Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-3_09-cv-08069/USCOURTS-azd-3_09-cv-08069-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 42:1395 HHS: Adverse Reimbursement Review

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 The Court notes that while oral argument has been requested, the Court

has dispensed with it because the Court does not believe that a hearing would

aid the decisional process.

 The Court further notes that it has intentionally not discussed every

argument raised by the parties and that those arguments not discussed are

considered by the Court to be unnecessary to the resolution of the parties’

(continued...)

 WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Flagstaff Medical Center, Inc.,

 Plaintiff,

vs.

Kathleen Sebelius, Secretary

Department of Health and Human

Services,

 Defendant.

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No. CV-09-8069-PCT-PGR

 

 ORDER

Pending before the Court is Flagstaff Medical Center’s Motion for Summary

Judgment (Doc. 17) and Defendant’s Cross-Motion for Summary Judgment (Doc.

22). Having considered the parties’ memoranda in light of the administrative

record, the Court finds that both motions should be granted in part and denied in

part.1

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(...continued)

motions. This includes the Secretary’s objections to the plaintiff’s extra-record

evidence since the Court found no need to consider any of the objected-to

submissions in resolving the cross-motions. 

2

 Prior to being renamed the CFS in July 2001, the agency was named

the Health Care Financing Administration. For the sake of simplicity, all

references to the agency in this Order will be to its current name.

3

 This summary pertains to the procedures in effect at the time at issue.

- 2 -

Background

This action, which arises under the Medicare Act, Title XVIII of the Social

Security Act, 42 U.S.C. § 1395 et seq., involves a dispute between plaintiff

Flagstaff Medical Center, a non-profit acute care hospital that is a provider of

Medicare services, and Kathleen Sebelius, the Secretary of the Department of

Health and Human Services (“the Secretary”), regarding the amount of the

plaintiff’s reimbursement for air and ground ambulance services it provided as

part of its hospital operations to Medicare beneficiaries in the fiscal years ending

in June, 1998 through June, 2001. 

The Centers for Medicare and Medicaid Services (“CMS”), an agency

within the Department of Health and Human Services, administers the Medicare

program.2

 In order to obtain Medicare reimbursement3, a health care provider

files an annual report showing the costs it incurred during the fiscal year and the

portion of those costs to be allocated to Medicare; the report is filed with the

provider’s fiscal intermediary, which is typically a private insurance company

acting under contract with the CMS. After auditing the provider’s cost report, the

fiscal intermediary determines the amount of reimbursement owed to the provider

by Medicare through the issuance of a notice of program reimbursement (“NPR”). 

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 The BBA’s amendments to the Medicare Act were designed to combat

rising Medicare costs.

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If the provider is dissatisfied with the NPR and the amount in controversy is at

least $10,000, it may file an appeal with the Provider Reimbursement Review

Board (“PRRB”), an administrative review panel appointed by the Secretary that

has the power to conduct an evidentiary hearing and affirm, modify or reverse the

intermediary’s NPR determinations. The PRRB’s decision constitutes the

Secretary’s final administrative decision regarding the amount of reimbursement

unless the PRRB’s decision is timely reversed, affirmed or modified by the

Secretary’s delegate, the Administrator of the CMS. If it meets certain

jurisdictional prerequisites, a Medicare provider dissatisfied which the final

administrative decision may obtain judicial review. University Medical Center of

Southern Nevada v. Thompson, 380 F.3d 1197, 1199 (9th Cir.2004).

In order to improve an administratively burdensome payment methodology

that resulted from the reasonable cost basis of reimbursing Medicare providers of

ambulances services, Congress, pursuant to the Balanced Budget Act of 1997

(“BBA”), mandated the establishment of a national fee schedule to govern

Medicare reimbursement rates for ambulance service providers.4

 42 U.S.C.

§ 1395m(l). The BBA required the Secretary to apply the revised fee schedules

to services furnished on or after January 1, 2000, but the Secretary did not in fact

enact the new fee schedule until April 1, 2002. Because the mandated fee

schedule was not to take effect immediately, Congress provided that the

Secretary in the interim was to pay for outpatient ambulance services provided by

hospitals on the reasonable cost basis set forth in 42 U.S.C. § 1395x(v)(1)(U), or

if applicable, the fee schedule established by § 1395m(l). 42 U.S.C. 

