767 F.2d 556 (9th Cir. 1985), 84-6136, Vista Hill Foundation, Inc. v. Heckler

Docket Nº:84-6136.
Citation:767 F.2d 556
Party Name:VISTA HILL FOUNDATION, INC., a non profit corporation dba Vista Hill Hospital, Mesa Vista Hospital and Vista Sandia Hospital, Plaintiff-Appellant, v. Margaret M. HECKLER, Secretary of Health and Human Services, Defendant-Appellee.
Case Date:July 29, 1985
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

Page 556

767 F.2d 556 (9th Cir. 1985)

VISTA HILL FOUNDATION, INC., a non profit corporation dba

Vista Hill Hospital, Mesa Vista Hospital and Vista

Sandia Hospital, Plaintiff-Appellant,


Margaret M. HECKLER, Secretary of Health and Human Services,


No. 84-6136.

United States Court of Appeals, Ninth Circuit

July 29, 1985

Argued and Submitted Feb. 7, 1985.

Page 557

[Copyrighted Material Omitted]

Page 558

Patric Hooper, Weissburg & Aronson, Inc., Los Angeles, Cal., for plaintiff-appellant.

Michael R. Power, San Francisco, Cal., for defendant-appellee.

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

Before GOODWIN, REINHARDT, and WIGGINS, Circuit Judges.

REINHARDT, Circuit Judge:

Vista Hill Foundation ("Vista Hill"), which owns three acute psychiatric facilities, appeals from a summary judgment upholding the Secretary of Health and Human Services' decision to deny Medicare reimbursement for the costs that the facilities incurred in furnishing mandated educational services to their pediatric patients. Because we find that the services are related to treatment and the costs are not otherwise excludable from those that must be reimbursed by Medicare, we reverse.


This appeal involves Part A of the Medicare Program, created by Title XVIII of the Social Security Act, 42 U.S.C. Sec. 1395 et seq. (1982). Part A covers the expenses of inpatient hospital care. Hospitals that participate in the Medicare program are designated "providers of services" and are paid the "reasonable costs" of appropriate services rendered to Medicare patients. Reasonable costs are defined as the direct and indirect costs actually incurred by a provider, excluding costs found to be unnecessary to the efficient delivery of needed health services. 42 U.S.C. Sec. 1395x(v)(1)(A) (1982). Congress delegated to the Secretary the authority to further define "reasonable costs" by regulation, id., and in her regulations the Secretary has specified that "reasonable costs" are those that are the "necessary and proper costs incurred in rendering the services." 42 C.F.R. Sec. 405.451(a) (1984). The regulations go on to define 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." Id. Sec. 405.451(b)(2).

Vista Hill, a Medicare provider, owns three inpatient psychiatric facilities that serve children as well as adults. The children suffer primarily from schizophrenia, major depression, and serious conduct disorders. According to the only expert who testified, Dr. Robert A. Moore, the children's illnesses have a "very close relationship" with their schooling, and "a very important part of their treatment is to learn to do the job of going to school and to learn to do the job of learning." The educational services in question are, therefore, provided as part of the active hospital treatment program for 95% of the patients under 18 years of age. The young patients receive educational services for approximately 15 to 20 hours a week.

Vista Hill contends that the educational services are a routine form of treatment and that, as such, their costs are covered by Medicare. The Medicare fiscal intermediary, the entity that first determines

Page 559

whether costs are reimbursable, 1 found that that they are not covered. The Provider Reimbursement Review Board ("PRRB" or "Board") affirmed the intermediary's disallowance, 2 determining (a) that the services are not "an integral part of the therapy modality," and (b) that education programs are the responsibility of local school districts. The district court agreed that the costs in question are not reimbursable. However, the district court did not rely on either of the grounds on which the Board based its decision. Instead, the district court found that the services are not routine for Medicare patients. Accordingly, it reasoned, the costs of the services cannot be apportioned between Medicare and non-Medicare patients under the system used to apportion routine costs. Vista Hill contends that the Secretary's denial of routine-cost reimbursement for these necessary and proper costs was arbitrary and capricious.


