Opinion ID: 3013878
Heading Depth: 4
Heading Rank: 1

Heading: Determining the APRA.

Text: hospital of the amount by a Notice of In 1990, to assure maximum Average Per Resident Amount accuracy of each hospital’s APRA (“NAPRA”). 42 C.F.R. § 413.86(e)(1)(v). determination, the Secretary required fiscal The hospital may appeal this amount to the intermediaries5 to reaudit all hospitals’ Secretary within 180 days of the NAPRA. Id. To supp ort a claim for 5 The Medicare program uses “fiscal reclassification of misclassified graduate inter me diar ies,” ge ne ra lly p rivate medical education costs, a hospital must insurance companies, to perform many of present the intermediary with sufficient the program's administrative functions. documentation requiring a change in the Fiscal intermediaries are responsible for classification of costs. 42 C.F.R. § determining the amount of payments to be 413.86(l)(2)(ii). The regulations required made to providers. In the present case, actual documentation developed during the Mercy Catholic Medical Center’s fiscal base year that was maintained in an intermediary at the relevant time was Independence Blue Cross. The Interm ediary, in turn, engaged a Young & O’Fria, to conduct the graduate subcontractor, in this case Johnston, medical education reaudit. 4 auditable format. See 42 C.F.R. § graduate medical education base year. Id. 405.481(g) (1986); Medicare Program; A limited exception was created restricting Changes in Payment Policy for Direct the use of substitute documentation from Graduate Medical Education Costs, 54 later years to verify costs originally Fed. Reg. 40,301 (Sept. 29, 1989). claimed as graduate medical education costs in the graduate medical education The Secretary recognized, however, base year, but disallowing the use of that some hospitals would no longer have documents from later years to increase the the records required to support a grad uate medical education costs reclassification of costs. As such, the originally claimed. As published in the Secretary allowed auditors to accept time Federal Re giste r, the S ecreta ry’s records from subsequent time periods as interpretation read: proxy. “Graduate Medical Education: Documentation to Support the Physician As an equitable solution to Cost/Time Allocation” (1990), JA 211- t h e p r o b le m o f t h e 215.6 Where subsequent year records were nonexistence of physician also unavailable, hospitals were allowed to allocation agreements, time perform three-week time studies7 of record s, and other current physician workloads to provide a information, w e are rough estimate of the time allocation of allowing prov iders to teaching physicians in the base year. See furnish documentation from Medicare Program; Changes to the cost repo rting periods Inpatient Hospital Prospective Payment subsequent to the base System and Fiscal Year 1991 Rates, 55 period in support of the Fed. Reg. 36,064. allocation of physician compensation costs in the The Se creta ry noted these GME base period . . . . In alternative forms of documentation were no event will the results i n h e r e n t l y l e s s re l i ab l e t h an obtained from the use of the contemporaneous records from the r e c o r d s f r o m a c o st reporting period later than 6 The policy was later published in the the base period serve to Federal Register at 55 Fed. Reg. 35,990, increase or add physician 36,063-64 (Sept. 4, 1990). compensation costs to the costs used to determine the 7 In performing a time study, a physician per resident amounts. would, on a daily basis, log time worked 55 Fed. Reg. at 36,063-64. for a provider over a period of several weeks allocating time to various activities such as administration, supervision, or teaching of interns and residents. 5 2. Adjusting Hospital-Specific [NAPRA]” and “include sufficient Rate and Target Amount for documentation to demonstrate to the Misclassified Costs. intermediary that adjustment of the hospital’s hospital-specific rate or target A hospital may also request the a m o u n t i s w a r r an t e d .” Id. § reclassification of misclassified operating 413.86(l)(1)(ii). costs. Misclassified operating costs are costs that had been included as graduate B. Facts medical education costs in the graduate On December 21, 1989, Mercy medical education base year, but were Catholic Medical Center received notice reclassified by the intermediary as the Intermediary (“Independent Blue operating costs. 