Opinion ID: 810135
Heading Depth: 3
Heading Rank: 1

Heading: Whether the Decision applied the wrong statu-

Text: tory standard The Hospitals assert that the Decision hinges on the premise that because the Access Payments were “inextricably linked” to the Tax Assessments, the Access Payments must be offset against the cost of the Tax Assessments when determining the amount of a health care provider’s reimbursable costs. According to the Hospitals, the Administrator’s use of a “linkage” concept was inappropriate and under the statutory language of the Medicare Act, the correct standard is whether the costs were “actually incurred.” Relying on Charlotte Memorial Hospital v. Bowen, 860 F.2d 595, 598 (4th Cir. 1988), the Hospitals argue that a cost is “actually incurred” when a provider’s liability accrues, regardless of when the liability is paid. Again, under the Medicare Act, health care providers are reimbursed for their reasonable costs. 42 U.S.C. § 1395f(b)(1). The Medicare Act defines reasonable costs as the costs “actually incurred” and directs the Secretary to promulgate regulations establishing the methods to be used, and items to be included, in determining such costs. 42 U.S.C. § 1395x(v)(1)(A). Pursuant to her statutory authority, the Secretary has promulgated regulations and rules to clarify that in determining the actual cost of goods, the true cost is the net amount actually paid for them, such that discounts, allowances, refunds, and credits must be reflected in the determination of allowable costs. 42 C.F.R. § 413.98. Accordingly, the regulations and related Manual provi28 No. 11-2809 sions employ a net cost approach for determining the amount of reimbursable expenses and provide that refunds are reductions, or offsets, of a related expense. 42 C.F.R. § 413.98(a); Manual § 800 (Rev. 450). The Manual provisions pertaining to applicable credits also employ this same net cost approach. “Applicable Credits” are defined in the Manual as those “types of transactions which offset or reduce expense items” and examples of such transactions generally include “income items which serve to reduce costs.” Manual § 2302.5 (Rev. 336). Here, the Administrator did not manufacture a “ ‘linkage’ standard out of whole cloth” as the Hospitals assert. Rather, in determining the costs actually incurred, the Administrator looked at the economic impact of the Hospitals’ receipt of the Access Payments to determine the Hospitals’ net Tax Assessment costs. In so doing, the Administrator assessed whether the Access Payments served to reduce a related expense, such that they constituted a refund of the Tax Assessments, and concluded that the Access Payments were indeed intended to reduce the cost of the Tax Assessment. The Hospitals’ reliance on Charlotte Memorial Hospital is unavailing, as the question presented there was when a hospital incurred a reimbursable cost for services and not whether a hospital’s costs should be offset. 860 F.2d at 598.6 Accord- 6 The Hospitals also argue that the Tax Assessments paid by the Hospitals are not different from other kinds of allowable (continued...) No. 11-2809 29 ingly, we find that the Secretary’s construction of costs “actually incurred” is based upon a reasonable interpretation of the statutory term and was not arbitrary, capricious, or contrary to law.