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 The reimbursement regulations are found within 42 CFR pt. 413.

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§ 1395l(t)(10). In calculating the reasonable cost of ambulance services, the BBA

also established a cost per trip limit. 42 U.S.C. § 1395x(v)(1)(U). The Medicare

Act grants the Secretary broad discretion to promulgate regulations establishing

the methods to be used and the items to be included in determining providers’

reasonable costs.5

 Good Samaritan Hospital v. Shalala, 508 U.S. 402, 405, 113

S.Ct. 2151, 2154 (1993) (“Rather than attempt to define ‘reasonable cost’ with

precision, Congress empowered the Secretary to issue appropriate regulations

setting forth the methods to be used in computing such costs.”); 42 U.S.C. 

§ 1395ff(a)(1) (“The Secretary shall promulgate regulations and make initial

determinations with respect to [Medicare] benefits ... in accordance with those

regulations[.]”)

In determining the Medicare reimbursement due the plaintiff for the cost

reporting periods at issue, the plaintiff’s fiscal intermediary applied 

§ 1395x(v)(1)(U)’s interim cost limits to the plaintiff’s ambulance costs. In doing

so, the intermediary applied a single, blended limit to both ground and air

ambulance costs and the intermediary determined the plaintiff’s per trip limit for

each affected cost reporting period based on the reasonable costs the plaintiff

incurred in the immediately preceding cost reporting period. The intermediary

further applied the per trip cost limit methodology to the plaintiff’s ambulance

costs incurred after January 1, 2000 due to the untimely implementation of the

required national ambulance fee schedule.

The plaintiff appealed its fiscal intermediary’s NPRs for the fiscal years at

issue to the PRRB; the appeals were consolidated into a single appeal before the

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6

 The Administrator’s decision was actually issued by CMS’s acting

deputy administrator, to whom the Administrator delegated the authority to review

PRRB’s decisions. For purposes of this Order, the Court refers to any action

(continued...)

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PRRB. The plaintiff, contending that the amount of Medicare funds in

controversy was $916,320, raised three major issues on appeal to the PRRB:

(1) that the intermediary misinterpreted the BBA by requiring the plaintiff’s per trip

limit to be determined based upon the costs incurred by the plaintiff in the

immediately preceding cost reporting period rather than using 1997 as the base

year for purposes of calculating the plaintiff’s per trip limits in fiscal years 1999

forward; (2) that the intermediary’s use of a single per trip limit for both air and

ground ambulance services in all years at issue was improper given the large

disparity in the nature of these services and their respective costs; and (3) that

CMS did not have the authority to apply the per trip limits imposed by the BBA

after January 1, 2000, notwithstanding that the ambulance fee schedule

reimbursement methodology was not implemented on time.

On December 18, 2008, the PRRB issued a decision that affirmed CMS’s

position regarding the first two issues, but ruled for the plaintiff on the third issue,

holding that no statutory or regulatory provision extended the cost per trip limits

beyond January 1, 2000. As a result, the PRRB ordered CMS to reimburse the

plaintiff under principles of reasonable cost reimbursement for Medicare-related

ambulance services between January 1, 2000 and April 1, 2002.

At the request of the plaintiff’s fiscal intermediary, the Administrator

reviewed the PRRB’s decision, and on February 24, 2009, issued a decision that

affirmed the PRRB on the first two issues, but reversed the PRRB’s determination

that CMS had no authority to apply the per trip limits after January 1,2000.6

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(...continued)

taken by a deputy administrator as being taken by the Administrator.

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The plaintiff, noting that there is a statutory and regulatory deadline by

which the Administrator must issue a decision reviewing a PRRB’s decision, 

requested that the Administrator’s decision be vacated as untimely. Underlying

the plaintiff’s request was its contention that it received its copy of the PRRB’s

decision on December 23, 2008, as evidenced by its time stamp on the PRRB’s

cover letter. The Administrator refused to vacate the decision, and subsequently

refused to reconsider that determination, based on the Administrator’s belief that

the date stamp relied upon by the plaintiff had been hand-altered by the plaintiff

and based on the plaintiff’s failure to provide additional information requested by

the Administrator related to the timing of the plaintiff’s receipt of the PRRB’s

decision. The plaintiff has augmented the administrative record in part by

submitting with its summary judgment motion an affidavit from an administrative

assistant in the plaintiff’s administration department, who states that she received

the PRRB’s decision on December 23, 2008 and dated stamped it as such, but

then hand-wrote a three on the “23" date because the ink on the date stamp was

dry and the stamped “3" only faintly appeared.

