Court Opinion

ID: 3192860
Source: CourtListenerOpinion
Date Created: 2016-04-12 03:04:38.859533+00
Date Added: 2024-06-11T13:09:43.917658
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

MISSION HOSPITAL REGIONAL                 No. 13-56264
MEDICAL CENTER,
              Petitioner-Appellant,          D.C. No.
                                          8:12-cv-01171-
                 v.                          AG-JPR

SYLVIA MATHEWS BURWELL, in her
official capacity as Secretary of           OPINION
Health and Human Services,
                 Respondent-Appellee.

      Appeal from the United States District Court
         for the Central District of California
      Andrew J. Guilford, District Judge, Presiding

                Argued and Submitted
        October 21, 2015—Pasadena, California

                  Filed April 11, 2016

     Before: Stephen S. Trott, Andrew J. Kleinfeld,
      and Consuelo M. Callahan, Circuit Judges.

                 Opinion by Judge Trott
2       MISSION HOSP. REG’L MED. CTR. V. BURWELL

                           SUMMARY*

                             Medicare

    The panel affirmed the district court’s judgment in favor
of the Secretary of Health and Human Services in an action
challenging the Secretary’s determination that Mission
Hospital Regional Medical Center was not entitled to bill
Medicare for patient services at its new facility in Laguna
Beach, California – formerly South Coast Medical Center –
until that facility had a provider agreement of its own.

    On June 30, 2009, Mission Hospital, a Medicare-
approved acute care hospital, purchased the assets of South
Coast, also a Medicare-approved facility. Mission Hospital
attempted by an assets-only purchase to avoid South Coast’s
potential liabilities under South Coast’s Medicare provider
agreement. Mission Hospital alleged that former 42 C.F.R.
§ 489.13(d)(1)(i) permitted it to avoid South Coast’s
Medicare liabilities by submitting Centers for Medicare and
Medicaid Services form 855A requesting that Mission
Hospital’s provider agreement encompass South Coast
effective July 1, 2009; or, alternatively, Mission Hospital
was entitled to the benefit of the retroactivity provision in 42
C.F.R § 489.13(d)(2).

    The Secretary rejected Mission Hospital’s contentions.
The Secretary’s decision blocked Mission Hospital from
collecting $1.4 million for services rendered between July 1,
2009 and September 29, 2009 at South Coast, and roughly $7

  *
    This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
      MISSION HOSP. REG’L MED. CTR. V. BURWELL             3

million for normally Medicare eligible services between July
1, 2009 and March 18, 2010, when the South Coast campus
was finally accredited and properly enrolled as a provider in
Medicare. The Departmental Appeals Board adopted the
Secretary’s decision.

    The panel concluded that the Secretary’s interpretations,
and decisions rendered by the Departmental Appeals Board,
were reasonable. The panel held that private parties have no
power to alter their legal obligations with Medicare under
their provider agreements. The panel also held that the
retroactivity provisions in 42 C.F.R. § 489.13(d)(2) were
inapplicable.

                        COUNSEL

William E. Quirk (argued), Polsinelli PC, Kansas City,
California; Wesley D. Hurst, Polsinelli LLP, Los Angeles,
California; and Jason T. Lundy, Polsinelli PC, Chicago,
Illinois, for Petitioner-Appellant.

Kathleen Unger (argued), and Deborah Yim, Assistant United
States Attorneys, Los Angeles, California, for Respondent-
Appellee.
4     MISSION HOSP. REG’L MED. CTR. V. BURWELL

                         OPINION

TROTT, Circuit Judge:

