57 F.3d 832 (9th Cir. 1995), 94-55182, Dominguez Valley Hosp. v. Shalala

Docket Nº:94-55182.
Citation:57 F.3d 832
Party Name:Cas. 1824, DOMINGUEZ VALLEY HOSPITAL; Ontario Community Hospital; Ojai Community Hospital; Manteca Hospital; Doctors Hospital of Lakewood; Los Alamitos Medical Center, Los Alamitos Medical Center--Psych; Chico Community Hospital; Memorial Hospital of Redding, Redding Medical Center, Redding Medical Center--Rehabilitation, Redding Medical Center--De
Case Date:June 14, 1995
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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57 F.3d 832 (9th Cir. 1995)

Cas. 1824,

DOMINGUEZ VALLEY HOSPITAL; Ontario Community Hospital;

Ojai Community Hospital; Manteca Hospital; Doctors

Hospital of Lakewood; Los Alamitos Medical Center, Los

Alamitos Medical Center--Psych; Chico Community Hospital;

Memorial Hospital of Redding, Redding Medical Center,

Redding Medical Center--Rehabilitation, Redding Medical

Center--Detox; Modesto City Hospital; Garfield Medical

Center--Rehabilitation; Lodi Community Hospital; Doctors

Hospital--Modesto; Doctors Hospital--Modesto HHA; Doctors

Hospital of Pinole; Doctors Hospital of Pinole--Detox;

Indio Community Hospital; Los Altos Hospital; Doctors

Hospital of Lakewood--South; Alvarado Community Hospital;

Doctors Hospital of Montclair; Twin Cities Community

Hospital; Palms of Pasadena Hospital; John F. Kennedy

Memorial Hospital; Lake Seminole Hospital; Hollywood

Medical Center; Seven Rivers Community Hospital; Medfield

Center; Sierra Medical Center; Meadowcrest Hospital; St.

Charles General Hospital; Rehabilitation Institute of

Oklahoma; Jackson Specialty Hospital/SNF; Wilmot

Psychiatric/Medicenter, Tucson; San Diego Physicians &

Surgeons; Mid-South Hospital; Highland Hospital; Dallas

Rehabilitation Institute; Northgate General Hospital;

Community Hospital of Los Gatos; Delray Community Hospital;

Forkosh Memorial Hospital; Flint Goodridge Hospital; J.E.

Smith/F.E. Hebert Hospitals/SNF; Dedman Medical

Center/Brookhaven/SNF; Placentia Linda Community Hospital;

Carrollton Community Hospital; University Medical Center,

Plaintiffs-Appellants,

v.

Donna E. SHALALA, Secretary of the Department of Health &

Human Services, Defendant-Appellee.

No. 94-55182.

United States Court of Appeals, Ninth Circuit

June 14, 1995

Submitted May 9, 1995[*]

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

Henry A. Azar, Jr., U.S. Dept. of Justice, Washington, DC, for defendant-appellee.

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

Before: HALL, LEAVY, Circuit Judges, and LEVI, District Judge. [**]

LEVI, District Judge:

Appellant hospitals appeal from a decision of the Secretary of Health and Human Services ("the Secretary") declining to reimburse the hospitals for stock options granted to certain employees. The hospitals participate in the Medicare program and seek reimbursement from the Secretary under that program. The Secretary refused reimbursement for the stock options, finding that under generally accepted accounting principles ("GAAP"), 1 the hospitals had not incurred

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any costs. 2 The district court affirmed the Secretary's decision, granting the secretary's motion for summary judgment. We review the Secretary's final decision to determine "whether the agency action was 'arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.' " 3 We have jurisdiction under 28 U.S.C. Sec. 1291, and we affirm.

In the fiscal years 1980 through 1984, appellant hospitals granted stock options to certain top managerial employees. 4 The stock options were "fixed" options; they gave recipients the right to purchase a specific number of shares at a fixed price. The fixed price for a given employee's option was the market price of the stock on the date that the option was initially granted. The option became fully vested three years after the grant date; the right to exercise the option lasted until ten years after that date.

The hospitals seek reimbursement for the costs of their employee stock options under the Medicare Act, which provides for reimbursement of the "reasonable cost"--defined as "the cost actually incurred"--in rendering covered services to Medicare patients. 42 U.S.C. Secs. 1395f(b), 1395x(v)(1)(A). 5 The Secretary denied the hospitals' reimbursement request, finding that under Accounting Principles Board Opinion No. 25 (Accounting Principles Bd.1972) ("APB No. 25"), the hospitals incurred no costs because the exercise price of each option was the stock's market price on the grant date. The hospitals contend that the Secretary's decision to apply APB No. 25 to value their stock options was arbitrary and capricious. In accord with our decision in HCA Health Services of Midwest, Inc. v. Bowen, 869 F.2d 1179 (9th...

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