Source: https://supreme.justia.com/cases/federal/us/514/87/
Timestamp: 2019-01-17 00:14:06
Document Index: 223842790

Matched Legal Cases: ['§ 413', '§ 413', '§ 233', '§ 233', '§ 233', '§ 233', '§ 1395', '§ 1395', '§ 1395', '§ 413', '§ 413', '§ 413', '§ 413', '§ 139500', '§ 233', '§ 233', '§ 233', '§ 1395', '§ 413', '§ 233', '§ 233', '§ 233', '§ 233', '§ 139500', '§ 551', '§ 413', '§ 413', '§ 413', '§ 413', '§ 413', '§ 413', '§ 413']

Shalala v. Guernsey Memorial Hospital :: 514 U.S. 87 (1995) :: Justia US Supreme Court Center
Justia › US Law › US Case Law › US Supreme Court › Volume 514 › Shalala v. Guernsey Memorial Hospital
(a) The Medicare regulations do not require reimbursement according to GAAP. The Secretary's position that 42 CFR § 413.20(a)-which specifies, inter alia, that "[tJhe principles of cost reimbursement require that providers maintain sufficient financial records ... for proper determination of costs," and that "[sJtandardized definitions, accounting, statistics, and reporting practices that are widely accepted in the hospital and related fields are followed"-ensures the existence of adequate provider records but does not dictate the Secretary's own reimbursement determinations is supported by the regulation's text and the overall structure of the regulations and is therefore entitled to deference as a reasonable regulatory interpretation. Moreover, § 413.24-which requires that a provider's cost data be based on the accrual basis of accounting-does not mandate reimbursement according to GAAP, since GAAP is not the only form of accrual accounting. In fact, PRM § 233 reflects a different accrual method. Pp. 92-95.
3. An examination of the nature and objectives of GAAP illustrates the unlikelihood that the Secretary would choose to impose upon herself the duty to go through the time-consuming rulemaking process when-
*Briefs of amici curiae urging affirmance were filed for the American Hospital Association et al. by Robert A. Klein and Charles W Bailey; for the hospitals participating in St. John Hospital v. Shalala by William G. Christopher, Chris Rossman, and Kenneth R. Marcus; and for the Mother Frances Hospital et al. by Dan M. Peterson.
The Secretary's position is in accord with an informal Medicare reimbursement guideline. See U. S. Dept. of Health and Human Services, Medicare Provider Reimbursement Manual § 233 (Mar. 1993) (PRM). PRM § 233 does not purport to be a regulation and has not been adopted pursuant to the notice-and-comment procedures of the Administrative Procedure Act. The fiscal intermediary relied on § 233 and determined that the loss had to be amortized. The Provider Reimbursement Review Board disagreed, see App. to Pet. for Cert. 54a, but the Administrator of the Health Care
Under the Medicare reimbursement scheme at issue here, participating hospitals furnish services to program beneficiaries and are reimbursed by the Secretary through fiscal intermediaries. See 42 U. S. C. §§ 1395g and 1395h (1988 and Supp. V). Hospitals are reimbursed for "reasonable costs," defined by the statute as "the cost actually incurred, excluding therefrom any part of incurred cost found to be unnecessary in the efficient delivery of needed health services." § 1395x(v)(1)(A). The Medicare Act, 79 Stat. 290, as amended, 42 U. S. C. § 1395 et seq., authorizes the Secretary to promulgate regulations "establishing the method or methods to be used" for determining reasonable costs, directing
Assuming, arguendo, that the "[s]tandardized definitions, accounting, statistics, and reporting practices" referred to by the regulation refer to GAAP, that nevertheless is just the beginning, not the end, of the inquiry. The decisive question still remains: Who is it that "follow[s]" GAAP, and for what purposes? The Secretary's view is that § 413.20(a) ensures
The essential distinction between recordkeeping requirements and reimbursement principles is confirmed by the organization of the regulations in 42 CFR pt. 413 (1994). Subpart A sets forth introductory principles. Subpart B, containing the regulation here in question, is entitled "Accounting Records and Reports." The logical conclusion is that the provisions in subpart B concern recordkeeping requirements rather than reimbursement, and closer inspection reveals this to be the case. Section 413.20 is the first section in subpart B, and is entitled "Financial data and reports." In addition to § 413.20(a), the other paragraphs in § 413.20 govern the "[f]requency of cost reports," "[r]ecordkeeping requirements for new providers," "[c]ontinuing provider recordkeeping requirements," and "[s]uspension of program
The Secretary's position that § 413.20(a) does not bind her to reimburse according to GAAP is supported by the regulation's text and the overall structure of the regulations. It
The Secretary's reading of her regulations is consistent with the Medicare statute. Rather than requiring adherence to GAAP, the statute merely instructs the Secretary, in establishing the methods for determining reimbursable costs, to "consider, among other things, the principles generally applied by national organizations or established prepay-
