Opinion ID: 463576
Heading Depth: 2
Heading Rank: 2

Heading: The Hospital's Position

Text: 12 The Hospital insists that it is not challenging the validity of any regulation promulgated by the Secretary, but rather that it disputes the construction given Regulation 405.415(f) by the Secretary in this case. The Hospital claims the Secretary's interpretation of the regulation recaptures compensation paid for the consumption of the Hospital's assets as a result of its provision of covered services to Medicare beneficiaries. According to the Hospital, such a construction is contrary to the Medicare Act and implementing regulations. 13 According to the Hospital, the record reflects the uncontroverted fact that the Hospital building had effectively undergone fifteen years of consumption during its thirteen years of service in the Medicare program, that if the building had not been so consumed, the Hospital's assets would have been worth in excess of six million dollars instead of the approximately 3.5 million dollars for which they were appraised and sold. Accordingly, the Hospital argues, the Deputy Administrator's statement that the provider did not incur any costs for the use of these assets is completely unsupportable on the record. 14 The Hospital argues that section 405.415(f) does not require the construction placed on it by the Secretary and is instead ambiguous concerning the way in which gains or losses upon sale of depreciable assets are to be considered. As such, it should be construed in a manner that is consistent with the Medicare Act, which requires that all reasonable costs incurred be reimbursed. The Secretary's construction, the Hospital argues, is completely inconsistent with that intent and is therefore due to be reversed. 4 III. The Secretary's View 15 The Secretary argues essentially that the depreciation claimed by the Hospital was appropriately recaptured because it was never actually incurred. 42 U.S.C. Sec. 1395x(v)(1)(A). The Secretary does not deny that the assets may have suffered wear and tear or been consumed while in the service of the Medicare program. The Secretary argues, however, that if the provider is to be reimbursed only for costs that are actually incurred, any gain on the sale of depreciable assets must necessarily result in the recapture of all depreciation payments made to the extent of that gain. That is because, according to the Secretary, the Hospital cannot be said actually to incurr any costs for the consumption of its assets to the extent of any profit (defined as selling price less book value at the time of the sale) it earns on those assets while they are in the service of the Medicare program. 16 The Secretary argues that the plain language of Regulation 405.415(f) (that gains ... are to be included) supports her interpretation. The Secretary further claims that the Hospital's position, not the Secretary's, would thwart the statutory mandate, and that her position is consistent with the thrust of the regulatory scheme. Decisions from the Seventh Circuit and the Court of Claims appear to support the Secretary's position. See Professional Medical Care Home, Inc. v. Harris, 644 F.2d 589 (7th Cir.1980); Stewards Foundation v. United States, 654 F.2d 28, 228 Ct.Cl. 89 (1981).