HCA Health Servs. of Tenn., Inc. v. Thompson,
No. 3:00-0991 (M.D. Tenn. April 2, 2002)

Several hospitals sought judicial review of the Secretary of the Department of Health and Human Services' decision to base the federal rate and PPS payments under Medicare for the fiscal years of 1984-1986 on 1981 cost reports, which included medical malpractice insurance reimbursements based on the illegal 1979 malpractice rule. The United States District Court for the Middle District of Tennessee found that the Administrative Procedure Act had not been violated because the Secretary had not acted arbitrarily and capriciously by refusing to adjust the federal rate to take into account the change in the malpractice rule and followed the notice and comment procedures as required by the Act when he refused to adjust the rate. The court deemed the decision not to adjust the federal rate to be reasonable, despite potential inaccuracy, because it promoted finality and efficiency, there was no reason to believe that Medicare's share of the costs had been underestimated, and Medicare's share of the costs had actually been overstated in the past for a number of reasons.