As to particular reimbursement details not addressed by her regulations, the Secretary relies upon an elaborate adjudicative structure which includes the right to review by the Provider Reimbursement Review Board, and, in some instances, the Secretary, as well as judicial review in federal district court of final agency action. 42 U. S. C. § 139500(f)(1); see Bethesda Hospital Assn. v. Bowen, 485 U. S. 399, 400-401 (1988). That her regulations do not resolve the specific timing question before us in a conclusive way, or "could use a more exact mode of calculating," does not, of course, render them invalid, for the "methods for the estimation of reasonable costs" required by the statute only need be "generalizations [that] necessarily will fail to yield exact numbers." Good Samaritan, supra, at 418. The AP A does not require that all the specific applications of a rule evolve by further, more precise rules rather than by adjudication. See NLRB v. Bell Aerospace Co., 416 U. S. 267
Although one-time recognition in the initial year might be the better approach where the question is how best to portray a loss so that investors can appreciate in full a company's financial position, see APB Opinion 26, "4-5, reprinted at App. 64, the Secretary has determined in PRM § 233 that amortization is appropriate to ensure that Medicare only reimburse its fair share. The Secretary must calculate how much of a provider's total allowable costs are
That PRM § 233 implements the statutory ban on crosssubsidization in a reasonable way is illustrated by the Administrator's application of § 233 to the facts of this case. The Administrator found that respondent's loss "did not relate exclusively to patient care services rendered in the year of the loss .... [but were] more closely related to [patient care services in] the years over which the original bond term extended." App. to Pet. for Cert. 49a. Because the loss
As an application of the statutory ban on crosssubsidization and the regulatory requirement that only the actual cost of services rendered to beneficiaries during a given year be reimbursed, 42 U. S. C. § 1395x(v)(1)(A)(i); 42 CFR § 413.9 (1994), PRM § 233 is a prototypical example of an interpretive rule" 'issued by an agency to advise the public of the agency's construction of the statutes and rules which it administers.'" Chrysler Corp. v. Brown, 441 U. S. 281, 302, n. 31 (1979) (quoting Attorney General's Manual on the Administrative Procedure Act 30, n. 3 (1947)). Interpretive rules do not require notice and comment, although, as the Secretary recognizes, see Foreword to PRM, they also do not have the force and effect of law and are not accorded that weight in the adjudicatory process, ibid.
Contrary to the Secretary's mandate to match reimbursement with Medicare services, which requires her to determine with some certainty just when and on whose account costs are incurred, GAAP "do[es] not necessarily parallel economic reality." R. Kay & D. Searfoss, Handbook of Accounting and Auditing, ch. 5, p. 7 (2d ed. 1989). Financial accounting is not a science. It addresses many questions as to which the answers are uncertain and is a "process [that] involves continuous judgments and estimates." Id., ch. 5, at 7-8. In guiding these judgments and estimates, "financial accounting has as its foundation the principle of conservatism, with its corollary that 'possible errors in measurement [should] be in the direction of understatement rather than overstatement of net income and net assets.'" Thor Power Tool Co. v. Commissioner, 439 U. S. 522, 542 (1979) (citation omitted). This orientation may be consistent with the ob-
The framework followed in this case is a sensible structure for the complex Medicare reimbursement process. The Secretary has promulgated regulations setting forth the basic principles and methods of reimbursement, and has issued interpretive rules such as PRM § 233 that advise providers how she will apply the Medicare statute and regulations in adjudicating particular reimbursement claims. Because the Secretary's regulations do not bind her to make Medicare reimbursements in accordance with GAAP, her determination in PRM § 233 to depart from GAAP by requiring bond defeasance losses to be amortized does not amount to a substantive change to the regulations. It is a valid interpretive rule, and it was reasonable for the Secretary to follow that
It is undisputed, as the Court notes, ante, at 90, that respondent, Guernsey Memorial Hospital (Hospital), is entitled to reimbursement for the reasonable advance refunding costs it incurred when it refinanced its capital improvement bonds in 1985. The only issue here is one of timing: whether reimbursement is to be made in a lump sum in the year of the refinancing, in accordance with generally accepted accounting principles (known in the accounting world as GAAP), or in a series of payments over the remaining life of the original bonds, as the Secretary ultimately concluded after applying § 233 of the Medicare Provider Reimbursement Manual (PRM). The Hospital challenged the Secretary's reimbursement decision under the Medicare Act, 42 U. S. C. § 139500(f), which incorporates the Administrative Procedure Act, 5 U. S. C. § 551 et seq. (1988 ed. and Supp. V), by reference. Under the governing standard, reviewing courts are to "hold
Nevertheless, the statute clearly contemplates that the Secretary will state the applicable reimbursement methods in regulations-including default rules that cover a range of situations unless and until specific regulations are promulgated to supplant them with respect to a particular type of
Although § 413.24 simply opens the door for the Secretary to employ GAAP, § 413.20 makes clear that she has, in fact,