42 C.F.R. § 413.86(e)(1). Cross”) was reopening its cost reports for If the misclassified operating costs were FYE (“Fiscal Year Ended”) 1985, 1986, treated as graduate medical education costs 1987 and 1988 to perform the reaudit in both the graduate medical education under the graduate medical education base year and the prospective payment regulation. During the reaudit, the system base year, an upward adjustment of Intermediary made several downward the hospital’s specific rate or TEFRA adjustments to Mercy Catholic Medical target amount may be warranted since the Center's graduate medical education costs hospital-specific rate and target amount are but refused to make other adjustments to derived from operating costs in a base its graduate medical education costs and year. 54 Fed. Reg. 40,286, 40,289 (Sept. operating costs. The Intermediary's 29, 1989). Conversely, if the reaudit downward adjustment of graduate medical revealed misclassified graduate medical education costs and refusal to reclassify education costs (which would increase the certain operating costs as graduate medical ARPA), a corresponding downward education costs reduced Mercy Catholic adjustment of operating costs for the Medical Center's APRA from $81,745 to graduate medical education base year was $73,657. Mercy Catholic Medical Center required. Id. filed a timely appeal of the Notice of The regulations allow a hospital to Average Per Resident Amount with the “request that the intermediary review the Board. classification of the affected costs in its At the time, however, Mercy rate-of-increase ceiling or prospective Catholic Medical Center no longer payment base year for purposes of possessed all of the original supporting adjusting the hospital's target amount or documentation of its base year graduate hospital-specific rate.” 42 C.F.R. § medical education costs because the 413.86(l)(1)(i). To reclassify these costs, governing rules only required hospitals to a hospital must specifically request review of the classification of its . . . costs no later than 180 days after the date of the 6 retain physician allocation agreements 8 was devoted to services that qualify as (also known as “339s”) for four years from graduate medical education costs. During the close of FYE 1985 (i.e., until June 30, the reaudit, Mercy Catholic Medical 1989). Furthermore, Mercy Catholic Center realized it had misclassified all of Medical Center had experienced a flood in the time spent by physicians in three the basement storage area and discarded Departments—OB/GYN, Laboratory, and all damaged records that were beyond their Radiology—as operating costs in the retention date. graduate medical education base year. Even though these physicians had in fact Mercy Catholic Medical Center did, been providing substantial graduate however, retain some of the 339s for the medical education services, it had been departments in question. At oral argument Mercy Catholic Medical Center’s historic before this Court, both parties stipulated practice to report as operating costs all some 339s were included in the costs for physicians whose duties were not administrative record, although not primarily teaching. Id. The 1990 time included as formal exhibits. The Provider studies included all of the physicians who Reimbursement Review Board, however, performed teaching duties in 1985, did not acknowledge them. See Mercy including those in the three “missing Catholic Med. Ctr. v. Blue Cross Blue departments.” In seeking graduate medical Shield Ass’n, PRRB Dec. No. 2001-D55 education credit, Mercy Catholic Medical (Sept. 28, 2001), Medicare and Medicaid Center timely requested the requisite Guide (CCH) ¶ 80,747, at 202,481 downward adjustment to its hospital- (“PRRB Dec.”) (“[T]here was insufficient specific rate and target amount under 42 evidence regarding forms 339 and C.F.R. § 413.86(l)(2). physician allocation agreements.”).9 In performing the reaudit, the During late 1990, however, Mercy Subcontractor (“Johnston, Young & Catholic Medical Center conducted a O’Fria”) accepted Mercy Catholic Medical three-week time study that tracked what Center's 1990 time studies as accurate and portion of each teaching physician's time compliant with the Health Care Financing Administration’s instructions of June 22, 8 A physician allocation agreement 1990, and relied upon them to reduce the specifies the respective amount of time a compensation and related teaching costs physician spends on teaching and Mercy Catholic Medical Center had supervision as opposed to time spent on claimed as graduate medical education patient care. 55 Fed. Reg. at 36,063. expenses. The Subcontractor advised Mercy Catholic Medical Center, however, 9 The 339s were not supported by that it had been instructed by the contemporaneous time sheets or “source Intermediary (“Independence Blue Cross”) documentation .” Ora l A rgument to strictly limit its reaudit to only those Transcript at 29-30. 