    On June 30, 2009, Mission Hospital Medical Center
(“Mission”), a Medicare-approved acute care hospital in
Mission Viejo, California, purchased from Adventist Health
Systems West (“Adventist”) the assets of South Coast
Medical Center (“South Coast”), in Laguna Beach,
California, also a Medicare-approved facility. However,
Mission attempted by an assets-only purchase to avoid South
Coast’s potential liabilities under South Coast’s Medicare
provider agreement. These liabilities encompassed potential
mandated reimbursement to Medicare for any previous
overpayments made to South Coast. Parenthetically, this
labyrinthine system is not a one-way street. Should Medicare
determine it has underpaid a hospital, for example with
respect to “outlier” costs for a beneficiary requiring higher
treatment costs than anticipated in the Prospective Payment
System (“PPS”) system, Medicare will subsequently
compensate the provider accordingly. How complicated is
this process, and how long does it take? We attach 42 C.F.R.
§ 412.84, Payment for extraordinarily high-cost cases (cost
outliers) as an Appendix.         This daunting regulation
demonstrates why continuity is contemplated by the Medicare
system.

    As a consequence of Mission’s decision to purchase only
South Coast’s assets, the Secretary of the U.S. Department of
Health and Human Services (the “Secretary”) duly
determined that Mission was not entitled to bill Medicare for
patient services at its new facility until that facility had a
provider agreement of its own. This decision blocked
Mission from collecting $1.4 million for services rendered
       MISSION HOSP. REG’L MED. CTR. V. BURWELL              5

between July 1, 2009, and September 29, 2009, at South
Coast, which was now known as Mission’s Laguna Beach
campus, and roughly $7 million for normally Medicare
eligible services between July 1, 2009, and March 18, 2010,
when the Laguna Beach campus was finally accredited and
properly enrolled as a provider in Medicare.

    Seeking remuneration for services provided, Mission
appealed the Secretary’s decision, first to the Department of
Heath and Human Services (the “Department”) Civil
Remedies Division. An Administrative Law Judge (“ALJ”)
ruled in favor of the Department. Mission appealed the
ALJ’s decision to the Departmental Appeals Board (“DAB”),
losing once again. The next stop was the district court, where
it suffered the same fate. Mission now appeals the
Secretary’s decision to us.

   We have jurisdiction over this timely appeal pursuant to
28 U.S.C. § 1291, and we affirm.

                              I

                              A.

    First, we explain what this controversy is not about. It is
not about general unknown liabilities that might have arisen
after the purchase date, for example from malpractice
lawsuits, wrongful denial of privileges lawsuits, or
construction and real estate disputes. This case deals only
with the continuity of provider agreement contractual liability
for Medicare overpayments, which are not ascertainable until
Medicare accounting, calculating, and reconciliation, and
which might not occur until years after initial billing. See
42 U.S.C. § 1395g(a). Nothing in this opinion should be
6      MISSION HOSP. REG’L MED. CTR. V. BURWELL

taken to limit or restrict assets-only purchases of medical
providers, or Medicare reimbursements to assets-only
purchases, so long as the assets-only purchase makes an
exception for Medicare reimbursement of overpayments. We
note that, “[b]y encompassing a system of interim payments
on an estimated cost basis, subject to year-end accounting, the
program ensures Medicare providers a steady flow of income
sufficient to provide service.” United States v. Vernon Home
Health, Inc., 21 F.3d 693, 696 (5th Cir. 1994). This complex
but routine PPS adjustment, reconciliation, and
reimbursement accounting process, to which all providers are
subject, undoubtedly eliminates serious cash flow problems
they would otherwise encounter.

    Second, this controversy does not involve an attempt by
Medicare to recover overpayments made to South Coast, or
for that matter, whether Medicare has recovered any such
payments from Adventist, South Coast’s previous owner. At
issue is only whether Mission can recover from Medicare for
services rendered as of the date of its operation of South
Coast as its Laguna Beach campus.

