Wilmot Psychiatric/Medicenter Tucson, Dominguez Valley Hospital, Ojai Community Hospital, Manteca Hospital v. Shalala , Secretary of Department of Health & Human Services

• Citation: 11 F.3d 1505
• Decision Date: 16 December 1993
• Docket Number: No. 92-55602,92-55602
• Parties: , 43 Soc.Sec.Rep.Ser. 124, Medicare&Medicaid Guide P 41,966 WILMOT PSYCHIATRIC/MEDICENTER TUCSON; Dominguez Valley Hospital; Ojai Community Hospital; Manteca Hospital, Plaintiffs-Appellants, v. Donna E. SHALALA, * Secretary of the Department of Health & Human Services, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1505

11 F.3d 1505

62 USLW 2410, 43 Soc.Sec.Rep.Ser. 124,

Medicare&Medicaid Guide P 41,966

WILMOT PSYCHIATRIC/MEDICENTER TUCSON; Dominguez Valley Hospital; Ojai Community Hospital; Manteca Hospital, Plaintiffs-Appellants, v. Donna E. SHALALA, ^* Secretary of the Department of Health & Human Services, Defendant-Appellee.

No. 92-55602.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Oct. 7, 1993.

Decided Dec. 16, 1993.

Patric Hooper, Hooper, Lundy & Bookman, Los Angeles, CA, for plaintiffs-appellants.

George H. Wu, Asst. U.S. Atty., Los Angeles, CA, Jerry J. Bassett, Asst. Regional Counsel, Dept. of Health and Human Services, San Francisco, CA, for defendant-appellee.

Appeal from the United States District Court for the Central District of California.

Before: REINHARDT, T.G. NELSON, Circuit Judges, and KAUFMAN, ^** District Judge.

T.G. NELSON, Circuit Judge:

OVERVIEW

This case arises from the Secretary of Health and Human Services' ("Secretary") decision not to reimburse Wilmot Psychiatric/Medicenter and several other hospitals ("hospitals") under Part C of the Medicare program. Title XVIII of the Social Security Act, 42 U.S.C. Sec. 1395x(v)(1)(A), for the cost of complimentary meals provided by the hospitals to attending physicians, who have staff privileges at the hospitals. The hospitals appeal the district court's summary judgment in favor of the Secretary. We affirm.

FACTS AND PROCEDURAL HISTORY

Wilmot Psychiatric/Medicenter and several other hospitals seek reimbursement through the Medicare program for unrecovered meal expenses. The hospitals incurred these meal expenses by providing complimentary meals to private physicians who had staff privileges at the hospitals. The complimentary meals were provided to the physicians while they attended to their own private patients whom they had admitted to the hospitals. After the Medicare fiscal intermediaries initially denied reimbursement, the hospitals appealed to the Provider Reimbursement Review Board ("PRRB"). Following a hearing, the PRRB issued decisions in favor of the hospitals. The PRRB held that the costs for the complimentary meals for attending physicians were reasonable and related to patient care.

Upon review of the PRRB's decisions, the Secretary, interpreting the Medicare Act, the regulations, and the Provider Reimbursement Manual ("manual" or "PRM"), reversed those decisions and held that the meal expenses were not reimbursable. The district court affirmed the Secretary's decision. The hospitals appeal the district court's holding, and argue that the Secretary's decision is unsupported by substantial evidence. See 5 U.S.C. Sec. 706.

DISCUSSION

I. Standard of Review

"We review de novo a district court's award of summary judgment affirming a decision of the Secretary in a Medicare reimbursement matter." Vallejo Gen. Hosp. v. Bowen, 851 F.2d 229, 230-31 (9th Cir.1988). Therefore, this court must review the Secretary's final decision to determine whether it was "arbitrary, capricious, an abuse of discretion, not in accordance with the law, or unsupported by substantial evidence on the record taken as a whole." Id. at 231. "When this standard of review is applicable, the agency determination will not be set aside unless it is clearly erroneous or inconsistent with the regulation or demonstrably irrational." North Clackamas Community Hosp. v. Harris, 664 F.2d 701, 704 (9th Cir.1980) (internal quotations omitted).

II. Medicare Act

Pursuant to the Medicare Act, 42 U.S.C. Sec. 1395x(v)(1)(A) (1988), providers of health services are entitled to reimbursement for reasonable costs necessary for the efficient delivery of needed health services. National Medical Enters., Inc. v. Sullivan, 916 F.2d 542, 544 (9th Cir.1990), cert. denied, --- U.S ----, 111 S.Ct. 2014, 114 L.Ed.2d 100 (1991). Congress authorized the Secretary to further define "reasonable costs" by regulation. Vista Hill Found., Inc. v. Heckler, 767 F.2d 556, 558 (9th Cir.1985). "Reasonable costs" are defined as "those that are the necessary and proper costs incurred in rendering the services." Id. (internal quotation omitted). In 42 C.F.R. Sec. 413.9(b)(2), the Secretary "define[s] necessary and proper costs as those costs which are appropriate and helpful in developing and maintaining the operation of patient care facilities and activities. They are usually costs which are common and accepted occurrences in the field of the provider's activity." 767 F.2d at 558 (internal quotation omitted). The Secretary determines whether a particular cost is reasonable. See St. Elizabeth Community Hosp. v. Heckler, 745 F.2d 587, 589 (9th Cir.1984); 42 U.S.C. Sec. 1395x(v)(1)(A).

