BD. OF REGENTS OF UNIV. OF MN. v. Shalala, Civ. No. 4-91-572.

• Decision Date: 22 April 1993
• Docket Number: Civ. No. 4-91-572.
• Citation: 837 F. Supp. 303
• Parties: The BOARD OF REGENTS OF the UNIVERSITY OF MINNESOTA, d/b/a University of Minnesota Hospital and Clinic, Plaintiff, v. Donna SHALALA, Secretary of the United States Department of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Minnesota

837 F. Supp. 303

The BOARD OF REGENTS OF the UNIVERSITY OF MINNESOTA, d/b/a University of Minnesota Hospital and Clinic, Plaintiff, v. Donna SHALALA, Secretary of the United States Department of Health and Human Services, Defendant.

Civ. No. 4-91-572.

United States District Court, D. Minnesota, Fourth Division.

April 22, 1993.

James M. Gaynor, Jr., Mary T. Zerega, McDermott, Will & Emery, Chicago, IL, Keith A. Dunder, University of Minnesota Hosp. and Clinic, Minneapolis, MN, Albert W. Shay, McDermott, Will & Emery, Washington, DC, for plaintiff.

Francis X. Hermann, Interim U.S. Atty., and Mary J. Atmore, Asst. U.S. Atty., Minneapolis, MN, Mary Carlson, Asst. U.S. Atty., Alvin Jaffe, U.S. Dept. of Health and Human Services, Washington, DC, for defendant.

MEMORANDUM AND ORDER

McLAUGHLIN, District Judge.

This matter is before the Court on plaintiff's objections to the December 11, 1992 report and recommendation of the United States Magistrate Judge. The Magistrate Judge recommended that judgment be entered in favor of the defendant. Plaintiff asserts that in making this recommendation, the Magistrate Judge accorded too much deference to the agency's interpretation of its regulations regarding Medicare reimbursement for costs related to graduate medical education (GME); in plaintiff's view, the agency's interpretation is entitled to little or no deference because the agency has taken inconsistent positions regarding GME reimbursement. Specifically, plaintiff asserts that the agency's prior pronouncements suggest that the redistribution and community support principles of 42 C.F.R. § 413.85(c) apply to the academic costs of training medical professionals, but not to the clinical costs of training them.

The Court is not persuaded by this argument. The Court finds that plaintiff has failed to identify a clear conflict between the position taken by the agency in this action and prior official policy pronouncements. In arguing that the agency has taken inconsistent positions, plaintiff relies upon Medicare Intermediary Letter 78-7 and correspondence of various Health Care Financing Administration (HCFA) officials regarding the allocation of GME costs between hospitals and related medical schools. Plaintiff asserts that because these documents did not mention the applicability of the redistribution and community support principles, the principles do not apply when hospitals seek reimbursement for GME costs incurred by related medical schools. If such principles did apply, plaintiff asserts, they would have been mentioned in the intermediary letter and the correspondence.

In making this argument, plaintiff attempts to infer conflict from absence. The mere fact that the community support and redistribution principles were not addressed in the earlier agency statements does not establish that they did not apply. In addition, the Court notes that a court may decline to defer to agency interpretations only where the inconsistency exists between final agency decisions; letters from HCFA officials are not final agency decisions, and therefore may not be relied upon to support a heightened standard review for a final agency decision. Lile v. University of Iowa Hospitals and Clinics, 886 F.2d 157, 161 n. 4 (8th Cir.1989).

Plaintiff also asserts that the agency's position regarding redistribution and community support principles conflicts with Medicare Provider Reimbursement Manual Part 1 (PRM) § 404.2, which draws a distinction between clinical teaching costs and academic classroom costs, and indicates that redistribution principles apply only to the latter. As defendant points out, however, PRM § 404.2 addresses allowable costs for nursing and paramedical programs, not the GME programs that are at issue in this case. Because plaintiff has failed to identify a clear conflict between the agency's position in this case and the agency's prior official pronouncements, the Court finds it appropriate to defer to the agency's interpretation of its regulations.

Even if the agency had changed its position, that fact alone would not justify de novo review of the agency's decision. The United States Supreme Court has recognized that "an initial agency interpretation is not instantly carved in stone." Chevron, U.S.A., Inc. v. Natural Resources Defense Counsel, 467 U.S. 837, 863, 104 S.Ct. 2778, 2792, 81 L.Ed.2d 694 (1984). An agency altering its interpretation of existing policy is subject to procedural limitations; however, plaintiff has not identified any procedural irregularities that would invalidate a change in official agency interpretation of 42 C.F.R. § 413.85(c).

