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w . v i l l a no va . e du/thir dc ir c uit_2005/1560NOT PRE CEDENT IAL UNITED STATES COURT OF APPEALS FO R T HE TH IRD CIR CU IT

__________ NO. 04-1258

__________ M ER C ER ST R EE T F R IE N D S, N ew Je rse y,

Appellant

v. UNIT ED STA TES OFAMERI CA, Department of H ealth and Human Services, Centers for

Medicare & Medicaid Servi ces

__________ On A ppeal from the Un ited States District Co urt

for the Dis tri ct of New Jersey (D.C. Civi l No. 02-cv- 05487) District Judge: H onorab le Garrett E. B rown , Jr.

__________ Submitte d Under Third Circ uit LAR 34.1(a)

on December 7, 2004 Be for e: R EN DE LL , FIS HE R a nd Y OH N* , Circu it Judges
.

(Fil ed: January 19, 2005)

__________ OPINI ON OF THE COURT

__________

__________________________________ * Hon. Willi am H. Yohn, Jr., Senior Judgeof the Unit ed State s District Court for the Eastern Dis tri ct of Pennsy lvania , si tti ng by des ignati on.2

YO HN , Distri ct Judge
. Mercer Stree t Fri ends, New Jersey (“appel lant” ) appeal s from an order of the dist rict court gr anting s ummary judgment to the United State s Department of Health and Human Services, Centers for Medicare and Medicaid Services ( “appell ee”). Our ju ri sdi ct io n aris es und er28 U. S. C. § 129 1. We wil l a ffirm. I. Ap pellan t is a unit o f M ercer S treet Frie nds C enter, a Ne w Je rsey non -prof it corporation. (A pp. at 253.) A mon g its program s, appellant prov ides hom e health care services to the elde rly and infirm in the T renton area. (A pp. at 002.) The F riends Ce nter Fund , Inc. is a non-prof it corporation that m anages a ppellant’s endo wm ent. (A pp. at 0 03.) C adw alder P rope rties, Inc. (“ Cad wa lder”) w as a n on-p rofit corporation e stablished to ho ld title to the property rented by appellant. (Ap p. at 253-54 .) Cadwalder was diss olved as an e ntit y i n October 1996, and all of its asset s were returned to Mercer Street Fri ends Center. (App. at 254. ) Appellant borrowed money fr om and paid interest

to the Friends Cente r Fund, Cadwalder, and commercialbanks duri ng fiscal year 1996. In its 1996 fisca l year, appellant received ap proxima tely $3 million in M edicare reimburs ements. In it s annual cos t report, appellant claimed $113,000 pai d in working capit al interest

on loans of approximatel y $1. 2 mill ion. ( App. at 003. ) The clai med interest r eflected $43,000 pai d on loans fr om commercial banks and $70,000 pai d on1 42 C.F.R. § 413.153(c)(2) provides that “[i]f t he general fund of a provider ‘borrows’ from a donor-restricted fund and pays interest to t he restricted fund, this interest expense is an al lowable cost .” This allowance i s an exception “to t he generalrule regarding interest on l oans from controlled s ources. ” 3 loan s fro m th e Fr iend s C ente r Fu nd. ( Id. ) In ad dition, a ppella nt claim ed $1 0,994 in inter est p aid to Ca dw alde r. ( Id. ) In the s pring of 1998, United Government Services ( “UGS”), appell ant’s fiscal intermediary , performed an audit of appellant’s f inances, reviewed the cost report t hat appell ant had submit

ted, and issue d a “noti ce of program r eimbursement ” (“NPR”) denyi ng reimburs ement for the inte rest paid on theloans. (App. at 004. ) Appellant appealed UGS’s deci sion t o the Provi der Reimbursement Review Board (“PRRB”), and a heari ng wa s he ldon Au gus t 2 5, 199 9. In a de ci si on d at ed J une 29, 200 0, th e PRRB, recognizing a need f or wo rking capital du e to the lag in M edicare payme nts to providers of s erv ices , allow ed in teres t reim bur sem ents on o ne m ont h’s a ver age ope ratin g ex pen ses. (App. at 264. ) Appellant then sought

