Opinion ID: 450362
Heading Depth: 2
Heading Rank: 3

Heading: Rate of Return on Equity Capital

Text: 30 Humana insists that the rate of return on equity capital permitted by the Secretary, 45 based on one and one-half times the interest on debt obligations issued by FHITF, consistently fails to meet the true cost of attracting capital. 46 It claims that a proprietary hospital's return must be paid under 42 U.S.C. Sec. 1395x(v)(1)(A) (1976), the reasonable costs provision, rather than under 42 U.S.C. Sec. 1395x(v)(1)(B) (1976), the subsection dealing with extended care facilities. 47 The reasonable cost provision contains no such fixed formula for a rate of return on equity. Rather, under this provision the amount of each hospital's reimbursement must be evaluated separately. Humana requests an individualized hearing on the rate of return to which it is entitled. 48 31 The Secretary responds that a proprietary hospital's rate of return can be claimed only under the extended care facility provision and not under the reasonable cost provision of the Act. 49 Under that section, she argues, HHS lacks statutory authority for individualized rate-making on a hospital-by-hospital basis. We agree with the Secretary's interpretation. 32 Although the House and Senate conferees who approved the 1966 amendment enacting the extended care facility provision 50 expected the Secretary to apply similar or comparable principles in determining reasonable costs for reimbursement of proprietary hospitals for services furnished by them, 51 the plain language of Sec. 1395x(v)(1)(B) must be our guide. On this point, we are bound by our prior opinion in AMI, which explicitly affirmed the district court's conclusion that the return on equity capital provision in Sec. 1395x(v)(1)(B) constitutes the sole exception to the basic Medicare principle that reimbursement be limited to those costs actually incurred in providing patient care services. 52 Since AMI precludes a finding that return on equity is payable under Sec. 1395x(v)(1)(A), and since Sec. 1395x(v)(1)(B) authorizes the Secretary to set a single, universal rate of return, we hold that Humana is not entitled to an individual determination of a reasonable return on equity.