    In addition, both parties agree that South Coast’s provider
agreement terminated as of June 30, 2009, after South Coast
submitted a standard form CMS 855A Enrollment
Application notifying the Centers for Medicare and Medicaid
Services (“CMS”) of the impending acquisition and
requesting a change in its enrollment. Mission admits that

       [b]ecause Mission Hospital did not acquire
       South Coast’s liabilities, including those
       related to its provider agreement, South
       Coast’s provider agreement terminated upon
       South Coast’s acquisition. This is the very
       MISSION HOSP. REG’L MED. CTR. V. BURWELL              7

       reason that the hospitals filed their forms
       855A to bring the South Coast / Laguna
       Beach campus under Mission Hospital’s
       provider agreement upon South Coast’s
       acquisition.

A.O.B. 29–30.

                              B.

    Nevertheless, Mission asserts that former 42 C.F.R.
§ 489.13(d)(1)(i) permitted it to avoid South Coast’s
Medicare liabilities simply by submitting, along with South
Coast, CMS form 855A to CMS “requesting that Mission’s
Medicare provider agreement encompass the Laguna Beach
campus effective July 1, 2009.” Mission argues that its
submission of this form complied with § 489.13(d) (effective
until September 30, 2010) and should have made July 1,
2009, the effective date of Medicare enrollment for the
Laguna Beach campus under Mission’s existing provider
agreement and without a new accreditation survey. Mission
admits that it “deliberately did not take on the liabilities of
South Coast which was owned by Adventist Health. We left
those liabilities there. Those are between Medicare and
Adventist.” Mission also admits it did not rely on CMS when
it made the decision to attempt this gambit to circumvent
§ 489.18(d), but instead on “statements made to us by
Medicare contractors.”

    In the alternative, Mission maintains it is entitled to the
benefit of the retroactivity provision in § 489.13(d)(2). This
section says that the effective date of a provider like Mission
may be retroactive for up to one year from unpaid covered
services provided to a Medicare beneficiary.
8      MISSION HOSP. REG’L MED. CTR. V. BURWELL

                              II

    Not so fast, says the Secretary. Mission’s argument is too
clever by half. Granted, 42 U.S.C. § 489.18(c) says that
“[w]hen there is a change of ownership . . . , the existing
provider agreement will automatically be assigned to the new
owner,” here, Mission. However, § 489.18(d) as it read in
2009, provided that “[a]n assigned agreement is subject to all
applicable statutes and regulations and to the terms and
conditions under which it was originally issued.” (Emphasis
added). We note that this language talks about the terms and
conditions under which the existing provider agreement was
originally issued. The regulation does not say that the
provider agreement shall contain new identical terms and
conditions that are forward-looking only. The regulation,
which Mission tried to circumvent, provides continuity of
obligations, continuity which is essential to the functioning of
Medicare’s Prospective Payment System. The regulation
talks about an assignment, not a new beginning with a clean
slate on new terms. We note there is a three-year statute of
limitation on this adjustment arrangement.

    One of the substantive and significant “conditions” in
South Coast’s Medicare provider agreement was an
obligation to reimburse Medicare for any overpayments it
might have received. See 42 U.S.C. § 1395g; 42 C.F.R.
§§ 405.1803(c), 413.64(f); In re TLC Hosps., Inc., 224 F.3d
1008, 1012 (9th Cir. 2000). However, Mission extinguished
South Coast’s provider agreement and voluntarily refused to
assume South Coast’s contractual liability to return
overpayments to Medicare. Consequently, Mission did not
and could not take assignment of South Coast’s provider
agreement. Accordingly, the Laguna Beach campus on July
1, 2009 became for Medicare purposes a “new hospital,”
       MISSION HOSP. REG’L MED. CTR. V. BURWELL              9

without a provider agreement. 42 C.F.R. § 412.84(i)(3)(i)
defines a “new hospital” as “an entity that has not accepted
assignment of an existing hospital’s provider agreement in
accordance with § 489.18 of this chapter.” See also 42 C.F.R.
§§ 412.230, 412.525(a)(4)(iv)(C)(1), 412.529(f)(4)(iii)(A),
419.43(d)(5)(iii)(A). It follows that the Laguna Beach
campus was not enrolled in Medicare after Mission acquired
it as a “new hospital” on June 30, 2009. Thus, the effective
date of the enrollment of the Laguna Beach campus could not
be fixed until it was separately accredited with its own
provider agreement.

