Opinion ID: 181254
Heading Depth: 3
Heading Rank: 2

Heading: The TEFRA Adjustment

Text: The PRRB made clear, and the district court held in the alternative, that even if the PRRB had jurisdiction, Beacon could not receive an increase to its TEFRA target. This inquiry goes to the merits of Beacon's claim. Section 1395ww(b)(4)(A) requires the Secretary to make TEFRA target exceptions and adjustments where events beyond the hospital's control or extraordinary circumstances ... create a distortion in the increase in costs for a cost reporting period. The Secretary promulgated an additional regulation requiring that a hospital's operating costs exceed the [TEFRA] rate-of-increase ceiling before the Secretary will make a § 1395ww(b)(4)(A) adjustment. 42 C.F.R. § 413.40(g)(1)(iii). The Secretary's regulation is a reasonable interpretation of 42 U.S.C. § 1395ww(b)(4)(A). The Medicare Act does not define the critical termdistortion in the increase in costsmeriting adjustment. Recognizing this ambiguity, the Secretary has interpreted increase in cost to mean an increase in operating costs beyond the TEFRA ceiling and not an increase in potential operating costs. 42 C.F.R. § 413.40(g)(1)(iii). As the district court noted, the Secretary issued a detailed explanation for why adjustments should be limited to situations where the provider has exceeded his TEFRA cost ceiling. See Medicare Program; Miscellaneous Changes Affecting Payment for Inpatient Hospital Services, 53 Fed.Reg. 9337 (Mar. 22, 1988). The Secretary explained that the regulation filled a gap in the statutory regime created by the adoption of the adjustment provision and the incentive payment provision from two different versions of the law. As the Secretary explained: [T]he language in the statute authorizing the exemptions, exceptions, and adjustments was added by the Senate without its contemplating that this process would apply in cases in which the hospital's costs do not exceed the target amount and the hospital receives an incentive payment. Medicare Program, 53 Fed.Reg. at 9340. The Secretary's explanation and policy choice are reasonable constructions of the Medicare Act. See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843-44, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Because Beacon did not experience an increase in operating costs beyond the TEFRA ceiling, the district court correctly determined that Beacon was not eligible for a TEFRA target cost adjustment under 42 C.F.R. § 413.40(g)(1)(iii).