The remainder of § 413.20 demonstrates, moreover, that the accounting practices commonly used in the health care field determine how costs will be reimbursed by Medicare, not just how they are to be reported. The first sentence of § 413.20(a) begins with a statement that the provision explains what "[t]he principles of cost reimbursement require." (Emphasis added.) And the sentence emphasizing that standardized accounting and reporting practices "are followed" is itself accompanied by the promise that "[c]hanges in these practices and systems will not be required in order to determine costs payable [that is, reimbursable] under the
Initially, the Court's view is belied by the text and structure of the regulations. As the Court of Appeals noted, "the sentence in [§ 413.20(a)] that says standardized reporting
In addition, as the Court aptly puts it, "[t]he logical sequence of a regulation ... can be significant in interpreting its meaning." Ante, at 94. Consideration of how a provider's claim for reimbursement is processed undermines the Court's interpretation of § 413.20(a). The Court suggests that the fiscal intermediaries who make the initial reimbursement decisions take a hospital's cost report as raw data and apply a separate set of accounting principles to determine the proper amount of reimbursement. In certain situations, namely where the regulations provide for specific departures from GAAP, this is undoubtedly the case. But the
I take seriously our obligation to defer to an agency's reasonable interpretation of its own regulations, particularly "when, as here, the regulation concerns 'a complex and highly technical regulatory program,' in which the identification and classification of relevant 'criteria necessarily require significant expertise and entail the exercise of judgment grounded in policy concerns.'" Thomas Jefferson Univ. v. Shalala, 512 U. S. 504, 512 (1994) (quoting Pauley v. BethEnergy Mines, Inc., 501 U. S. 680, 697 (1991)). In this case, however, the Secretary advances a view of the regulations that would force us to conclude that she has not fulfilled her statutory duty to promulgate regulations determining the methods by which reasonable Medicare costs are to be
The remaining arguments advanced by the Court in support of the Secretary's position do not alter my view of the regulatory scheme. The Court suggests that a contrary decision, by requiring the Secretary to comply with the notice and comment provisions of the Administrative Procedure Act in promulgating reimbursement regulations, would impose an insurmountable burden on the Secretary's administration of the Medicare program. I disagree. Congress obviously
Moreover, I find it significant that the bond defeasement situation at issue here was foreseen. If the Secretary had the opportunity to include a section on advance refunding costs in the PRM, then she could have promulgated a regulation to that effect in compliance with the Administrative Procedure Act, thereby giving the public a valuable opportunity to comment on the regulation's wisdom and those adversely affected the chance to challenge the ultimate rule in court. An agency is bound by the regulations it promulgates and may not attempt to circumvent the amendment process through substantive changes recorded in an informal policy
As a result, the policy considerations upon which the Court focuses, see ante, at 97-100, are largely beside the point. Like the Court of Appeals, I do not doubt that the
Finally, the Secretary argues that she was given a "broad and flexible mandate" to prescribe standards for Medicare reimbursement, and that, as a result, "it is exceedingly unlikely that the Secretary would have intended, in general regulations promulgated as part of the initial implementation of the Medicare Act, to abdicate to the accounting profession (or to anyone else) ultimate responsibility for making particular cost reimbursement determinations." Brief for Petitioner 19. She points out that the purpose of Medicare
Reading the regulations to employ GAAP, even though it is possible that the relevant reimbursement standard will change over time as the position of the accounting profession evolves, does not imply an abdication of statutory authority but a necessary invocation of an established body of accounting principles to apply where specific regulations have not provided otherwise. The Secretary is, of course, not bound by GAAP in such a situation and, indeed, has promulgated reimbursement regulations that depart from the GAAP default rule in specific situations. Compare, e. g., § 413.134 (f)(2) (limited recognition of gain or loss on involuntary conversion of depreciable asset) with R. Kay & D. Searfoss, Handbook of Accounting and Auditing, ch. 15, p. 14 (2d ed. 1989 and 1994 Supp.) (gains or losses are recognized under GAAP in the period of disposal of a depreciable asset, even if reinvested in a similar asset). The Secretary would also be free to devise a reimbursement scheme that does not involve GAAP as a background principle at all if she believes, as the Court argues, that use of GAAP binds her to a cost allocation methodology ill suited to Medicare reimbursement, see ante, at 101. Our task is simply to review the regulations the Secretary has in fact adopted, and I conclude that the Secretary has incorporated GAAP as the reimbursement default rule.
514 U.S. 87