Discussion

A. Reviewable Decision

The threshold issue before the Court is whether the Administrator’s

decision or the PRRB’s decision constitutes the final administrative decision that

is subject to judicial review. The Court agrees with the plaintiff that it is the

PRRB’s decision that constitutes the Secretary’s final decision for review

purposes inasmuch as the Administrator’s decision was untimely.

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7

 See also, 42 C.F.R. § 405.1877(b)(4) (“A Board hearing decision ... is

final and binding on the parties to the Board appeal unless the hearing decision is

reversed, affirmed, modified, or remanded by the Administrator ... no later than 60

days after the date of receipt by the provider of the Board’s decision.”)

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Pursuant to 42 U.S.C. § 1395oo(f)(1), “[a] decision of the [Provider

Reimbursement Review] Board shall be final unless the Secretary ... within 60

days after the provider of services is notified of the Board’s decision, reverses,

affirms, or modifies the Board’s decision.” In accordance with the statute, the

regulations promulgated by the Secretary provide in relevant part that the PRRB’s

decision “is final and subject to judicial review” if it is a hearing decision and “is

not reversed, affirmed, modified, or remanded by the Administrator ... within 60

days of the date of receipt by the provider of the Board’s decision.” 42 C.F.R. 

§ 405.1877(a)(3).7

 The regulations provide that a Medicare provider is

conclusively presumed to have received the PRRB’s decision five days after the

issuance of the decision unless the presumption is overcome by a preponderance

of the evidence showing that the decision was actually received by the provider

on a later date, 42 C.F.R. § 405.1801(A)(1)(iii), and that the rendering date of the

Administrator’s decision for purposes of calculating the 60-day limit is the date the

Administrator signs the decision. 42 C.F.R. § 405.1875(a)(1). The parties do not

dispute that the PRRB issued its decision on December 18, 2008, that the

presumptive receipt date of that decision by the plaintiff was December 23, 2008,

that the plaintiff claims to have actually received the PRRB’s decision on

December 23, 2008, and that the Administrator’s decision was signed on

February 24, 2009. The parties also do not dispute that if the plaintiff’s date of

receipt of the PRRB’s decision was December 23, 2008, then the Administrator’s

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 As calculated by the method required by 42 C.F.R. § 405.1801(d)(3) -

since the 60th day after December 23, 2008 was a Saturday, the due date for the

Administrator’s decision was Monday, February 23, 2009.

9

 The Court rejects the Secretary’s argument that the presumption was

overcome when the plaintiff submitted a receipt document that contained a handaltered date of receipt and then refused to provide an explanation to her as to

why the date on the document had been altered. Even if the Court were to

accept the Secretary’s implied premise, i.e. that the plaintiff had the date on the

receipt stamp hand-altered in order to conceal the actual date of receipt, and the

Court notes that the record contains no such evidence that was the plaintiff’s

intent, such speculation does not constitute a preponderance of evidence that the

plaintiff actually received the PRRB’s decision sometime after December 23,

2008.

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decision was untimely as it was issued one day late.8

The Court need not, and does not, rely on the plaintiff’s extra-record

evidence regarding its date of receipt of the PRRB’s decision because the plaintiff 

is conclusively presumed to have received that decision on December 23, 2008. 

Under the controlling regulation, it is the Secretary’s burden to rebut the

presumptive receipt date by establishing by a preponderance of the evidence that

the plaintiff actually received the PRRB’s decision on some date after December

23, 2008, and the Secretary has made no such showing. As the Secretary

concedes in her reply memorandum, she “is not in a position to know on what

date Plaintiff received the Board’s decision[.]” (Doc. 32 at 2-3).9

Since the Administrator accepted review of the PRRB’s decision but failed

to render a decision within the required 60-day period, the Administrator’s

“inaction constitutes an affirmation of the Board’s decision by the Administrator[.]”

