Opinion ID: 454901
Heading Depth: 1
Heading Rank: 5

Heading: the medicare apportionment system

Text: 25 In affirming the PRRB's refusal to approve reimbursement, the district court did not rely on either of the grounds on which the PRRB based its decision. Instead, it relied on an entirely different argument. The district court reasoned that because the educational services at issue are not used by Medicare patients, the costs of those services are not routine costs for Medicare patients. Therefore, the district court concluded, the costs cannot be allocated according to the procedures used to allocate routine costs, i.e., apportioning the costs between Medicare patients and non-Medicare patients on the basis of the total number of patient days spent in the hospital by each category of patient. The district court did not say whether the costs should be allocated in the manner non-routine costs are allocated, i.e., on the basis of actual patient usage. 26 Because the PRRB did not rely upon the district court's reasoning, we could not affirm the Board's decision even if we found it persuasive, see Mercy Hospital and Medical Center, San Diego v. Harris, 625 F.2d 905, 906 n. 2 (9th Cir.1980); supra p. 4. However, since the Secretary has adopted the district court's reasoning on appeal and has relied upon it heavily, we believe it merits some discussion. Cf. Mercy Hospital, 625 F.2d at 905 n. 2 (addressing district court's reasoning, although not related to ground relied upon by PRRB, because panel disapproved reasoning and district court's decision was reported). While the position the Secretary urges before us has some superficial appeal and, at first blush, may seem reasonable, a closer examination demonstrates that it is clearly contrary to the language and purpose of her own regulations as well as her own past practices. 27 Congress left to the Secretary the responsibility of devising cost-apportionment procedures that would ensure that costs generated by Medicare patients would not be shifted to non-Medicare patients and vice versa. 42 U.S.C. Sec. 1395x(v)(1)(A) (1982). The Secretary's apportionment formulas are designed to accomplish this. In general, the costs of routine services (e.g., room, food, nursing care, minor medical and surgical supplies) are allocated to Medicare by multiplying a hospital's total routine costs attributable to all patients by the percentage of patient-days attributable to Medicare patients. The costs of ancillary services (e.g., x-ray, laboratory) are allocated to Medicare by multiplying the total costs of all patient use of a particular ancillary service by the percentage of those costs that are attributable to actual usage by Medicare patients. 42 C.F.R. Sec. 405.452 (1984). 28 Costs are deemed to be ancillary and apportionable on a usage-related basis only if they are for services for which separate charges are customarily made. See 42 C.F.R. Sec. 405.452(b) (1984). Routine services include the use of equipment and facilities for which a separate charge is not customarily made. Id.; see also Mercy Hospital, 625 F.2d at 909-10 & n. 6 (explaining that reimbursement calculations for the same kinds of services differ depending on the hospital's billing practices). Routine costs include, inter alia, those costs generated by the provision of services to pediatric and maternity patients 7 who are as unlikely to be Medicare patients as are the children hospitalized at Vista Hill. See generally Saint Mary, 718 F.2d at 462 & nn. 4, 7 (apportionment formulas); John Muir Memorial Hospital, Inc. v. Davis, 559 F.Supp. 1042, 1045 (N.D.Cal.1983) (explanation of apportionment procedures), aff'd, 726 F.2d 1443 (9th Cir.1984). 29 The key to the Secretary's system of allocating costs is hospital billing practice. The determinative factor in classifying costs as routine is their inclusion as part of a regular daily overall charge. Thus, all patients share equally in the costs of all routine services whether or not they receive any particular routine service, and and regardless of the quantity of routine services they actually use. 8 The per diem basis on which routine-service costs are apportioned assumes that all patients receive roughly the same services per day at roughly the same cost per patient. Everyone knows that this is not true in individual cases, but for reasons of administrative simplicity it is assumed that the extreme divergences from the mean balance out. Saint Mary, 718 F.2d at 471; accord Boswell Memorial Hospital, 749 F.2d at 794-95. 