    As it turned out, The Joint Commission, an independent
non-profit organization that accredits and certifies more than
20,500 health care organizations and programs in the United
States, conducted an unannounced accreditation survey of the
Laguna Beach campus on March 2, 2009. The Joint
Commission reported finding two material deficiencies under
the medical records condition of participation. See 42 C.F.R.
§ 482.24. Mission complains that these deficiencies were not
material, but they were material to The Joint Commission and
CMS – and that’s what counts. The Joint Commission did
not clear the Laguna Beach campus for accreditation by CMS
until after the deficiencies were remedied. Only then was the
Laguna Beach Campus enrolled, accredited, and authorized
to bill services provided to Medicare beneficiaries.

     The DAB adopted and validated the Secretary’s
interpretation and application of the regulations for which she
is responsible.

       Mission’s Laguna Beach campus did not meet
       this threshold requirement [of current
       accreditation] by virtue of Mission’s July 1,
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       2009 asset purchase because, as already
       discussed, Mission did not assume all of
       South Coast’s outstanding liabilities and
       therefore Mission could not continue to
       operate the Laguna Beach campus under
       South Coast’s provider agreement or South
       Coast’s accreditation. Moreover, as discussed
       below, The Joint Commission extended
       Mission’s accreditation to the Laguna Beach
       campus only as of March 18, 2010. As a
       consequence, until that date, the Laguna
       Beach campus did not meet “all requirements”
       within the meaning of section 489.13(d)(1)(i),
       i.e., the hospital conditions of participation it
       could be deemed to meet on the basis of
       accreditation. Accordingly, the effective date
       of billing privileges for services provided at
       Mission’s Laguna Beach campus could not be
       earlier than March 18, 2010, notwithstanding
       the fact that the sole additional requirement
       under section 489.13(d)(1)(i) – submission of
       an enrollment application – was met even
       before July 1, 2009.

                             III

    Federal law fixes the relationships and responsibilities of
Medicare with beneficiaries and providers.                These
relationships and responsibilities are beyond the reach of
private parties such as Mission and South Coast to alter. The
liabilities of a Medicare provider are as different from the
liabilities in a typical assets-only purchase, as chalk is from
cheese. Mission as a provider was aware of all of these rules
and obligations when it attempted to short-circuit the system
       MISSION HOSP. REG’L MED. CTR. V. BURWELL              11

in its favor. “As a participant in the Medicare program,
[Mission] had a duty to familiarize itself with the legal
requirements for cost reimbursement.” Heckler v. Cmty.
Health Servs. of Crawford Cty., Inc., 467 U.S. 51, 64 (1984).

    Our sister circuit’s opinion in United States v. Vernon
Home Health, Inc., 21 F.3d 693 (5th Cir. 1994), informs and
is consistent with our opinion. In Vernon, the purchaser of
the corporate assets of a Medicare provider tried to escape the
provider’s responsibility to repay Medicare for overpayments.
To do so, the purchaser invoked Texas state law on its behalf
regarding the assumption of liabilities. The Fifth Circuit said,
“federal law governs cases involving the rights of the United
States arising under a nationwide federal program such as the
Social Security Act. The authority of the United States in
relation to funds disbursed and the rights acquired by it in
relation to those funds are not dependent upon state law.”
21 F.3d at 695 (citations omitted). It is equally true that
private parties have no power to alter their legal obligations
with Medicare under their provider agreements.