Reimbursement to the hospitals is generally made through fiscal intermediaries (usually private insurance companies) in accordance with contracts with the Secretary. The hospitals submit annual cost reports to their fiscal intermediaries who in turn determine the reimbursable costs. In the event that a hospital is dissatisfied with the fiscal intermediary's determination of reimbursement, it may request a hearing before the PRRB, which hears the matter and issues a decision. 42 U.S.C. Sec. 1395oo(a), (d). The decision of the Board is final unless the Secretary, on his own motion, and within sixty days after the hospital is notified of the PRRB's decision, affirms, modifies, or reverses the PRRB's decision. The hospitals have the right to seek judicial review of any final decision of the Board, or of the Secretary. 42 U.S.C. Sec. 1395oo(f)(1).

To aid intermediaries in applying the Medicare statute and reimbursement regulations, the Secretary issued the PRM. The PRM is not binding like a law or regulation. Rather, it guides the application of the laws and regulations. National Medical Enters. v. Bowen, 851 F.2d 291, 293 (9th Cir.1988). Section 2102.3 (1986) of the PRM states that "costs which are not appropriate or necessary and proper in developing and maintaining the operation of patient care facilities and activities" are not reimbursable.

III. "Reasonableness" of Free Meals

The Medicare Act allows reimbursement for "reasonable" costs necessary for the efficient delivery of health services. 42 U.S.C. Sec. 1395x(v)(1)(A). The statute offers no definition of the term "reasonable." When "[c]onfronted with an ambiguous statutory provision, we generally will defer to a permissible interpretation espoused by the agency entrusted with its implementation." Good Samaritan Hosp. v. Shalala, --- U.S. ----, ----, 113 S.Ct. 2151, 2159, 124 L.Ed.2d 368 (1993). The Secretary defines "reasonable" as those costs which are "necessary and proper" in rendering health services, and further defines "necessary and proper" as those costs which are "appropriate and helpful" in developing and maintaining the operation of patient care facilities and activities. The regulation also states that necessary and proper costs are "usually costs that are common and accepted occurrences in the field of the provider's activity." 42 C.F.R. Sec. 413.9(b)(2).

The progression from the statutory "reasonable" costs to "necessary and proper" costs to "appropriate and helpful" costs does not assist the analysis. However, given the breadth of the Secretary's discretion, she has not limited her ability to disapprove the costs involved here, as they lend themselves as readily to an "appropriate" analysis as they would a "necessary" or "reasonable" analysis. The regulation demonstrates what we said in an earlier case:

At the time the Medicare provisions were enacted Congress was aware of the complexities of determining reasonable costs for services to be provided under the program. Hence the agency was afforded a great deal of discretion in promulgating its regulations. Given the significant number of variables to be considered in determining the reasonable costs of Medicare services, the results will necessarily be imprecise.

Mercy Hosp. & Medical Ctr., San Diego v. Harris, 625 F.2d 905, 910 (9th Cir.1980) (citation omitted).

In St. Elizabeth, this court stated that "[d]eference is accorded the Secretary's interpretation of his own regulations where he has expertise in the substantive area involved and where the regulations were promulgated pursuant to congressional authorization." 745 F.2d at 592. "[W]e must examine the interpretation itself in light of the language of the regulations. The words must be reasonably susceptible to the construction placed upon them by the Secretary, both on their face and in light of their prior interpretation and application." Id. (internal quotation omitted). The Secretary's interpretation of the regulations in this case is consistent with prior agency decisions regarding complimentary meals for attending physicians. See Suburban Hosp. v. Blue Cross, Medicare & Medicaid Guide (CCH) p 29,953 (1979) (employee meal costs allowable, but visitor meal costs denied); Hollywood Presbyterian Medical Ctr. v. Blue Cross, Medicare & Medicaid Guide (CCH) p 31,907 (1982) (visitor meal costs not reimbursable because not related to patient care); Pioneer Hosp. v. Travelers, Medicare & Medicaid Guide (CCH) p 32,472 (1983) (costs for employee meals allowable but meal cost for attending physicians not reimbursable because unnecessary for the efficient delivery of health services).

Acknowledging that the manual guidelines are not evidence for the purpose of the hearing, the hospitals argue that the guidelines do not support the Secretary's decision. The manual provides separate guidelines for reimbursement of meals provided to employees and meals provided to hospital "personnel." Because by law physicians may not be "employed" by hospitals, the hospitals argue that the use of two different terms indicates an intent that the term "personnel" must include the hospitals' medical staffs. Therefore, the hospitals contend that "medical staff" necessarily includes attending physicians.

Section 2105.2 ¹ of the manual does...