42 C.F.R. § 405.1877 (b)(4). Since the PRRB’s decision constitutes the

Secretary’s final decision for judicial review purposes, the issues before the Court

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10

 The Court thus does not reach the issue of whether the PRRB properly

resolved the third issue, i.e. whether CMS had the authority to set per trip limits

after January 1, 2000, or any issue raised by the plaintiff concerning the propriety

of the Administrator’s refusal to vacate as untimely the decision reviewing the

PRRB’s decision, or any issue raised by the Secretary concerning whether the

plaintiff has waived certain arguments by not raising them before the

Administrator subsequent to the PRRB’s decision.

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for review are thus just the two issues decided adversely to the plaintiff by the

PRRB.10

The Court’s review of the Secretary’s decision, as set forth by the PRRB, 

is governed by the judicial review provision of the Administrative Procedure Act

(“APA”). Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512, 114 S.Ct. 2381,

2386 (1994); County of Los Angeles v. Leavitt, 521 F.3d 1073, 1078 (9th Cir.

2008). Under the APA’s narrow standard of review, the Court may set aside the

Secretary’s decision only if it finds that decision to be arbitrary, capricious, an

abuse of discretion, not in accordance with the law, or unsupported by substantial

evidence on the record taken as a whole. 5 U.S.C. § 706(2). While this highly

deferential standard presumes that the Secretary’s action is valid, Providence

Yakima Medical Center v. Sebelius, F.3d , 2010 WL 2875530, at *7 (9th Cir.

July 23, 2010); see Robert F. Kennedy Medical Center v. Leavitt, 526 F.3d 557,

562 (9th Cir.2008) (The broad deference granted to the Secretary in her

interpretations of the Medicare Act is “especially warranted” given that the

“complex and highly technical” nature of the Medicare program), the Court must

nevertheless reject a statutory construction implemented by the Secretary that is

contrary to clear congressional intent or that frustrates the policy that Congress

sought to implement. French Hospital Medical Center v. Shalala, 89 F.3d 1411,

1416 (9th Cir.1996).

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B. Use of Rolling Base Years to Calculate the Plaintiff’s Annual Per Trip Limits

The plaintiff argues that the Secretary erred in applying what it describes

as a series of rolling base years in calculating its per trip limits during the time

period at issue. According to the plaintiff, each fiscal year the CMS recalculated

its per trip limit using the prior year’s costs and number of trips, and then applied

the lower of its prior year’s cost per trip or actual costs in determining its inflationadjusted reimbursement. The plaintiff’s contention is that the unambiguous

language and intent of the governing statute, 42 U.S.C. § 1395x(v)(1)(U), instead

required that each of its post-1997 per trip limits during the interim period be

calculated using its 1997 base year limit and adjusting that limit annually by an

inflation factor. As a result, the plaintiff seeks a declaration that it is entitled to

reimbursement for air and ground ambulance services through December 31,

1999 in accordance with its reasonable costs using FYE 1997 as the sole base

year. 

The statute provides in relevant part that 

[i]n determining the reasonable cost of ambulance services ...

provided during fiscal year 1998, during fiscal year 1999, and during

so much of fiscal year 2000 as precedes January 1, 2000, the

Secretary shall not recognize the costs per trip in excess of costs

recognized as reasonable for ambulance services provided on a per

trip basis during the previous fiscal year ..., increased by the

percentage increase in the consumer price index for all urban

consumers (U.S. city average) as estimated by the Secretary for the

12-month period ending with the midpoint of the fiscal year involved

reduced by 1.0 percentage point.

(Emphasis added). The plaintiff’s position is that by using the term “year” instead

of the plural “years,” Congress plainly signaled its intent that there be only a

single base year and that 1997, as the fiscal year previous to the implementation

of § 1395x(v)(1)(U), be used as the sole base year for purposes of calculating the

per trips limits for future years. The PRRB, which noted that the statute could

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reasonably be interpreted as suggested by both sides, adopted the CMS’s

position that the term “year” should be interpreted as referring, in any given year,

to the immediately preceding fiscal year:

The Intermediary correctly determined the Provider’s per

trip limits based upon the costs incurred by the Provider

in the fiscal year immediately preceding each cost

reporting period, e.g., the limit determined from the

Provider’s 1997 cost report is updated for inflation and

applied to the Provider’s 1998 costs, and a limit

determined from the Provider’s 1998 cost report is

updated for inflation and applied to the Provider’s 1999

costs, and so on.

(A.R. at 37). The Court concludes that the Secretary’s interpretation should be

upheld.