                              IV

    Mission’s attempt to shoehorn its predicament into the
retroactivity provisions of the special rule in 42 C.F.R
§ 489.13(d)(2) fares no better. By its use of the word “may,”
the regulation gives CMS discretion about when to grant
retroactive coverage. The Secretary’s long-standing policy as
restated by the DAB was to exercise her discretion under this
rule only to providers that were accredited, as that is how
CMS knows a provider is in compliance with Medicare’s
requirements. See Puget Sound Behavioral Health, DAB No.
1944 at 14 (2004).
12     MISSION HOSP. REG’L MED. CTR. V. BURWELL

    Applying this sound policy to this controversy, the DAB
said,

        As in Puget Sound, we conclude that section
        489.13(d)(2) is inapplicable because the
        conditions under which it was intended to
        apply are not present here. Specifically, there
        was no assurance that Mission’s Laguna
        Beach campus was in compliance with the
        Medicare participation requirements at the
        time the services were provided both because
        Mission was not assigned South Coast’s
        provider agreement due to Mission’s failure to
        assume South Coast’s liabilities and because
        The Joint Commission determined that the
        Laguna Beach campus was accredited only as
        of March 18, 2010.

   West Norman Endoscopy Center, DAB No. 2331 (2010)
upon which Mission relies is distinguishable because, as the
DAB noted, West Norman “was accredited . . . when it began
providing these services,” whereas Mission’s Laguna Beach
campus was not. Id. at *8.

                              V

     In Heckler v. Community Health, the Supreme Court said,

        Under the Medicare program, Title XVIII of
        the Social Security Act, 79 Stat. 291, as
        amended, 42 U.S.C. §§ 1395–1395vv,
        providers of health care services are
        reimbursed for the reasonable cost of
        services rendered to Medicare beneficiaries
       MISSION HOSP. REG’L MED. CTR. V. BURWELL             13

       as determined by the Secretary of Health
       and Human Services (Secretary).
       § 1395x(v)(1)(A). Providers receive interim
       payments at least monthly covering the cost of
       services they have rendered. 1395g(a).
       Congress recognized, however, that these
       interim payments would not always correctly
       reflect the amount of reimbursable costs, and
       accordingly instructed the Secretary to
       develop mechanisms for making appropriate
       retroactive adjustments when reimbursement
       is found to be inadequate or excessive.
       § 1395x(v)(1)(A)(ii). Pursuant to this
       statutory mandate, the Secretary requires
       providers to submit annual cost reports which
       are then audited to determine actual costs.
       42 CFR §§ 405.454, 405.1803 (1982). The
       Secretary may reopen any reimbursement
       determination within a 3-year period and
       make appropriate adjustments. § 405.1885.
467 U.S. at 53–54 (footnote omitted).

    This controversy could have been avoided had Mission
simply availed itself of the path open to it pursuant to
§ 489.18(c). As the DAB correctly said, “the results of the
case would be different had Mission assumed South Coast’s
liabilities when it acquired its assets.” We read this language
to have meant, in context, that this case would be different
“had Mission accepted South Coast’s liabilities to Medicare
when it acquired its assets,” and not to have referred to
liabilities South Coast might have had to patients, physicians,
vendors, or other third parties. Mission gambled on an
argument based on a contractor’s advice, not CMS’s. On
14     MISSION HOSP. REG’L MED. CTR. V. BURWELL

September 29, 2009, CMS warned Mission of its sure-to-fail
situation, advising Mission that it could not bill for services
“until either (1) The Joint Commission conducts a survey at
Laguna Beach or (2) Mission Hospital agrees to take
assignment of [South Coast’s] provider number, including all
potential liabilities[.]”     When Mission received this
notification, it ceased billing but did not alter its position.

   Under the Administrative Procedure Act, an agency
decision may be reversed only if it is arbitrary, capricious, an
abuse of discretion, or otherwise not in accordance with the
law. 5 U.S.C. § 706(2)(A).