We normally affirm a district court's grant of summary judgment if the record establishes any basis that supports the order. Jewel Companies v. Pay Less Drug Stores Northwest, Inc., 741 F.2d 1555, 1564-65 (9th Cir.1984). However, an agency's decision can be upheld only on a ground upon which it relied in reaching that decision. Memorial, Inc. v. Harris, 655 F.2d 905, 911 (9th Cir.1980); see generally American Textile Manufacturers Institute v. Donovan, 452 U.S. 490, 539, 101 S.Ct. 2478, 2505, 69 L.Ed.2d 185 (1981) ("the post hoc rationalizations of the agency or the parties to this litigation cannot serve as a sufficient predicate for agency action"). Accordingly, we can affirm the district court's summary judgment order only if we conclude that the PRRB's decision was justified on either of the two grounds set forth in that decision. See SEC v. Chenery Corp., 318 U.S. 80, 87-88, 63 S.Ct. 454, 459-460, 87 L.Ed. 626 (1943).

In reviewing the Secretary's decisions, we are governed by the Administrative Procedure Act, 5 U.S.C. Secs. 701 et seq. (1982). We cannot uphold the agency's determinations if they are "arbitrary, capricious, an abuse of discretion, not in accordance with law, or unsupported by substantial evidence on the record taken as a whole." Villa View Community Hospital, Inc. v. Heckler, 720 F.2d 1086, 1090 (9th Cir.1983) (citing 5 U.S.C. Sec. 706(2) (1982) ); White Memorial Medical Center v. Schweiker, 640 F.2d 1126, 1129 (9th Cir.1981).

We give deference to the Secretary's interpretation of her own regulations "where [s]he has expertise in the substantive area involved and where the regulations were promulgated pursuant to congressional authorization." Villa View, 720 F.2d at 1090; accord White Memorial, 640 F.2d at 1129. However, "[t]he interpretation must sensibly conform to the purpose and wording of the regulations." Villa View, 720 F.2d at 1090 (quoting Pacific Coast Medical Enterprises v. Harris, 633 F.2d 123, 131 (9th Cir.1980) ). Because the Secretary's interpretations of her regulations

Page 560

are without force of law, although they are entitled to some deference, we must consider them with caution. Moody Nursing Home, Inc. v. United States, 621 F.2d 399, 402 (Ct.Cl.1980). We will not uphold them if their application produces a result inconsistent with the statute and regulations. Sun Towers, Inc. v. Heckler, 725 F.2d 315, 325 & n. 16 (5th Cir.), cert. denied, --- U.S. ----, 105 S.Ct. 100, 83 L.Ed.2d 45 (1984); Saint Mary of Nazareth Hospital Center v. Schweiker, 718 F.2d 459, 464 (D.C.Cir.1983); Advanced Health Systems, Inc. v. Schweiker, 510 F.Supp. 965, 969 (D.Colo.1981).


The PRRB determined that the educational services in question are not "an integral part of the therapy modality." 3 This finding is not supported by substantial evidence. The only evidence presented to the Board about the nature of the services was the testimony of Dr. Moore. According to Dr. Moore, the educational services are as much a part of therapy as are other routine covered services such as group therapy and recreational therapy. Like other forms of treatment, they are integrated into each child's individualized treatment program. An assessment of a child's intellectual development and a scholastic achievement evaluation are made when he or she is admitted to the hospital, and a plan for the educational component becomes an official part of the multi-disciplinary treatment plan supervised by the treating physician. Entrance to an educational program is by doctor's order, and progress is documented on the patient's medical chart. The hospitals consider the educational services, which are supervised by the hospitals' medical staffs rather than the local school boards, as clinical services.

The Secretary does not argue that Dr. Moore is not a qualified expert. Nor did she present any experts of her own. Throughout the proceedings, the Secretary has contended that education is not treatment, but she has failed to provide any evidence--testimonial or documentary--to support this contention. The Secretary relies instead on a section of the Provider Reimbursement Manual that contains her own interpretation of the Medicare regulations. The Manual provides:

Vocational and Scholastic Training Expense--

The costs attributable to vocational, scholastic, or similarly oriented training activities conducted by providers on behalf of patients are not allowable costs. For example, costs incurred by a psychiatric facility in operating an elementary or secondary school for patients are unallowable costs.

Medicare Health Insurance Manual No. 15 Sec. 2104.5 (Rev.199 April 1978).

As the Secretary concedes, the manual provision is not evidence. Moreover, we see no reason why we should accept her opinion, as expressed in the manual provision, rather than that of the medical expert. Defining what is necessary medical treatment does not appear to be one of those areas in which the Secretary has sufficient expertise that we should give unbridled deference to her interpretation. Cf. Advanced Health Systems, 510 F.Supp. at 968-69 (alcoholism expert's opinion of what services were related to treatment, rather than the Secretary's interpretation of regulation, considered determinative in Medicare reimbursement case). Outside of the Medicare context, in related...

To continue reading