Source: https://law.justia.com/cases/federal/appellate-courts/F2/766/321/302852/
Timestamp: 2020-05-25 15:56:40
Document Index: 419716034

Matched Legal Cases: ['§ 1395', '§ 1395', '§ 1395', '§ 706', '§ 1395', 'art 1', 'art 1', 'art 1', '§ 1395', 'art, 601']

10 Soc.sec.rep.ser. 187, Medicare&medicaid Gu 34,694bedford Medical Center, Plaintiff-appellant, v. Margaret M. Heckler, Secretary of Health & Human Services,defendant-appellee, 766 F.2d 321 (7th Cir. 1985) :: Justia
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10 Soc.sec.rep.ser. 187, Medicare&medicaid Gu 34,694bedford Medical Center, Plaintiff-appellant, v. Margaret M. Heckler, Secretary of Health & Human Services,defendant-appellee, 766 F.2d 321 (7th Cir. 1985)
US Court of Appeals for the Seventh Circuit - 766 F.2d 321 (7th Cir. 1985) Argued April 24, 1985. Decided July 1, 1985
The plaintiff appealed these adjustments to the Provider Reimbursement Review Board (PRRB). 42 U.S.C. § 1395oo(a) (1) (A) (1982); 42 C.F.R. Sec. 405.1835(a) (1982). The PRRB affirmed the Intermediary's adjustments in part, and modified them in part. Because the Deputy Administrator of the Health Care Financing Administration declined to reverse, affirm, or modify the PRRB's decision, it became the Secretary's final decision. See 42 U.S.C. § 1395oo(f) (1) (1982); 42 C.F.R. Sec. 405.1871(b) (1982). The plaintiff appealed this decision to the district court. 42 U.S.C. § 1395oo(f) (1) (1982); 42 C.F.R. Sec. 405.1877 (1982).
Our standard of review of this reimbursement decision has been established by the Administrative Procedure Act. 5 U.S.C. § 706 (1982). When reviewing administrative decisions, federal courts are authorized to set aside agency decisions only when they: are arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law; are contrary to constitutional right, power, privilege, or immunity; exceed statutory jurisdiction or fall short of statutory right; are reached in violation of established procedure; or are unsupported by substantial evidence. Id.; St. Francis Hosp. Center v. Heckler, 714 F.2d 872, 873 (7th Cir. 1983), cert. denied, --- U.S. ----, 104 S. Ct. 1274, 79 L. Ed. 2d 679 (1984); Pleasantview Convalescent & Nursing Center, Inc. v. Weinberger, 565 F.2d 99, 102 (7th Cir. 1976). We note also that the interpretations of regulations issued pursuant to a statute, especially a statute as complex as the Medicare Act, are entitled to considerable deference. St. Francis Hosp. Center, 714 F.2d at 873; St. Mary of Nazareth Hosp. Center v. Department of Health & Human Servs., 698 F.2d 1337, 1346 (7th Cir.), cert. denied, --- U.S. ----, 104 S. Ct. 107, 78 L. Ed. 2d 110 (1983); see Udall v. Tallman, 380 U.S. 1, 16, 85 S. Ct. 792, 801, 13 L. Ed. 2d 616 (1965).
When a provider of Medicare services enters into an independent contractor arrangement with a physical therapy service, both the Act and the regulations issued pursuant to it provide that the independent contractor shall not be paid more than the prevailing salary (plus any additional costs incurred by the provider for the benefit of the therapist) which a physical therapist who is an employee of a provider receives. 42 U.S.C. § 1395x(v) (5) (A) (1982); 42 C.F.R. Sec. 405.432(a) (1982). The prevailing salary is "the hourly salary rate based on the 75th percentile of salary ranges paid by providers in the geographical area...." 42 C.F.R. Sec. 405.432(b) (1) (1982). The Secretary relied on data gathered during a Bureau of Labor Statistics survey to determine the 75th percentile of salary ranges paid to physical therapists. PRRB Decision No. 79-D8. [1979-1 Transfer Binder] Medicare & Medicaid Guide (CCH) p 29,628 at 9956, rev'd, HCFA Administrator Decision [1979-1 Transfer Binder] Medicare & Medicaid Guide (CCH) p 29,703, aff'd, Mercy Hosp. of Laredo v. Harris, No. H-79-884 (S.D.Tx.1984) (appeal pending before the Fifth Circuit). This survey, conducted originally in 1972 but updated to reflect economic changes, gathered data from twenty-one standard metropolitan statistical areas (SMSAs). Nineteen SMSAs generated statistically significant data. Id. It is the application of the guidelines based on this data to which the plaintiff objects.
42 C.F.R. Sec. 405.432(f) (2) (1982). Thus, it seems as if the guidelines were not intended to be an ironclad set of standards for making reimbursement decisions, but rather were intended to provide an approximate rule of thumb by which intermediaries could make those decisions. As is clear from the regulation setting forth the exception, the burden is on the provider to prove that, in its particular situation, the guidelines are not an appropriate rule of thumb. Id.; see also Provider Reimbursement Man., Part 1, Sec. 1414.2, reprinted in Medicare & Medicaid Guide (CCH) p 5849D-58. The Provider Reimbursement Manual elaborates on the exception procedure.2 Once a provider establishes a prima facie case that the going rate for physical therapy or other services in the area is higher than the guidelines, the intermediary is to survey the other providers in the area to determine what the going rate is for the particular specialist. This survey should include similarly situated providers. Thus, the intermediary's ultimate decision as to the extent of the reasonable costs is made by assessing the applicant's costs vis-a-vis other providers in the relevant area, not on the guidelines. Provider Reimbursement Man., Part 1, Sec. 1414.2 reprinted in Medicare & Medicaid Guide (CCH) p 5849D-58 at 1931-48, 1931-49.