       We must give substantial deference to an
       agency’s interpretation of its own regulations.
       Our task is not to decide which among several
       competing interpretations best serves the
       regulatory purpose. Rather, the agency’s
       interpretation must be given controlling
       weight unless it is plainly erroneous or
       inconsistent with the regulation. In other
       words, we must defer to the Secretary’s
       interpretation unless an alternative reading is
       compelled by the regulation’s plain language
       or by other indications of the Secretary’s
       intent at the time of the regulation’s
       promulgation.

Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994)
(citations and internal quotation marks omitted). “This broad
deference is all the more warranted when, as here, the
regulation concerns ‘a complex and highly technical
regulatory program,’ in which the identification and
classification of relevant ‘criteria necessarily require
       MISSION HOSP. REG’L MED. CTR. V. BURWELL             15

significant expertise and entail the exercise of judgment
grounded in policy concerns.’” Id. (emphasis added)
(quoting Pauley v. BethEnergy Mines, Inc., 501 U.S. 680, 697
(1991)); see also PAMC, Ltd. v. Sebelius, 747 F.3d 1214,
1217 (9th Cir. 2014); Cmty. Hosp. of Monterey Peninsula v.
Thompson, 323 F.3d 782, 789–90 (9th Cir. 2003). Moreover,
“[t]here is simply no requirement that the Government
anticipate every problem that may arise in the administration
of a complex program such as Medicare.” Heckler, 467 U.S.
at 64. Accordingly “that [CMS] had not anticipated this
problem and made a clear resolution available to [either
Mission or South Coast] is of no consequence.” Id. CMS
cannot be expected to foresee every situation that might arise.
We repeat what the Court said in Thomas Jefferson: The
Secretary is expected to “exercise . . . judgment grounded in
policy concerns in selecting between permissible
interpretations of the regulations.” 512 U.S. at 512.

    Because we conclude that the Secretary’s interpretations
and decisions rendered by the DAB in this case were
reasonable and satisfied this standard, we AFFIRM.
16      MISSION HOSP. REG’L MED. CTR. V. BURWELL

                         APPENDIX

 42 C.F.R. § 412.84 - Payment for extraordinarily high-
                cost cases (cost outliers).

(a) A hospital may request its intermediary to make an
additional payment for inpatient hospital services that meet
the criteria established in accordance with § 412.80(a).

(b) The hospital must request additional payment—

     (1) With initial submission of the bill; or

     (2) Within 60 days of receipt of the intermediary’s initial
     determination.

(c) Except as specified in paragraph (e) of this section, an
additional payment for a cost outlier case is made prior to
medical review.

(d) As described in paragraph (f) of this section, the QIO
[Quality Improvement Organization] reviews a sample of cost
outlier cases after payment. The charges for any services
identified as noncovered through this review are denied and
any outlier payment made for these services are recovered, as
appropriate, after a determination as to the provider’s liability
has been made.

(e) If the QIO finds a pattern of inappropriate utilization by
a hospital, all cost outlier cases from that hospital are subject
to medical review, and this review may be conducted prior to
payment until the QIO determines that appropriate corrective
actions have been taken.
      MISSION HOSP. REG’L MED. CTR. V. BURWELL            17

(f) The QIO reviews the cost outlier cases, using the medical
records and itemized charges, to verify the following:

   (1) The admission was medically necessary and
   appropriate.

   (2) Services were medically necessary and delivered in
   the most appropriate setting.

   (3) Services were ordered by the physician, actually
   furnished, and not duplicatively billed.

   (4) The diagnostic and procedural codings are correct.

(g) The intermediary bases the operating and capital costs of
the discharge on the billed charges for covered inpatient
services adjusted by the cost to charge ratios applicable to
operating and capital costs, respectively, as described in
paragraph (h) of this section.