review in t

he United States Dist

rict Court for t

he District of N ew Jerse y, but on M arch 19, 20 01, the parties agree d to (and the district court entere d) an order

remanding the matter

to the PRRB for a deci sion on the appli cabil ity of the “ don or re stricte d fu nds ” ex cep tion to M edic are’ s rela ted p arty ru le. See 42 C. F. R. § 413.15 3(c)(2). 1 On September 19, 2002, the PRRB issued a new decis ion, fi nding that th e Frie nds CenterFundwas a don orre stri ct ed f

und as def

in ed i n 42 C.F .R. § 413.153(c) (2), but als o concludi ng that t his fi nding had no effect on its previous4

decision rega rding the allow ance of interest reimbursem ents based on one mon th’s exp ens es. (A pp. a t 87 .) II. Appellant

again sought

review in t

he dist rict court, both si des eventua lly moved for sum mary judgm ent, and by me moran dum opinion d ated D ecemb er 30, 200 3, the court granted ap pellee’s mo tion and de nied that of ap pellant. (App . at 2-15.) The d istrict court found that

the PRRB’s decisi on was “a determinati on based upon already e stabl ished regulat ions under

the Medicare s tatute,” and t hus fit “into t he category of an ‘ inter preti ve’ rule or adjudic ation. ” The court rejected appell ant’s argument that thedecisi on amounted to prohi bited r

ule-maki ng. The court

also found t

hat thePRRB decisi on was supported by subs tanti al evi dence, as it hel d that “ the PRRB properlyassess ed whether the loan for
wo rkin g ca pital wa s a n ece ssar y exp ens e un der the r egu latio ns.” III. This Court reviews de novo a dis trict c our t’s gr ant o f su mm ary jud gm ent. Greenberg v. Unit

ed State s , 46 F.3d 239, 242 (3d Cir. 1995). Becausethis case invol ves judicia l review of a M edica re reim burse men t decisio n of the S ecreta ry, that review is govern ed by the judicial review provision o f the A dministrative Pro cedure A ct (“AP A”), 5 U .S.C . § 70 6, w hich is no w in cor por ated into the M edic are s tatut e. See 42 U. S. C. § 1395oo(f)( 1). Thus, unless t his Court finds that thereimburs ement decis ion was “arb itrary, ca pric iou s, an abu se o f dis creti on, o r oth erw ise n ot in acc ord anc e w ith la w,”
we m ust defer to it. 5 U .S.C. § 706 (2)(A).5 IV. Part A of M edica re, a fe derally fu nded health insura nce p rogra m fo r the eld erly and d isabled , autho rizes p aymen ts for c over ed inp atient h ospital s ervice s and related posthos pi ta l s er vi ces , i ncl udi ng thos e fu rn is hedby home hea lt h ag enc ie s. 42 U. S. C. §§ 1395c, 1395d, 1395i. Part A servi ces are furnished by“provider s of servi ces,” whic h receiv e reim burse men ts from M edica re “fisc al interm ediarie s,” w hich a re typically pr iv at e i nsu ra nce comp ani es th atact as age nt s i n ad min is te ri ng the p ro gr am. 42 U. S. C. §§ 1395x(u), 1395h. For the period at i ssue, Medicare paid directl y t o home health age ncies t he “r eas onabl e co st ” of

cov er ed s er vi ces furni she d t o pl an b ene fi ci ar ie s. 42 U. S. C. § 1395f(b)( 1). “Reasona ble cost” is defi ned as “the cost act ually incurred, excl uding theref rom any par

t of inc urred cos t found to be unnecessary i n the effi cient delive ry of needed health services.” 42 U.S.C . § 1395x (v)(1)(A). Beyond thi s stat