Accordingly, based on the Court's independent de novo review of the Magistrate Judge's report, findings and recommendation, and the Court finding itself in agreement with the report and recommendation,

IT IS ORDERED that:

1. the objections of the plaintiff to the report and recommendation are overruled;

2. the Court adopts the report and recommendation;

3. plaintiff's motion for summary judgment is denied; and

4. defendant's motion for summary judgment is granted.

LET JUDGMENT BE ENTERED ACCORDINGLY.

REPORT AND RECOMMENDATION

NOEL, United States Magistrate Judge.

THIS MATTER came before the undersigned Magistrate Judge on the 21st day of September, 1992 for a hearing on the parties' cross motions for summary judgment. This matter has been referred to the undersigned by Order of the Honorable Harry MacLaughlin dated June 30, 1992 pursuant to 28 U.S.C. § 636(b)(1)(B) and Local Rule 72.1(c). Plaintiff seeks judicial review pursuant to 42 U.S.C. §§ 1395oo(f)(1) of the final determination of the Secretary of Health and Human Services. For the reasons set forth below, the undersigned recommends that defendant's motion for summary judgment be granted, and plaintiff's motion for summary judgment be denied.

I. PROCEDURAL HISTORY.

This dispute is between University of Minnesota Hospital and Clinic ("Hospital") and Louis W. Sullivan, M.D., Secretary of the Department of Health and Human Services ("Secretary"), through his fiscal intermediary, Blue Cross and Blue Shield Association/Blue Cross and Blue Shield of Minnesota ("Intermediary"), and arises under Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395 et seq. ("Medicare Act"). The Hospital brought the present action seeking judicial review of the decision of the Administrator of the Health Care Financing Administration ("HCFA") dated May 29, 1991, modifying Provider Reimbursement Review Board ("PRRB") Decision Number 91-D29 dated March 29, 1991. The Administrator's decision constitutes the final decision of the Secretary regarding the Hospital's claim for Medicare reimbursement of graduate medical education ("GME") and allied health education costs for its fiscal years ("FY") ended June 30, 1981-1983. The parties have brought cross motion for summary judgment. The Hospital argues that the Secretary's decision is inconsistent with the Medicare Act, not supported by substantial evidence, arbitrary and capricious, and an abuse of discretion. The Secretary argues that its decision is supported by substantial evidence and is in accordance with the law. Specifically the Secretary argues that his decision is consistent with 42 C.F.R. § 413.85 which prohibits payment for educational costs which have been redistributed from the educational institution to the patient care institution and/or were previously absorbed by the community.

II. FACTUAL BACKGROUND.

The Medicare Act, part of the Social Security Act, establishes a system of health insurance for the aged and certain disabled people under age 65. See 42 U.S.C. §§ 1395 et seq. The program is divided into two parts. Part A, known as the "health insurance program" is funded out of social security taxes, and provides benefits for inpatient hospital and related post-hospital expenses. 42 U.S.C. §§ 1395c and 1395d. Part B establishes a voluntary program of "supplementary medical insurance" for beneficiaries who pay a specified monthly premium. It includes payment for covered physician services and other covered medical services. 42 U.S.C. §§ 1395k, 1395l and 1395x(s).

Under Part A of the Act, an eligible Medicare beneficiary is entitled to have payment made by the Medicare program on their behalf for inpatient and outpatient hospital services provided by a hospital that has entered into an agreement with the Secretary to participate in the Medicare program. Such a hospital is a "provider" of services under the Medicare Act. 42 U.S.C. § 1395cc(a). Payment to providers under the Medicare program is commonly carried out by fiscal intermediaries, typically insurance companies, pursuant to a contract with the Secretary. 42 U.S.C. § 1395h.

A provider files annually with its fiscal intermediary a cost report, which serves as the basis for the calculation of the provider's Medicare reimbursement. See 42 C.F.R. §§ 405-406. Upon receipt of a provider's cost report, the fiscal intermediary analyzes the reported data, undertakes any necessary audits, and informs the provider, through a written Notice of Program Reimbursement, of the amount of Medicare reimbursement to which the provider is entitled. 42 C.F.R. § 405.1803. If the provider is not satisfied with this determination, and the total amount in controversy is at least $10,000, the provider may request a hearing before the PRRB. 42 U.S.C. § 1395oo(a); 42 C.F.R. § 405.1835. Within 60 days after a PRRB decision, the Secretary, on his own motion, may reverse, affirm, or modify that decision. 42 U.S.C. § 1395oo(f)(1). The Secretary has delegated his powers to review the Board's decision to the Administrator of the Health Care Financing Administration ("HCFA"), who in turn re-delegated these powers to the Deputy Administrator of HCFA. Pursuant to the applicable provisions of the Administrative Procedure Act, 5 U.S.C. §§ 701 et seq., the provider may then seek review of the Secretary's final decision in federal...