The Secretary’s interpretation of ambiguous statutory language in the

Medicare Act, which the Court assumes that the “previous fiscal year” language is

for purposes of resolving the pending cross-motions, must be sustained if the

statute does not unambiguously forbid the Secretary’s interpretation and the

interpretation, for other reasons, does not exceed the bounds of the permissible. 

Barnhart v. Walton, 535 U.S. 212, 218, 122 S.Ct. 1265, 1269 (2002) (citing to

Chrevon, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837,

104 S.Ct. 2778 (1984)); Good Samaritan Hospital v. Shalala, 508 U.S. at 414,

113 S.Ct. at 2159 (“Confronted with an ambiguous statutory provision, we

generally will defer to a permissible interpretation espoused by the agency

entrusted with its implementation.”); Arizona Health Care Cost Containment

System v. McClellan, 508 F.3d 1243, 1253 (9th Cir.2007) (“If a statute’s language

can reasonably be construed in more than one way, a court may not substitute its

own construction of the statute for a reasonable interpretation made by the

agency that Congress entrusted to implement the legislation.”) 

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In this case, the Court concludes that the Secretary’s interpretation, under

any standard of deference applicable to it, is not arbitrary and capricious

inasmuch as her interpretation is not expressly forbidden by the statutory

language at issue and, even if it is not the sole permissible construction of the

statute, it is clearly an entirely permissible and plausible construction as it is

consistent with the text, context, and purpose of the statute.

C. Use of Blended Per Trip Limits

The plaintiff also argues that the Secretary’s use of a single, blended rate

for determining its reimbursable ground and air ambulance costs during the

interim period at issue violated the Medicare Act; its contention is that

reimbursement should have been made using a separate per trip limit for each

type of ambulance service. Neither side maintains that Congress directly

addressed the precise question at issue in the BBA.

The Secretary never issued a formal regulation governing the calculation of

the ambulance cost per trip limit during the interim period; rather, the Secretary,

acting through the CMS, provided ambulance service reimbursement guidance

through various administrative memoranda. For example, in February 1998, the

CMS, through its Program Memorandum A-98-2, indicated to providers that the

average Medicare ambulance cost per trip for purposes of § 1395x(v)(1)(U) would

be calculated using a consolidated rate (A.R. at 283); the CMS subsequently

issued Administrative Bulletin 2559 in April 1999, which involved “questions and

answers” elaborating on the calculation of the interim ambulance per trip limits,

wherein it stated that: 

You are correct that A-98-2 provides for only one cost per trip per

provider and does combine ground and air services. The law 

[§ 1395x(v)(1)(U)] requires a limit to be established on a cost per trip

basis. Therefore, we have determined that this is a single cost per

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 The Court notes that the PRRB was required by regulation to “afford

great weight to interpretive rules, general statements of policy ... established by

CMS” in resolving the plaintiff’s appeal. 42 C.F.R. § 405.1867.

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trip limit per provider. We recognize that by doing so some providers

will benefit and others will be disadvantaged; however, this is only an

interim measure until the ambulance fee schedule is implemented.

(A.R. at 146).

The PRRB, relying solely on the Secretary’s previously adopted

interpretation of 42 U.S.C. § 1395x(v)(1)(U), rejected the plaintiff’s position:

It is undisputed that more accurate program payments would result if

there were separate per trip limits for air ambulance and ground

ambulance costs as opposed to a single limit applicable to each of

these services combined. Moreover, it is undisputed that using a

single limit likely resulted in some providers being overpaid while

others were underpaid. However, there is no language in the statute

addressing this matter or indicating in any way that separate limits

must be used to distinguish air ambulance service costs from ground

ambulance costs. The Secretary also found no provision in the law

that mandated this distinction be made and explained its rationale for

using a single limit in a Question and Answer issuance dated April

23, 1999, and in the preamble to the pertinent regulation. 67 Fed.

Reg. 9117 (Feb. 2002). Based on these facts, the Board finds the

Secretary’s interpretation of the statute reasonable and defers to the

Secretary’s decision to use a single limit applicable to both air and

ground ambulance costs during the interim period beginning on

October 1, 1997 and ending prior to January 1, 2000.

