512 U.S. 504 (1994), 93-120, Thomas Jefferson Univ. v. Shalala

Docket Nº:Case No. 93-120
Citation:512 U.S. 504, 114 S.Ct. 2381, 129 L.Ed.2d 405, 62 U.S.L.W. 4601
Case Date:June 24, 1994
Court:United States Supreme Court

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512 U.S. 504 (1994)

114 S.Ct. 2381, 129 L.Ed.2d 405, 62 U.S.L.W. 4601




Case No. 93-120

United States Supreme Court

June 24, 1994

Argued April 18, 1994



Medicare reimburses provider hospitals for the costs of certain educational activities, including the cost of graduate medical education (GME) services furnished by the hospital or its affiliated medical school, 42 CFR §§ 413.85, 413.17(a). However, reimbursement of educational activities is limited by (1) an "anti-redistribution" principle, providing that the Medicare program's intent is to support activities that are "customarily or traditionally carried on by providers in conjunction with their operations," but that the program should not "participate in increased costs resulting from redistribution of costs from educational institutions. . . to patient care institutions," § 413.85(c) (emphasis added); and (2) a "community support" principle, providing that Medicare will not assume the cost for educational activities previously borne by the community, ibid. Petitioner teaching hospital, a qualified Medicare provider, sought no reimbursement for its nonsalary-related (administrative) GME costs before 1984, and those costs were borne by its affiliated medical college. In fiscal year 1985, the fiscal intermediary disallowed the hospital's claim for reimbursement for such costs, but the Provider Reimbursement Review Board reversed in part, allowing reimbursement. Respondent Secretary reinstated the fiscal intermediary's ruling, concluding that reimbursement for the nonsalary GME costs borne in prior years by the medical college would constitute an impermissible redistribution under § 413.85(c). As an independent ground, she concluded that the community support principle also barred reimbursement. The District Court and the Court of Appeals affirmed.


The Secretary's interpretation of the anti-redistribution principle is reasonable. Because its application suffices to deny reimbursement of the disputed costs in this case, there is no need to decide the validity of the Secretary's interpretation of the community support language. Pp. 512-518.

(a) As petitioner's challenge is to the Secretary's interpretation of her own regulation, the Secretary's interpretation must be given controlling effect unless it is plainly erroneous or inconsistent with the regulation. Broad deference is all the more warranted here because the

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regulation concerns a complex and highly technical program in which the identification and classification of relevant criteria require significant expertise and entail the exercise of judgment grounded in policy concerns. Pp. 512-513.

(b) The meaning of § 413.85(c)'s relevant sentence is straightforward: Its first clause defines the scope of educational activities for which reimbursement may be sought, and its second clause provides that the costs of such activities will not be reimbursed if they result from a shift of costs from an educational, to a patient care, facility. The Secretary's interpretation of the anti-redistribution principle gives full effect to both clauses, allowing reimbursement for costs of educational programs traditionally engaged in by a hospital, while denying reimbursement for costs previously incurred and paid by a medical school. It is not only a plausible interpretation, but also the most sensible interpretation the language will bear. The Secretary's reliance on a hospital's and medical school's own historical cost allocations is a simple and effective way of determining whether a prohibited redistribution has occurred. Pp. 513-514.

(c) Petitioner's argument that § 413.85(c) prohibits the redistribution of activities, not costs, ignores the second clause of the critical sentence, which refers on its face to the "redistribution of costs." Moreover, the term "costs" is used without condition. Even if the Secretary's interpretation were not far more consistent with the regulation's unqualified language, her construction is a reasonable one which must be afforded controlling weight. Petitioner has presented no persuasive evidence to support its second argument, that the Secretary has been inconsistent in applying the anti-redistribution principle. Petitioner's argument that the regulation's language is "precatory" or "aspirational" in nature, and thus lacking in operative force, is also unpersuasive, since the anti-redistribution clause lays down a bright line for distinguishing permissible from impermissible reimbursement. Pp. 514-518.

993 F.2d 879, affirmed.

Kennedy, J., delivered the opinion of the Court, in which Rehnquist, C. J., and Blackmun, Scalia, and Souter, JJ., joined. Thomas, J., filed a dissenting opinion, in which Stevens, O'Connor, and Ginsburg, JJ., joined, post, p. 518.

