways offer superior conditions than state highways.                To be
sure, as with all bright-line rules, there are undoubtedly cases where the
Manual’s definitions will treat similarly constructed state and federal
highways differently. 3 DHHS’s adoption of the Manual’s criteria, however,
reasonably concluded that differentiating between federal and state highways
is valid in the vast majority of cases.
       Seymour next argues that DHHS’s application of the “numbered federal
highway” provision lacks consistency. This assertion is puzzling in light of the
two ALJ decisions from within DHHS that Seymour says illustrate arbitrary
outcomes under the provision. 4 Both decisions applied the “numbered federal
highway” provision in precisely the same way DHHS applied the provision in
this case. In addition, there is no evidence that the Manual’s “numbered
federal highway” provision has ever changed or that DHHS has deviated in its
application. This evidence of consistency, and Seymour’s lack of evidence
showing inconsistency, weigh in favor of according Skidmore deference.




      3  A similar point may be made about cases such as Missouri Baptist Hospital—
Sullivan v. CMS, DAB No. CR2384, 

(June 17, 2011), where state
legislatures redesignate roads as something other than state highways to render those roads
“secondary roads.” That legislatures can find a way to perform an end run around DHHS’s
policy determination of what constitutes primary and secondary roads, however, does not
make that policy determination irrational.
      4  See Mo. Baptist Hosp.—Sullivan v. CMS, DAB No. CR1987, 

(Aug. 11, 2009); Mo. Baptist Hosp.—Sullivan v. CMS, 

. Those are not the
only ALJ decisions applying the “numbered federal highway” provision consistently. See
Shelby Mem’l Hosp. v. CMS, DAB No. CR3647, 

(Feb. 11, 2015).
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      Finally, Seymour argues that DHHS “was not acting within its area of
expertise when attempting to classify roads.” Seymour contends that
“expertise at identifying and classifying roadways is far afield from the
agency’s core expertise of administering a health care program.”          DHHS,
however, aptly responds that DHHS bears the burden of implementing
Medicare’s complex programs and regulatory scheme.            See, e.g., Thomas
Jefferson Univ. v. Shalala, 

, 512 (1994). Within this framework,
the activity of “classifying roadways” is intricately intertwined with broader
Medicare policies. Congress commissioned DHHS to facilitate rural health
care and designated rural facilities’ locations (based in part on the use of
“secondary roads”) as the touchstone for that duty. See 42 U.S.C. § 1395i-4(c),
(e). We decline to conclude, as Seymour implies, that DHHS’s core expertise,
as defined by Congress, is administering a rural health care program—except
for the “rural” part. DHHS’s duty to consider roads connecting facilities in
rural areas lies within DHHS’s expertise in administering rural health care.
      For these reasons, DHHS’s interpretation of the “secondary roads”
provision is persuasive and entitled to Skidmore deference.
      2. Arbitrary and Capricious Review
      Seymour repeats the same arguments in challenging DHHS’s decision
as arbitrary and capricious, and we reject them for essentially the same
reasons.     Established law holds that an agency’s decision is arbitrary and
capricious
      if the agency has relied on factors which Congress has not intended
      it to consider, entirely failed to consider an important aspect of the
      problem, offered an explanation for its decision that runs counter
      to the evidence before the agency, or is so implausible that it could
      not be ascribed to a difference in view or the product of agency
      expertise.



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Tex. Oil & Gas Ass’n v. EPA, 

, 933 (5th Cir. 1998) (quoting Motor
Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 

,
43 (1983)). So long as “the agency’s reasons and policy choices conform to
minimal standards of rationality, then its actions are reasonable and must be
upheld.” 

      Seymour argues that DHHS’s final decision is arbitrary and capricious
because DHHS relied on irrelevant factors, ignored relevant factors, and did
not adequately explain its decision. The arguments have been addressed and
rejected above; the same result obtains here. DHHS could have solved the
problem created by Congress’s silence in any number of ways, and its choice
“conform[s] to minimal standards of rationality.” 

Significantly,
DHHS’s interpretation of the statute more closely aligns with the text than the
intent-based or purposive reading proffered by Seymour. Antonin Scalia &
Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 56 (2012)
(“First, the purpose must be derived from the text, not from extrinsic sources
such as legislative history or an assumption about the legal drafter’s desires.”).
DHHS’s decision was not arbitrary and capricious.
                                  *     *      *
      For these reasons, we AFFIRM the district court’s judgment.




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