Opinion ID: 3158926
Heading Depth: 2
Heading Rank: 2

Heading: western district of pennsylvania litigation

Text: Canonsburg is a hospital-based SNF that has participated in the Medicare reimbursement program since 1984. Beginning in fiscal year 1987, Canonsburg applied for, and obtained, the atypical services exception for costs exceeding its RCLs. In 1994, however, the Secretary’s revised gap methodology interpretation of section 2534.5 began to limit Canonsburg’s reimbursements. 3 3 The Congress has since eliminated retrospective cost-based reimbursements for all SNFs and replaced that system with a prospective payment scheme. See Balanced Budget Act of 1997, 6 In 2001, Canonsburg appealed a final reimbursement decision of the Secretary in the Western District of Pennsylvania, challenging section 2534.5 as applied to its reimbursements for fiscal years 1987 through 1990 and 1993. See Canonsburg I, 2001 WL 36339671, at . Canonsburg alleged that section 2534.5 was arbitrary, capricious and inconsistent with statutory language because it (1) “violate[d] the applicable cost limit statu[t]e, 42 U.S.C. § 1395yy(c), and regulation, 42 C.F.R. § 413.30(f)”; (2) was procedurally invalid because “it is a substantive r[u]le, yet it was not passed pursuant to the notice and comment requirements” of the APA; and (3) unreasonably discriminated between freestanding and hospital-based SNFs “in the exception process.” Canonsburg I, 2001 WL 36339671, at –4. The district court rejected all of Canonsburg’s arguments, relying heavily on a Sixth Circuit decision upholding section 2534.5. See Canonsburg I, 2001 WL 36339671, at –5 (citing St. Francis Health Care Ctr. v. Shalala, 205 F.3d 937 (6th Cir. 2000)). The court first concluded that the statutory language (42 U.S.C. § 1395yy), as well as the regulatory language (42 C.F.R. § 413.30), regarding reasonable costs was permissive, not mandatory, and that the Secretary’s interpretation of the language was reasonable. See Canonsburg I, 2001 WL 36339671, at . The court also viewed section 2534.5 as an interpretative rule, not a substantive rule, and thus concluded that it did not require notice and comment. See id. Finally, the court found no merit in Canonsburg’s discrimination argument, holding that Pub. L. No. 105-33, § 4432(a), 111 Stat. 251, 414–20 (codified at 42 U.S.C. § 1395yy(e)). The amendments to the cost-based reimbursement system for SNFs applied to cost reporting periods beginning on or after July 1, 1998, see 42 U.S.C. § 1395yy(e)(2)(D); accordingly, Canonsburg’s petition for review of its fiscal year 1996 reimbursement requires analysis of the earlier retrospective cost-based reimbursement system. 7 the Congress treated freestanding and hospital-based SNFs the same once it removed the excess costs from the hospital-based RCLs. See id. Canonsburg did not appeal the district court’s grant of summary judgment in favor of the Secretary.