(A.R. at 38.) (footnote omitted).11

The parties dispute, albeit both very cursorily, what level of deference the

Court should apply to the Secretary’s interpretation at issue. Since the issue was

resolved by the Secretary based on an interpretation developed through

administrative memoranda-type documents providing guidance as to the meaning

of the statutory language, rather than through an interpretation established

through formal public notice-and-comment rulemaking or established through

case-by-case formal adjudications, the Court concludes that the Secretary’s

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interpretation warrants the lesser Skidmore-style deference rather than Chevron

deference. See Christensen v. Harris County, 529 U.S. 576, 587, 120 S.Ct. 1655,

1662-63 (2000) (“Interpretations such as those in opinion letters-like

interpretations contained in policy statements, agency manuals, and enforcement

guidelines, all of which lack the force of law - do not warrant Chevron-style

deference. Instead, interpretations contained in formats such as opinion letters

are entitled to respect under our decision in Skidmore v. Swift, 323 U.S. 134, 140,

65 S.Ct. 161, 89 L.Ed. 124 (1944), but only to the extent that those interpretations

have the power to persuade.”) (Internal citations and quotation marks omitted);

Community Hospital of Monterey Peninsula v. Thompson, 323 F.3d 782, 791 (9th

Cir.2003) (“Pronouncements in manuals like the PRM [CMS’s Provider

Reimbursement Manual], which do not have the force of law, are entitled to less

deference than an interpretation arrived at after a formal adjudication or noticeand-comment rulemaking.”) The weight to be accorded the Secretary’s

interpretation under Skidmore depends on its “power to persuade,” which is a

function of the thoroughness evident in the Secretary’s consideration of the issue

and the validity of her reasoning. United States v. Mead Corp., 533 U.S. 218,

228, 121 S.Ct. 2164, 2172 (2001); Resident Councils of Washington v. Leavitt,

500 F.3d 1025, 1037 (9th Cir.2007). In this case, the Court concludes that the

Secretary’s interpretation at issue is entitled to little deference in the Court’s

reasonableness review notwithstanding the Secretary’s specialized skill in

implementing the complex Medicare program due to the interpretation’s lack of

persuasiveness.

The plaintiff argues that the blended rate policy violates the Medicare Act

because it is not a reimbursement methodology based on “reasonable cost”

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principles and the resulting under-reimbursement violates the anti-crosssubsidization tenet of the Act. The Court agrees.

Since there was no national ambulance fee schedule in place during the

time at issue, the BBA required that the “costs per trip” limitation placed on

ambulance service reimbursement was to be calculated using the established

“reasonable cost” methodology. 42 U.S.C. § 1395x(v)(1)(U). The Medicare Act

broadly defines “the reasonable cost of any services” as “the cost actually

incurred, excluding therefrom any part of incurred cost found to be unnecessary

in the efficient delivery of needed health services[.]” 42 U.S.C. § 1395x(v)(1)(A). 

This statutory provision directs the Secretary that any regulations implementing

this reimbursement principle must in part take into account the provider’s direct

and indirect costs of furnishing Medicare services “in order that, under the

methods of determining costs, the necessary costs of efficiently delivering

covered services to individuals covered by [Medicare] will not be borne by

individuals not so covered[.]” Id. Thus, while the Secretary had substantial

discretion to determine how to calculate Medicare reimbursement in compliance

with § 1395x(v)(1)(U), such discretion was limited by the mandates of 

§ 1395x(v)(1)(A) that the method chosen had to be based on the application of

reasonable cost principles, County of Los Angeles v. Sullivan, 969 F.2d 735, 742

(9th Cir.1992) (“In sum, Congress authorized the Secretary to promulgate all

manner of reimbursement calculation methods so long as they reasonably

reflected actual costs[,]”) and had to prevent cross-subsidization. Community

Hospital of Monterey Peninsula v. Thompson, 323 F.3d at 786 and n.1 (Court,

noting that “[t]he Medicare statute and regulations prohibit cost shifting,” used as

an example of prohibited cost shifting the fact that “when Medicare covers only 80

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 The Secretary’s general regulations related to Medicare

reimbursement of reasonable costs of patient care recognize that a provider is

entitled to proper reimbursement that reflects differences in the scope of services

and the intensity of care. See e.g., 42 C.F.R. § 4134.9(c)(3) (“The reasonable

cost basis of reimbursement contemplates that the providers of services would be

reimbursed the actual costs of providing quality care however widely the actual

costs may vary from provider to provider and from time to time for the same

provider.”)

