Good Samaritan Hosp. v. Shalala, C-1-93-886.
| Decision Date | 19 December 1994 |
| Docket Number | No. C-1-93-886.,C-1-93-886. |
| Citation | 873 F. Supp. 1083 |
| Court | U.S. District Court — Southern District of West Virginia |
| Parties | GOOD SAMARITAN HOSPITAL, Plaintiff, v. Donna SHALALA, Defendant. |
Diane Marie Signoracci, Bricker & Eckler, Columbus, OH, for Good Samaritan Hosp.
Donetta Donaldson Wiethe, U.S. Dept. of Justice, Cincinnati, OH, for Department of Health and Human Services.
This matter is before the Court upon cross-motions for summary judgment. (Docs. 7 and 9). In accordance with Fed. R.Civ.P. 52, the Court sets forth below its Findings of Fact, Opinion, and Conclusions of Law.
1. Plaintiff, Good Samaritan Hospital, is a non-profit hospital that participates in the Medicare program.
2. Defendant, Donna Shalala, is the Secretary of the United States Department of Health and Human Services.
3. The Medicare program provides health insurance for the aged and disabled for certain medical services rendered by participating hospitals.
4. The Secretary, through fiscal intermediaries, reimburses participating providers for medical services covered under the Medicare program. The fiscal intermediary for Plaintiff during the years in issue was Blue Cross and Blue Shield Association/Community Mutual Insurance Co.
5. Prior to the federal fiscal year 1984, the Medicare program reimbursed acute care hospitals on the basis of their reasonable costs. At the start of the fiscal year 1984, Medicare began phasing in a prospective payment system (PPS). Under the PPS, a hospital is reimbursed through a single payment for inpatient operating costs for each type of inpatient admission based upon the diagnosis-related group into which the care is classified.
6. The PPS was phased in over a four-year period. For each year during the PPS transition period, a progressively declining portion of Medicare reimbursement was based on a prospective payment rate derived from the specific hospital's historical costs in a given base year, and a gradually increasing portion was based on a regional and/or national rate per discharge. The base year for Plaintiff was the twelve-month period ending on June 30, 1983.
7. For the fiscal year 1985, Plaintiff was subject to the PPS for the first time. During that year, Plaintiff's reimbursement for inpatient operating costs was based in part on a hospital-specific rate and in part on the national rate.
8. Plaintiff operates a Medicare-approved graduate medical educational program for interns and residents (the "GME Program"). Teaching physicians, non-physician faculty, and support personnel are involved in the program. During fiscal year 1985, payments for medical education costs were made on a reasonable cost basis and were considered "pass-through" costs.
9. For the cost reporting period in issue, the regulations governing the PPS included a "consistency rule" codified at 42 C.F.R. § 405.477(c)(2). The rule provided as follows:
For cost reporting periods beginning prior to October 1, 1986, the costs of medical education must be determined consistently with the treatment of such costs for purposes of determining the hospital-specific portion of the transition payment rate in § 405.474 subpart E, redesignated 42 C.F.R. 412.70, et. seq. (1984).
The rule was later qualified to read, "Except as provided in 413.86(c)(1) of this chapter, for cost reporting periods ..."
10. On March 25, 1985, the fiscal intermediary issued a bulletin advising hospitals to maintain certain data and information to support claimed expenses for hospital-based physician compensation.
11. In Plaintiffs cost report for both the PPS base year and the fiscal year 1985, Plaintiff claimed as GME costs 100% of the compensation paid to teaching physicians assigned to Plaintiff's Medical Education Department. Plaintiff submitted supporting documentation consistent with the requirements of the March 1985 Bulletin. In the initial audit for that year, the fiscal intermediary allowed the claimed costs on a pass-through basis and excluded them from operating costs.