(h) For discharges occurring before October 1, 2003, the
operating and capital cost-to-charge ratios used to adjust
covered charges are computed annually by the intermediary
for each hospital based on the latest available settled cost
report for that hospital and charge data for the same time
period as that covered by the cost report. For discharges
occurring before August 8, 2003, statewide cost-to-charge
ratios are used in those instances in which a hospital’s
operating or capital cost-to-charge ratios fall outside
reasonable parameters. CMS sets forth the reasonable
parameters and the statewide cost-to-charge ratios in each
year's annual notice of prospective payment rates published
in the Federal Register in accordance with § 412.8(b).
18       MISSION HOSP. REG’L MED. CTR. V. BURWELL

(i)

      (1) For discharges occurring on or after August 8, 2003,
      CMS may specify an alternative to the ratios otherwise
      applicable under paragraphs (h) or (i)(2) of this section.
      A hospital may also request that its fiscal intermediary
      use a different (higher or lower) cost-to-charge ratio
      based on substantial evidence presented by the hospital.
      Such a request must be approved by the CMS Regional
      Office.

      (2) For discharges occurring on or after October 1, 2003,
      the operating and capital cost-to-charge ratios applied at
      the time a claim is processed are based on either the most
      recent settled cost report or the most recent tentative
      settled cost report, whichever is from the latest cost
      reporting period.

      (3) For discharges occurring on or after August 8, 2003,
      the fiscal intermediary may use a statewide average cost-
      to-charge ratio if it is unable to determine an accurate
      operating or capital cost-to-charge ratio for a hospital in
      one of the following circumstances:

         (i) New hospitals that have not yet submitted their
         first Medicare cost report. (For this purpose, a new
         hospital is defined as an entity that has not accepted
         assignment of an existing hospital’s provider
         agreement in accordance with § 489.18 of this
         chapter.)

         (ii) Hospitals whose operating or capital cost-to-
         charge ratio is in excess of 3 standard deviations
         above the corresponding national geometric mean.
       MISSION HOSP. REG’L MED. CTR. V. BURWELL              19

       This mean is recalculated annually by CMS and
       published in the annual notice of prospective payment
       rates issued in accordance with § 412.8(b).

       (iii) Other hospitals for whom the fiscal intermediary
       obtains accurate data with which to calculate either an
       operating or capital cost-to-charge ratio (or both) are
       not available.

   (4) For discharges occurring on or after August 8, 2003,
   any reconciliation of outlier payments will be based on
   operating and capital cost-to-charge ratios calculated
   based on a ratio of costs to charges computed from the
   relevant cost report and charge data determined at the
   time the cost report coinciding with the discharge is
   settled.

(j) If any of the services are determined to be noncovered, the
charges for these services will be deducted from the requested
amount of reimbursement but not to exceed the amount
claimed above the cost outlier threshold.

(k) Except as provided in paragraph (l) of this section, the
additional amount is derived by first taking 80 percent of the
difference between the hospital’s adjusted operating cost for
the discharge (as determined under paragraph (g) of this
section) and the operating threshold criteria established under
§ 412.80(a)(1)(ii); 80 percent is also taken of the difference
between the hospital’s adjusted capital cost for the discharge
(as determined under paragraph (g) of this section) and the
capital threshold criteria established under § 412.80(a)(1)(ii).
The resulting capital amount is then multiplied by the
applicable Federal portion of the payment as determined in
§ 412.340(a) or § 412.344(a).
20     MISSION HOSP. REG’L MED. CTR. V. BURWELL

(l) For discharges occurring on or after April 1, 1988, the
additional payment amount for the DRGs related to burn
cases, which are identified in the most recent annual notice of
prospective payment rates published in accordance with
§ 412.8(b), is computed under the provisions of paragraph (k)
of this section except that the payment is made using 90
percent of the difference between the hospital’s adjusted cost
for the discharge and the threshold criteria.

(m) Effective for discharges occurring on or after August 8,
2003, at the time of any reconciliation under paragraph (i)(4)
of this section, outlier payments may be adjusted to account
for the time value of any underpayments or overpayments.
Any adjustment will be based upon a widely available index
to be established in advance by the Secretary, and will be
applied from the midpoint of the cost reporting period to the
date of reconciliation.