Opinion ID: 693465
Heading Depth: 3
Heading Rank: 4

Heading: Generally Accepted Accounting Principles (GAAP).

Text: 48 In the absence of a specific Medicare policy addressing the method of determining a particular cost, generally accepted accounting principles (GAAP) should be applied. 7 See 42 CFR Secs. 413.20, 413.24 (1994); 41 Fed.Reg. 46292; 8 See also Villa View Community Hospital, Inc. v. Heckler, 720 F.2d 1086, 1093 n. 18 (9th Cir.1983). According to the providers, the requirement found in the regulation at 42 CFR Sec. 413.153 that interest must be incurred on a loan made to satisfy a financial need of the provider, is not determinative in the instant case. The providers assert that such regulation addresses when interest costs are reimbursable but does not address how interest costs are to be computed. Therefore, because no specific regulation is applicable, the providers contend that GAAP are determinative. 9 49 However, the providers' reliance on Villa View v. Heckler, supra, is without merit. In that case, the court stated: 50 where the Secretary has not prescribed different accounting practices by regulation, the Secretary must apply generally accepted accounting principles to determine whether a particular cost claimed by a provider is reimbursable under the Medicare Act. 51 Id. at 1093, n. 18. 52 While the court's decision in Villa View directs the Secretary to utilize GAAP in the absence of specific regulations, the court also noted that the Secretary is at liberty to prescribe other methods when GAAP do not accurately reflect the cost of patient care, as opposed to the cost of running a business.... Id. (citing North Clackamas Community Hosp. v. Harris, 664 F.2d 701, 706 n. 16 (9th Cir.1980)). Moreover, the Supreme Court has recently held that Sec. 413.20(a) does not bind the Secretary to reimburse according to GAAP. See Donna E. Shalala. Secretary of Health and Human Services v. Guernsey Memorial Hospital, --- U.S. ----, 115 S.Ct. 1232, 131 L.Ed.2d 106 (the Secretary's decision not utilize GAAP is supported by the regulation's text and the overall structure of the regulations). 53 The providers' reliance on National Medical Enterprises, (NME) supra, is similarly unfounded. In that case, the court found that when a regulation is silent on the subject [of accounting methods] ..., the regulation establishing general principles for cost reporting must be deemed applicable. Id. at 294. NME is distinguishable from the instant case. In NME, the Secretary had determined that the accrual method of accounting did not apply to cost reporting of return-on-equity capital. However, the Secretary could point to no specific regulation, other than a PRM guideline, which directed this method of calculation. Id. Moreover, the Secretary admitted that Medicare regulations required hospitals to use the accrual accounting system in most other situations. Id. at 293. Under those circumstances, the court held that because the PRM does not have the effect of law, the Secretary could not arbitrarily decide to disregard GAAP without specific support from the Medicare regulations. Id. at 294. 54 In contrast, in the instant case, a blended rate is not customarily used by providers or by Medicare. In addition, the PRM at issue is consistent with Medicare regulations. As a result, the Secretary did not act arbitrarily or capriciously when she relied on the PRM's interpretative guidelines to disallow a blended interest rate. 55 We conclude that the Secretary's interpretation disallowing use of a blended interest rate is consistent with the purpose of Medicare in that use of an actual interest rate protects against cross-subsidization. As a result, the Secretary's construction was not arbitrary or capricious. For the foregoing reasons, we affirm the ruling of the district court. 56 AFFIRMED.