7 FYE 1985 costs that Mercy Catholic include Mercy Catholic Medical Center’s Medical Center had reported as graduate misclassified operating costs, and is losing medical education costs in the graduate approximately $50,000 to $200,000 in medical education base year—to validate annual reimbursement for its psychiatric or reduce those costs—and to ignore unit as a result of the refusal to increase evidence of any other costs, including Mercy Catholic Medical Center’s target physician and support expenses, that had amount. previously been claimed in FYE 1985 as In addition to requesting credit for operating costs. Accordingly, the grad uate medical education costs Subcontractor declined to review time attributa ble to the three missing studies and other documentation pertaining departments, Mercy Catholic Medical to these three missing departments while, Center also asked the Intermediary to on the basis of the 1990 time studies, the increase its hospital-specific rate and target Intermediary reclassified $719,055 in amount to include any operating costs that, graduate medical education costs from based upon the 1990 time studies, had FYE 1985 as operating costs and excluded properly been determined to have been that amount from the APRA calculation. misclassified in FYE 1985 as graduate According to Mercy Catholic medical education costs. See 42 C.F.R. § Medical Center, the reclassifications 413.86(l). Mercy Catholic Medical Center reduced its total graduate medical also requested a corresponding downward education costs from $6,876,731 to adjustment to its hospital-specific rate and $6,157,676, and its APRA from $81,745 to targe t amo unt if a ny physic ian $73,657. Recognition of the misclassified compensation costs originally classified as graduate medical education costs from the operating costs were reclassified as three missing departments based on the graduate medical education costs. See 42 1990 time studies, which the Intermediary C.F.R. § 413.86(l)(2). Finally, Mercy refused, would have resulted in an APRA Catholic Medical Center asked the of $79,685.80. The retrospective Intermediary to increase the hospitalapplication of the disputed APRA reduced specific rate and the target amount of its Mercy Catholic M edical Center’s prospective payment system-exempt r e i m b u r se m e n t b y a p pr ox im a t e ly psychiatric unit to include the operating $2,500,000 from FY 1986-91, and by costs determined to have been erroneously approximately $250,000 to $500,000 reported in FY 1985 as graduate medical annually. Mercy Catholic Medical Center education costs under § 413.86(e)(1)(v) also lost approximately $275,000 in and (l)(1). The Intermediary refused to hospital-specific rate reimbursement make the requested hospital-specific rate during the prospective payment system and target amount adjustments. transition period as a result of the refusal to increase the hospital-specific rate to 8 C. The Provider Reimbursement 15. The HCFA instructions Review Board’s Decision reinforced this concept; however, an addendum Mercy Catholic Medical Center consisting of questions and appealed two issues to the Provider answers was incorrectly Reimbursement Review Board: (1) the interpreted by the Intermediary's refusal to recognize the Intermediary as meaning graduate medical education costs from the that no new GME costs three missing departments in the APRA could be added by the re- and; (2) the Intermediary's refusal to audit from OC. increase its hospital-specific rate and target amount to take into account those costs a. The Intermediary, IBC that were reclassified from graduate [Independence Blue Cross], medical education costs to operating costs wrongfully instructed the in the reaudit. The Board held a hearing audit subcontractor not to and issued its decision on September 28, increase the GME costs by 2001. reclassifying any 10 misclassified OC. The Board affirm ed th e Intermediary on both issues. As a The Board found nonetheless there threshold matter, the Board agreed with [was] no creditable evidence in the record Mercy Catholic Medical Center that over- to reclassify the misclassified OC to GME allocations and under-allocations of base costs because of the lack of form 339's and year graduate medical education costs the fact that the 1990 time studies were not were properly subject to correction during audited by the Intermediary, nor is there the reaudit under 42 C.F.R. § 413.86(e), adequate documentation in the record because the statute and GME rule envision regarding these time studies. PRRB Dec. “a ‘two way street’ of changing at 202,481. erroneously claimed GME costs to On the second issue, the Board operating costs (‘OC’) and vice versa.” agreed Mercy Catholic Medical Center had PRRB Dec. at 202,480. In light of this, the timely requested revision of its hospital- Board found the Intermediary had specific rate and target amount. Id. It incorrectly instructed its Subcontractor to concluded, however, the Intermediary was ignore the time studies and other evidence of misclassified graduate medical education costs (as opposed to 10 We think the Board intended misclassified operating costs). PRRB Dec. “misclassified GM E” in this finding. But at 202,480-81. In fact, the Board’s the result is the same: The Board found decision included the following finding: originally claimed graduate medical education costs could be increased by adding misclassified costs. 