30 Based on the averaging concept, the Secretary has consistently and successfully argued that routine costs must be apportioned among Medicare and non-Medicare patients alike on a per diem basis, even when the costs in question are generated entirely by Medicare patients. For example, under the Secretary's apportionment scheme as currently applied, the administrative costs of completing Medicare forms and other costs of maintaining Medicare records acceptable to the Secretary are allocated to all patients on a per diem basis. As a result Medicare pays only a portion of these costs. The rest is allocated to non-Medicare patients. See, e.g., Suburban Hospital (Louisville, Ky.) v. Blue Cross and Blue Shield Association, [May 1984-Dec. 1984 New Developments Transfer Binder] Medicare & Medicaid Guide (CCH) p 33,978, at 9354, 9361, 9365, 9366 (PRRB Dec. 16, 1983), aff'd without opinion as to this issue, [May 1984-Dec. 1984 New Developments Transfer Binder] Medicare & Medicaid Guide (CCH) p 33,979, at 9366, 9367 (HCFA Admr. Feb. 3, 1984). The same holds true when the costs in question are for services that primarily benefit Medicare patients. There, too, non-Medicare patients may be allocated a very substantial portion of the costs. See Psychiatric Institute of Washington, D.C., Inc. v. Schweiker, 669 F.2d 812, 814 (D.C.Cir.1981) (Secretary has discretion to classify intermediate care units that primarily serve older people as routine care areas--rather than special care areas--even though the resultant shifting of costs from Medicare to non-Medicare patients may discourage both the provision of these services and innovation in the treatment of older people); see also Villa View Community Hospital, Inc. v. Heckler, 728 F.2d 539, 543 (D.C.Cir.1984) (decision to classify intermediate care units as routine care areas well within Secretary's statutory authority, although it may discourage the development of more cost-efficient patient care units); White Memorial, 640 F.2d at 1129 (same). 31 The Secretary argues that the educational services at issue in this case should not be considered routine costs because they are unlikely to be used by Medicare patients. However, as the cases we have discussed and the Secretary's regulations clearly demonstrate, that is not the test. The services in question are not billed separately. They are included in the daily overall hospital charge. Therefore, under the apportionment system adopted by the Secretary the costs of the services constitute routine costs. 32 The Secretary's efforts to avoid the force of her own regulation violates not only the requirements of the regulation but the provisions of the Medicare Act itself. For the exclusion of these services from routine costs to be consistent with the Medicare Act's prohibition on cost-shifting between Medicare and non-Medicare patients, 42 U.S.C. Sec. 1395x(v)(1)(A) (1982), the costs of analogous services used primarily by Medicare patients and infrequently, if at all, by the hospitalized children would also have to be excluded, and allocated on a usage basis. During the time that the children receive educational services, elderly patients may be involved in attendant-supervised occupational or recreational therapy, including playing checkers or chess, sewing, weaving, or attending movies. Medicare Health Insurance Manual No. 10 Sec. 210.9(D) (Rev. 260 July 1981 & Rev. 310 Aug. 1982) expressly provides reimbursement for these activities, and their costs are reimbursed as routine costs. The Secretary does not agree that these occupational or recreational therapy services--or any other services used heavily by Medicare patients--should be apportioned on a usage basis. Accordingly, the Secretary's argument constitutes an attempt to rely on her regulations and apportionment system when they reduce her reimbursement liability, and to ignore the procedures mandated by her apportionment system when they increase her reimbursement liability. See Boswell Memorial Hospital, 749 F.2d at 798-99 (describing contexts in which Secretary has adopted such inconsistent positions). 33 The Secretary has broad discretion under the Act to define reasonable costs and to determine how most efficiently to estimate and allocate costs so that the costs of the Medicare system are not borne by non-Medicare patients and vice versa. 42 U.S.C. Sec. 1395x(v)(1)(A) (1982). It is not for us to decide whether the Secretary's regulations constitute the best method of accomplishing this goal, see Villa View Community Hospital, Inc. v. Heckler, 728 F.2d 539, 543 (D.C.Cir.1984) (quoting Psychiatric Institute, 669 F.2d at 814), and we express no view on the wisdom of the Secretary's current apportionment system. All we decide is that in view of the regulations she has chosen to adopt, the Secretary may not deny reimbursement for the educational services at issue in this case. 34 We would add one comment regarding the current regulations. The Secretary has chosen to follow a system that is based on the assumption that disparity of usage in particular categories of services balances out over the long haul. Whether in the end Medicare will come out ahead, behind, or even as a result of this method of apportioning of costs we cannot say here. There is certainly nothing in the record that would help us do so. However, if it turns out that the disadvantages to the Medicare program of continuing to use the present method of cost allocation outweigh the advantages or that the policies of the act are being frustrated by the use of that method, we assume the Secretary will amend her regulations or be told to do so by the Congress. See Boswell Memorial Hospital, 749 F.2d at 795 (if the Secretary determines that the general and administrative services pool, taken as a whole, has come to subsidize non-Medicare patients at the expense of Medicare patients she can institute regulations that segregate costs so that apportionent is based on usage). In the meantime, the Secretary has no choice but to follow the rules she has adopted.