utorydefini tion, federalregulat ions est ablis h princi ples t o be followed in determining what is and is not a “reasonable cost.” Under the regulations, “[n]e cessa ry and p rope r interest o n bo th curr ent an d cap ital indeb tedne ss is an a llow able cost. ” 42 C.F.R. § 413. 153(a)( 1). I nteres t is “necessary” onl y i f: (1) “[i]t is i ncurred on a loan made to s atis fy a fi nancialneed of the pr ovider; ” (2) “[i ]t i s incur red on a loan made for a purpos e reasonabl y r elat ed to patient c are;” and (3) “[i ]t i s reduced byinvestment inco me exc ept in com e fro m” sev eral e num erate d so urc es. 4 2 C .F.R . § 41 3.15 3(b )(2). “Proper” i nteres t is that whic h is i ncurred at a rate not in exc ess of what a prudent6

borrower would have pai d, and that which i s paid t o a lender not rel ated through
own ership or con trol to the borrow er. 42 C.F.R . § 413.153 (b)(3). Ap pellan t conte nds th at the P RR B’s d ecision , instead of b eing a djud icative o f this parti cular c ase, i mposes “a bri ght-l ine 30-day limi tati on on allowabl e inte rest expense for all providers of home health a gency s ervice s,” and t hus impermis sibl y “i mplements a new methodologyfor dete rmining t he amount of interest

expense that may beclai med as an allowabl e cost. ” (Appellant’s Br. at 19-20, 25-33.) Appellant contends t

hat thi s decis ion
amou nts to prohibited rule-m aking. A ppellant argue s in the alternative that the P RR B’s decisi on was unsupported by substant ial e vidence i n that, inst ead of asses sing whether the loan f or w orkin g cap ital wa s a ne cessa ry expen se un der the regu lations, th e PR RB simp ly imposed the 30- day l imit on interest. (Appellant ’s Br. at 21, 34-43.) Appellant contends that the “record m akes clear that all of M ercer Street Friend s’ borrow ings we re
nece ssitated b y its needs for w orkin g cap ital and inves tmen t in cap ital acqu isitions in order t o maintai n qualit y patient c are,” but that these fa cts were es senti ally ignored bythe PRRB. We conclude that the PRRB’s 30-day limi tati on on interest r eimbursement s was meant to get

at “a fi nancialneed of the pr ovider, ” 42 C.F.R. § 413. 153(b)(2) , and was calcul ated t o ascert ain what amount of i nteres t was “necess ary ” under that regul ation and what inte rest

was thus al lowable as reimbursement . It was the res ult of t

he appli cati on of pre-ex isting p olicies to the fa cts of th is case . The refor e, app ellant’s “ rule-m aking ” claim7

fail s, becaus e the l imit ation was i mposed pursuant to the s tandards set out in the regulat ions, and was based on an anal ysi s of appell ant’s parti cular f inanci al si tuati on. In addition, appell ant’s clai m – that the PRRB ’s 30-day l imitati on on interest reimburs ement was unsupported by s ubstantial e vidence and unrelat ed to thefacts of t he
case – is with out m erit. The PR RB fou nd th at there wa s a legitim ate ne ed fo r app ellant to borrow working capi tal be cause of the one month lag i n payment s it recei ved from payor s. ( App. at 263. ) Furthe r, t he PRRB m ade findi ngs of appell ant’s working capit al needs based on i ts oper ating e xpenses, and a reasonable interest rate, and decided on an
amo unt allo wa ble as a reimb ursem ent. T heref ore, the decisio n w as sup ported by facts gleaned fr om evidence pres ented at the PRRB hearing, was nei ther “arbit rary ” nor “capri cious, ” and was support ed by s ubstantial e vidence. V. For the foregoing rea sons, we wil l AFFIRM the judgment of the United State s D ist ric t C ou rt f or th e D ist ric t o f N ew Je rse y.

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