9 not required to revise the hospital-specific three missing departments. The Court rate or target amount because Mercy wrote: “[t]he record indicates that Mercy Catholic Medical Center had not provided no longer had any of the 339s and that the required documentation directly to the Mercy did not submit any other evidence Intermediary within 180 days of the Notice [to support a reclassification of costs], of Average Per Resident Amount. other than the time study conducted in 1990.” Id. at -25. Although D. District Court Decision recognizing Mercy Catholic Medical The District Court affirmed the Center was not notified of a reaudit until Board. Mercy Catholic Med. Ctr. v. after the record retention period had Thompson, No. 02-419, 2003 U.S. Dist. expired, the District Court nonetheless LEXIS 4688 (E.D. Pa. Mar. 5, 2003). concluded Mercy Catholic Medical Center Reviewing the first issue, the District could be penalized for failing to maintain Court determined the limited exception to its 339 forms because it had received the requirement for contemporaneous “constructive notice” that those costs documentation restricted the use of “would likely be the subject of ongoing substitute documentation from later years review.” Id. at . to verify costs originally claimed as On the second issue, the District graduate medical education costs in the Court affirmed the Board’s ruling that graduate medical education base year, and Mercy Catholic Medical Center was not did not serve to add or increase costs to the entitled to increases in its hospital-specific original graduate medical education costs rate and target amount because it failed to claimed. Id. at -23. For support, the present documentation comparing Mercy Court cited the Secretary’s representations Catholic Medical Center’s FY 1983 and that later year records “were inherently 1985 graduate medical education programs less reliable,” and that providers had directly to the intermediary, noting that it “significant incentives to inflate their was the hospital’s “burden . . . to present GME costs in the base year under the new sufficient evidence.” Id. at . methodology.” Id. at  (quoting Presbyterian Med. Ctr., No. 95-1939, II. 1998 U.S. Dist. LEXIS 6254, at 12-13 We have jurisdiction under 28 (D.D.C. April 21, 1998), aff’d, 170 F.3d U.S.C. § 1291. We review the grant of 1146 (D.C. Cir. 1999)). summary judgment de novo. Fertilizer The District Court also affirmed on Inst. v. Browner, 163 F.3d 774, 777 (3d the basis of lack of documentation. The Cir. 1998). Like the District Court, we Court found Mercy Catholic Medical review a final decision of the Secretary11 Center’s claims suspect because the a d m i n i s tr a t iv e record la c k e d 11 contemporaneous evidence of 339's in the In this case, the Board’s decision was the final decision of the Secretary. 10 under 42 U.S.C. § 1395oo(f)(1), which determine the level of deference, if any, to incorporates the standard of review of the afford the Secretary’s interpretation of the Administrative Procedure Act, 5 U.S.C. § graduate medical education reaudit rule.12 706. Under the APA, we will affirm As noted, when it became clear unless the Secretary’s decision is providers did not always retain arbitrary, capricious, an abuse of contemporaneous time records to facilitate discretion, or otherwise not in accordance the reaudit, the Secretary issued a special with law; [or] unsupported by substantial grad uate m edical education c o st evidence. 5 U.S.C. § 706(2)(A),(E); documentation rule for reaudits as an Robert Wood Johnson Hosp. v. Thompson, official instruction to fiscal intermediaries, 297 F.3d 273, 280 (3d Cir. 2002). But “ G r a d u a t e M e d i c a l E d u c a t io n : when applying this standard, a reviewing Documentation to Support the Physician court may not merely rubber-stamp the Cost/Time Allocation” (1990), JA 211- Secretary’s actions, but must ensure that 215. The Secretary’s written interpretation the agency’s ruling is neither clearly provides that later-year time studies, of the erroneous nor inconsistent with applicable sort relied on by Mercy Catholic Medical regulations. Thomas Jefferson Univ. Center, could only serve to verify costs Hosp. v. Shalala, 512 U.S. 504, 512 that were originally claimed as graduate (1994). Further, we may affirm the medical education costs in the base year, agency’s decision only on grounds on and could not support the addition of costs which the agency actually relied, and not not originally claimed as graduate medical on the basis of alternative rationales or education costs. The limited exception to justifications put forward by counsel on the record-keeping policy provides: appeal. SEC v. Chenery Corp., 318 U.S. 80, 87 (1943). As an equitable solution to the problem o f the