13

 The plaintiff argued to the PRRB that its air ambulance costs were

approximately 10 times those of its ground ambulance costs on a per trip basis

and that the use of the blended per trip limit for the years at issue (FYE 6/30/98

through FYE 6/30/2001) resulted in an under-reimbursement for air ambulance

services in the cumulative amount of approximately $736,000. (A.R. at 43, 200

and 408).

 While Congress did not expressly require separate limits for air and

ground ambulance services in the BBA, Congress clearly was aware that

financial distinctions existed between such services because it required the

Secretary, in drafting the national ambulance service fee schedule, to “establish

definitions for ambulance services which link payments to the type of services

provided” and to consider appropriate “operational differences” in ambulance

services. 42 U.S.C. § 1395m(l)(2). The Secretary did so in that the ambulance

(continued...)

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percent of a procedure’s cost, the hospital’s other patient’s would have to pay for

the 20 percent loss through higher medical bills.”); Providence Hospital of

Toppenish v. Shalala, 52 F.3d 213, 214 (9th Cir.1995).12 

The Secretary does not dispute, or at least has not controverted, the

accuracy of the plaintiff’s contention that there was a significant difference

between the costs associated with its Medicare-related ground ambulance

services and its air ambulance services during the period at issue or that the

blended rate reimbursement policy significantly disadvantaged it and forced it to

recoup its Medicare under-reimbursement through higher charges to nonMedicare patients.13 Notwithstanding this, neither the Secretary’s decision at

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service fee schedule that was subsequently adopted not only expressly

distinguishes between the cost of ground and air ambulance services for

reimbursement purposes, it established several categories of ground ambulance

services and two categories (fixed wing and rotary) of air ambulance services.

(A.R. at 159).

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issue, nor the CMS’s elucidations regarding the administrative interpretation

underlying that decision, articulate any explanation as to how the relied-upon

blended rate policy sensibly conforms with the “reasonable cost” provision or the

cross-subsidization ban aspects of §1395x(v)(1)(A), which are both incorporated

into § 1395x(v)(1)(U) and into the Secretary’s reimbursement-related regulations. 

The Secretary’s explanations in fact expressly recognized that the blended rate

policy would result in providers being either under-reimbursed or over-reimbursed

for ambulance services, all without any reasoned analysis as to how either

scenario results in a reimbursement that reasonably reflects actual costs. 

The Secretary’s rationalization that the blended rate policy was appropriate

despite its acknowledged failure to fully reimburse providers of both air and

ground ambulance services because the policy was only temporary cannot justify

the policy’s departure from the reasonable cost and cost-shifting tenets of the

Medicare Act. Simply stated, the Court cannot conclude from the Secretary’s

cursory explanations in the administrative record for the blended rate policy that

she considered the effects of the policy in a sufficiently reasoned fashion, or that

the policy constitutes a reasonable accommodation of the reimbursement policy

that Congress sought to implement. See Motor Vehicle Manufacturers Ass’n of

the United States, Inc. v. State Farm Mutual Automotive Ins. Co., 463 U.S. 29,

43, 103 S.Ct. 2856, 2867 (1983) (Supreme Court noted that an administrative

interpretation that entirely fails to consider an important aspect of the problem is

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arbitrary and capricious.) Therefore,

IT IS ORDERED that Flagstaff’s Medical Center’s Motion for Summary

Judgment (Doc. 17) is granted in part and denied in part. 

IT IS FURTHERED ORDERED that Defendant’s Cross-Motion for

Summary Judgment (Doc. 22) is granted in part and denied in part.

IT IS FURTHER ORDERED that the defendant’s determination, as

reflected in the decision of the Provider Reimbursement Review Board, to

reimburse the plaintiff using a single trip ambulance cost limit applicable to both

air ambulance services costs and ground ambulance service costs combined is

reversed; the Secretary shall recalculate, as necessary, the plaintiff’s

reimbursement for ambulance services for Medicare patients during the time

period at issue using separate per trip limits for ground ambulance services and

air ambulance services. The Provider Reimbursement Review Board’s decision

is affirmed in all other respects.

IT IS FURTHER ORDERED that the plaintiff, after consultation with the

defendant, shall submit a proposed form of judgment no later than September 17,

2010. Any objection by the defendant to the proposed form of judgment shall be

filed no later than September 27, 2010.

 DATED this 29th day of August, 2010.

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