Ronald N. Sutter argued the cause for petitioner. On the briefs were James M. Gaynor, Jr., and Amy E. Hancock.

Amy L. Wax argued the cause for respondent. With her on the brief were Solicitor General Days, Assistant Attorney

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General Hunger, Deputy Solicitor General Kneedler, Robert V. Zener, Robert D. Kamenshine, Harriet S. Rabb, Darrel J. Grinstead, Henry R. Goldberg, and Thomas W. Coons.[*]

Justice Kennedy delivered the opinion of the Court.

Although Medicare reimburses provider hospitals for the costs of certain educational activities, the program is forbidden by regulation from "participat[ing] in increased costs resulting from redistribution of costs from educational institutions. . .to patient care institutions." 42 CFR § 413.85(c)(1993) (emphasis added). In denying reimbursement for the disputed costs in this case, the Secretary of Health and Human Services interpreted this provision to bar reimbursement of educational costs that were borne in prior years not by the requesting hospital, but by the hospital's affiliated medical school. The dispositive question is whether the Secretary's interpretation is a reasonable construction of the regulatory language. We conclude that it is.



Established in 1965 under Title XVIII of the Social Security Act, 79 Stat. 291, as amended, 42 U.S.C. § 1395 et seq. (1988 ed. and Supp. IV), Medicare is a federally funded health insurance program for the elderly and disabled. Subject to a few exceptions, Congress authorized the Secretary

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of Health and Human Services (Secretary) to issue regulations defining reimbursable costs and otherwise giving content to the broad outlines of the Medicare statute. § 1395x(v)(1)(A). That authority encompasses the discretion to determine both the "reasonable cost" of services and the "items to be included" in the category of reimbursable services. Ibid. Acting under the statute, the Secretary, by regulation, permits reimbursement for the costs of "approved educational activities" conducted by hospitals. 42 CFR § 413.85(a)(1) (1993). The regulations define "approved educational activities" as "formally organized or planned programs of study usually engaged in by providers in order to enhance the quality of patient care." § 413.85(b).

Graduate medical education (GME) programs are one category of approved educational activities. GME programs give interns and residents clinical training in various medical specialties. Because participants learn both by treating patients and by observing other physicians do so, GME programs take place in a patient care unit (most often in a teaching hospital), rather than in a classroom. Hospitals are entitled to recover the "net cost" of GME and other approved educational activities, a figure "determined by deducting, from a provider's total costs of these activities, revenues it receives from tuition." § 413.85(g). A hospital may include as a reimbursable GME cost not only the costs of services it furnishes, but also the costs of services furnished by the hospital's affiliated medical school. § 413.17(a).

That brings us to the regulation here in question. Section 413.85(c) sets forth conditions governing the reimbursement of educational activities.[1] In a sentence referred to by the

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parties as the "anti-redistribution" principle, the regulation provides that "[a]lthough the intent of the [Medicare] program is to share in the support of educational activities customarily or traditionally carried on by providers in conjunction with their operations, it is not intended that this program should participate in increased costs resulting from redistribution of costs from educational institutions or units to patient care institutions or units." Ibid. In a portion of the regulation known as the "community support" principle, § 413.85(c) also states that the costs of educational activities "should be borne by the community," but that "[u]ntil communities undertake to bear these costs, the [Medicare] program will participate appropriately in the support of these activities." Ibid.


Thomas Jefferson University Hospital (Hospital) is a 700-bed teaching hospital in Philadelphia, Pennsylvania. The Hospital has been a qualified Medicare provider since the program took effect in 1966. Petitioner Thomas Jefferson University (University) is a private, not-for-profit educational institution that operates the Hospital and other entities, including the Jefferson Medical College (Medical College). As a teaching facility, the Hospital provides

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Medicare-approved GME programs for postgraduate interns and residents in numerous medical specialties. The programs are conducted at the Hospital by Medical College faculty. Because of their common ownership by the University, the Hospital and the Medical College are considered affiliated or "related" organizations under Medicare regulations. 42 CFR § 413.17(a) (1993). As a...

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