Opinion ID: 449269
Heading Depth: 2
Heading Rank: 2

Heading: UCDMC's Claim for Reimbursement

Text: 6 The Davis Medical Center is one of five teaching hospitals operated by the University of California and is the major teaching facility for the University of California, Davis, School of Medicine. It serves a metropolitan area of nearly 880,000 people, and is a center for patient referral for a large region of Northern California and parts of Nevada and Oregon. The hospital is licensed for approximately 500 beds and offers a full range of in-patient services, diagnostic services, an ambulatory care program with over 80 clinics, a comprehensive mental health program, and a 24 hour emergency medical service. Specialized programs include a burn center, kidney transplant service, eye bank, regional mental health program, model family practice unit, neonatal intensive care unit, comprehensive rehabilitation center, and six specialized intensive care units. 7 Blue Cross of Northern California (Blue Cross) is the fiscal intermediary utilized by the Secretary in this case. It notified UCDMC in October, 1978, of its final determination of the amount of Medicare reimbursement due UCDMC for fiscal year 1975-76. Dissatisfied with Blue Cross' assessment of its reasonable costs, UCDMC requested a hearing before the Provider Reimbursement Review Board (PRRB) pursuant to 42 U.S.C. Sec. 1395oo(a) (1982). The PRRB modified the intermediary's determination of UCDMC's reasonable costs, finding the hospital entitled to additional reimbursement for certain expenses it incurred in providing atypical nursing services. The PRRB denied the hospital's request for reimbursement for other costs which it claimed were reasonable. The Secretary, through the Deputy Administrator of the Health Care Financing Administration (HCFA), elected to review the PRRB decision and reversed the Board's determination that UCDMC was entitled to reimbursement for its costs associated with the atypical nursing services. The decision of the HCFA constituted the final decision of the Secretary. 42 U.S.C. Sec. 1395oo(f)(1) (1982). 8 UCDMC then brought suit in district court, claiming that the Secretary's decision violated the express mandate of the Medicare Act that all reasonable costs be reimbursed. At issue was approximately $525,000 in expenses for which UCDMC claimed it was unjustifiably denied reimbursement. 6 The district court, while upholding the Secretary's authority to establish a schedule of limits which presumptively defines reasonable costs, further held that the Secretary is under a statutory duty to provide exceptions and exemptions to such limits that will ensure that reasonable costs actually incurred are reimbursed. The district court's conclusion was based, in large part, on the statutory provision which directs the Secretary to provide for suitable retroactive corrective adjustments whenever the amount of reimbursement determined by the chosen method of cost calculation proves to be inadequate or excessive. See 42 U.S.C. Sec. 1395x(v)(1)(A)(ii) (1982). The district court remanded the case to the Secretary to allow her to review each claimed expense in order to determine whether it was in fact reasonable as defined by section 1395x(v)(1)(A). The Secretary was ordered to reimburse UCDMC for all costs which were found to be reasonably incurred. 9 On appeal, the Secretary vigorously challenges the district court's reading of the Medicare Act. She contends that the statute authorizes her to establish limits on the amount of reimbursement to be recognized as reasonable, and that any costs which exceed such limits, whether reasonable in fact or not, need not be reimbursed. She claims that the district court erred by reading the corrective adjustment clause as demanding a case-by-case review of the adequacy of the amount of reimbursement deemed reasonable. She concludes that because the expenses in question exceed the reimbursement limit applicable to UCDMC in fiscal year 1975-76, 7 and because they do not fall within any of the then existing exceptions to such limit, the hospital is not entitled to reimbursement, regardless of whether those expenses were in fact reasonable. We reject the Secretary's interpretation of the statute.