The Intermediary had determined that the DSRF was not a funded depreciation account because its source was borrowed funds. Thus, the Intermediary concluded that income earned on the DSRF could be used to offset interest expenses. However, the PRRB reversed the Intermediary and found for the plaintiff on this issue. The PRRB concluded that the DSRF should be treated as funded depreciation, regardless of its source, because it was to be used for the capital purpose of paying off a mortgage principal. As a result, the income earned on the DSRF was not to be used to offset interest expenses. However, the PRRB went on to hold that the interest expense incurred in funding the DSRF was not reimbursable under the Medicare Act. The plaintiff argues that, while it was correct in deciding that the income earned on the DSRF should not be used to offset interest expenses, the PRRB's decision to disallow the interest expense on the borrowed money used to fund the DSRF was incorrect because the plaintiff easily could have taken the money it put into the construction fund and put it in the DSRF instead. We recently considered and rejected a similar argument in Memorial Hospital of Carbondale v. Heckler, 760 F.2d 771 (7th Cir. 1985).
For the time period relevant here, the Provider Reimbursement Manual provided as follows: " [w]hen a provider borrows money to make deposits of funded depreciation, interest paid by the provider on the money borrowed for this purpose is not allowable as cost." Provider Reimbursement Man., Part 1, Sec. 226.5, reprinted in Medicare & Medicaid Guide p 5159.01. Thus, it is clear that the Secretary correctly disallowed the interest expense the plaintiff incurred on the DSRF. Memorial Hosp. of Carbondale, 760 F.2d 779-782. However, the plaintiff argues that because it could have put the personal money it put into the construction fund into the DSRF: the income earned on the DSRF should be excluded from the offset rule; the income earned on the money the plaintiff contributed to the construction fund should be excluded from the offset rule; and the interest expense on the borrowed money in the DSRF should be a reimbursable cost.
This argument is unacceptable for the reasons which we articulated in Memorial Hospital,3 760 F.2d 781-782, and for the additional reason that the Secretary should not be required to trace a provider's funds to determine whether an allowance on interest expense would have been permissible if the provider had invested its money differently. Cheshire Hosp. v. New Hampshire-Vermont Hosp. Serv., Inc., 689 F.2d 1112, 1124, 1126 (1st Cir. 1982). The bond agreement specifically required that the plaintiff was to contribute $652,333.75 of its own money to the construction fund. We assume that decision was made for investment purposes, and neither we nor the Secretary should be required to ignore the terms of the bond agreement simply because the decision turned out to be less profitable than might have been supposed. Accordingly, we hold that the Secretary's decision to disallow as a Medicare expense the interest paid on the money borrowed to fund the DSRF was not arbitrary, capricious, or in violation of the law.4
A Medicare provider is entitled to reimbursement for reasonable costs incurred in the production of services. 42 U.S.C. § 1395f(b) (1982); 42 C.F.R. Sec. 405.402(a) (1982). However, there must be a relation between the costs incurred and the care of beneficiaries.
42 C.F.R. Sec. 405.451(c) (3) (1982). Apparently, the PRRB did not feel that the costs incurred in recruiting doctors for an independent corporation were sufficiently related to the care of Medicare beneficiaries to warrant reimbursement. We have no trouble sustaining that decision.
If we accepted the plaintiff's argument then, as we intimated in Memorial Hospital, the plaintiff would receive a windfall at the expense of Medicare rather than reimbursement for its reasonable costs. 760 F.2d 781-782. Further, the purpose behind the relevant regulations would be defeated. The regulations encourage funded depreciation in order to reduce the interest expense which Medicare must reimburse. Id. at 19-20; Cheshire Hosp. v. New Hampshire-Vermont Hosp. Serv., Inc., 689 F.2d 1112, 1125 (1st Cir. 1982), citing, HCFA Dec. No. 77-D10, [1977] Medicare & Medicaid Guide (CCH) p 28,422 at 9497; Sacred Heart Hosp. v. Heckler, 601 F. Supp. 299, 302 (E.D. Pa. 1984). See 42 C.F.R. Sec. 405.415(e) (1982); 42 C.F.R. Sec. 405.418(b) (1982). If the Secretary excluded the income earned from borrowed funds from the offset rule and allowed the interest paid on those funds as a Medicare expense, she would be creating an incentive for providers to borrow. Sacred Heart, 601 F. Supp. at 302; see also Cheshire, 689 F.2d at 1125
St. Francis Community Hospital v. Schweiker, [1984-2 Transfer Binder] Medicare & Medicaid Guide (CCH) p 34,156 (D.S.C. Mar. 10, 1983), aff'd mem., 725 F.2d 677 (4th Cir. 1984) is not to the contrary. The question in that case was whether a provider had to reduce the balance of its funded depreciation account to zero--when a loan agreement with the Department of Health, Education, and Welfare required that a minimum balance be maintained--before it could be reimbursed for the interest expense on a loan incurred for and spent on capital assets. Unlike the case before us, the borrowed money was spent. Thus, no income was earned on the money. Id., at 10, 186-10, 189