12. In 1986, Congress passed Pub.L. No. 99-272, Title IX, §§ 9202(a), et seq., 100 Stat. 171-175 et seq., 42 U.S.C. § 1395ww(h). The statute required the Secretary to determine the average amount recognized as reasonable under Medicare for hospitals' direct GME costs for each full-time-equivalent (FTE) resident beginning with hospital cost reporting periods that commenced during federal fiscal year 1984 (the GME base year). Pursuant to the statutory directive, in 1989 the Secretary promulgated a new regulation codified at 42 C.F.R. § 413.86. Section 413.86 expressly exempts GME costs for certain years from the consistency rule. It provides that beginning with cost reporting periods starting on or after July 1, 1985, hospitals will be paid a per resident amount determined on the basis of allowable GME costs for the cost reporting period beginning on or after October 1, 1983 but before October 1, 1984. The per resident amount for each hospital is to be calculated by dividing the amount of base year GME costs recognized as reasonable by the number of FTE residents and interns working at the hospital during the base year. For 1985 and future years, the base period per resident amount would be multiplied by the number of FTE residents working in the hospital during the year in question, and that figure in turn would be multiplied by the hospital's Medicare patient load in the same year. Fiscal year 1985 serves as Plaintiff's base year for determining direct GME payments for future cost years.
13. Section 413.86(e) authorizes fiscal intermediaries to reaudit the base year and exclude any nonallowable or misclassified costs from the determination of the per resident amount. Section 413.86(e) further provides that if the hospital's cost report for its GME base period is no longer subject to reopening under § 405.1885, the intermediary may modify the hospital's base-period costs solely for purposes of computing the per resident amount. Section 413.86(j) provides that if the intermediary determines that the hospital-specific rate should be adjusted, the adjustment is effective for the hospital's cost reporting periods subject both to the PPS and to reopening under § 405.1885.
14. In 1990, the fiscal intermediary for Plaintiff commenced a reaudit of the hospital's fiscal year 1985 GME costs for the dual purpose of determining the GME base year per resident amount and to adjust the level of reimbursement of GME costs for that fiscal year. The reaudit led to a reclassification of $284,919 in GME personnel costs from GME costs to operating costs. The reclassification resulted in a $313,558 reduction of Plaintiff's Medicare reimbursement for the fiscal year 1985.
15. Plaintiff operates a Clinical Support Laboratory as part of its GME program. For fiscal year 1985, Plaintiff claimed as reimbursable GME costs the compensation paid to staff in connection with operating the laboratory. The fiscal intermediary made no adjustments during the initial audit. As a result of the reaudit, costs for operating the laboratory were denied, resulting in a reimbursement reduction of approximately $87,803.
16. Plaintiff appealed the reclassification of GME costs and disallowance of the laboratory costs to the Provider Reimbursement Review Board (the Board) pursuant to 42 U.S.C. § 1395oo. The Board reversed the fiscal intermediary's decision as to the former and affirmed as to the latter. Upon a review of the Board's decision, the Administrator of the Health Care Financing Administration of the U.S. Department of Health and Human Services (Administrator) reversed the Board's decision as to teaching physicians, but affirmed as to non-physician faculty and support personnel costs and laboratory costs.
In an action for judicial review brought under the Administrative Procedure Act, a court may set aside an agency action that is either (1) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law, or (2) unsupported by substantial evidence. 5 U.S.C. § 706(2)(A). Under the arbitrary and capricious standard, the court must determine "whether the decision was based on a consideration of the relevant factors and whether there has been a clear error in judgment." Motor Vehicle Mfrs. Asn. v. State Farm Mutual Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2866-67, 77 L.Ed.2d 443 (1983) (citing Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 285, 95 S.Ct. 438, 441-42, 42 L.Ed.2d 447 (1974)). The standard of review is narrow. "The court is not empowered to substitute its judgment for that of the agency." Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 824, 28 L.Ed.2d 136 (1971).
Under the substantial evidence standard, the evidence relied upon by the agency in reaching its determination must be Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229, 59 S.Ct. 206, 217, 83 L.Ed. 126 (1938). The court is to consider only the bases upon which the agency actually relied in reaching its decision. Volpe, 401 U.S. at 420, 91 S.Ct. at 825-26.
In reviewing an agency's construction of a statute, the court must ascertain (1) whether Congress has directly spoken to the precise issue before the court and, if not, (2) whether the agency's determination of the issue is a reasonable one. Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-44, 104 S.Ct. 2778, 2781-82, 81 L.Ed.2d 694 (1984); Thomas Jefferson University v. Shalala, ___ U.S. ___, 114 S.Ct. 2381, 129 L.Ed.2d 405 (1994); Jewish Hospital v. Secretary of Health and Human Services, 19 F.3d 270, 273 (6th Cir. 1994). The court may not substitute its own construction of a statutory provision for a reasonable...
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