Good Samaritan Hospital v. Shalala

CourtUnited States Supreme Court
Citation508 U.S. 402,124 L.Ed.2d 368,113 S.Ct. 2151
Docket NumberNo. 91-2079,91-2079
PartiesGOOD SAMARITAN HOSPITAL, et al., Petitioners, v. Donna E. SHALALA, Secretary of Health and Human Services
Decision Date07 June 1993

508 U.S. 402
113 S.Ct. 2151
124 L.Ed.2d 368
GOOD SAMARITAN HOSPITAL, et al., Petitioners,


Donna E. SHALALA, Secretary of Health and Human Services.

No. 91-2079.
Argued March 22, 1993.
Decided June 7, 1993.
Syllabus *

Title 42 U.S.C. § 1395f(b)(1) requires the Secretary of Health and Human Services to reimburse the lesser of the "customary charges" or the "reasonable cost[s]" of providers of health care services to Medicare beneficiaries, while § 1395x(v)(1)(A) empowers the Secretary to issue regulations setting forth the methods to be used in computing reasonable costs, which may include the establishment of appropriate cost limits. Regulations issued pursuant to that authority impose such limits based on a range of factors designed to approximate the cost of providing general routine patient service, but permit various exceptions, exemptions, and adjustments to the limits. After their costs during the relevant period exceeded the corresponding cost limits, petitioner providers filed an administrative appeal challenging the limits' validity. In ruling for petitioners on expedited review, the District Court adopted their interpretation that 42 U.S.C. § 1395x(v)(1)(A)(ii) (clause (ii))—which requires the regulations to "provide for the making of suitable retroactive corrective adjustments where, for a provider of services for any fiscal period, the aggregate reimbursement produced by the methods of determining costs proves to be either inadequate or excessive" entitled them to reimbursement of all costs they could show to be reasonable, regardless of whether the costs surpassed the amount calculated under the regulations' cost limit schedule. In reversing, the Court of Appeals reasoned that petitioners' request for adjustments would amount to a retroactive change in the methods used to compute costs that would be invalid under Bowen v. Georgetown University Hospital, 488 U.S. 204, 109 S.Ct. 468, 102 L.Ed.2d 493. Instead, the court adopted the Secretary's interpretation that clause (ii) permits only a year-end book balancing to reconcile the actual "reasonable" costs under the regulations with the interim, advance payments that the statute requires to be made during the year based on the provider's approximate, anticipatory estimates of what its reimbursable costs will be.

Held: Clause (ii) does not require the Secretary to afford petitioners an opportunity to establish that they are entitled to reimbursement for costs in excess of the limits stated in the regulations. Pp. ____.

(a) Clause (ii)'s language does not itself clearly settle the matter at issue, but is ambiguous as to which of the parties' interpretations is correct. Pp. ____.

(b) While Georgetown, supra, eliminated across-the-board retroactive rulemaking from the scope of clause (ii), it did not foreclose either of the parties' interpretations of the statute. Pp. ____.

(c) Confronted with an ambiguous statutory provision, this Court generally will defer to a permissible interpretation espoused by the agency entrusted with its implementation, particularly when the agency's construction is contemporaneous. By providing in more than one instance for the year-end book-balancing adjustment that, in the Secretary's view, is mandated by clause (ii), regulations promulgated soon after Medicare's enactment support the Secretary's current approach. On the other hand, those regulations nowhere mentioned a mechanism for implementing the kind of substantive recalculation and deviation from approved methods suggested by petitioners. Moreover, the agency's development—and continued augmentation —of the various exceptions, exemptions, and adjustments to the cost limits is difficult to harmonize with an interpretation of clause (ii) that would give a provider the right to contest the application of any particular and statutorily authorized method to its own circumstances. Rather, it is consistent with a view that the cost limits by definition entailed generalizations that would benefit some subscribers while harming others, and with a desire to refine these approximations through the Secretary's creation of exceptions and exemptions. Pp. ____.

(d) The Court rejects petitioners' argument that any deference to the agency's current position is precluded by the fact that, over the years, the agency has shifted from a book-balancing approach to a retroactive rulemaking approach and then back again. The Secretary responds that such inconsistency is attributable to the lower courts' erroneous interpretations of clause (ii) and points out that the agency returned to its initial position following Georgetown. How much weight should be given to the agency's views in such a situation will depend on the facts of individual cases. Cf. FEC v. Democratic Senatorial Campaign Committee, 454 U.S. 27, 37, 102 S.Ct. 38, 44, 70 L.Ed.2d 23. Pp. ____.

(e) In the circumstances of this case, the Court defers to the Secretary's interpretation of clause (ii). Her restrictive reading of the clause is at least as plausible as petitioners', closely fits the design of the statute as a whole and its objects and policy, and does not exceed her statutory authority, but comports with § 1395x(v)(1)(A)'s broad delegation to her. Pp. ____.

952 F.2d 1017 (CA8 1991), affirmed.

WHITE, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and BLACKMUN, O'CONNOR, KENNEDY, and THOMAS, JJ., joined. SOUTER, J., filed a dissenting opinion, in which STEVENS and SCALIA, JJ., joined.

Carel T. Hedlund, Baltimore, MD, for petitioners.

Edward C. DuMont, New York City, for respondent.

Justice WHITE delivered the opinion of the Court.

As a means of providing health care to the aged and disabled, Congress enacted the Medicare program in 1965. See Title XVIII of the Social Security Act, 79 Stat. 291, as amended, 42 U.S.C. § 1395 et seq. Under the program, providers of health care services can enter into agreements with the Secretary of Health and Human Services pursuant to which they are reimbursed for certain costs associated with the treatment of Medicare beneficiaries. To operate the program, the Secretary issued regulations imposing limits on the amount of repayment based on a range of factors designed to approximate the cost of providing general routine patient service. The question before us is whether the Secretary must afford the six petitioning hospitals an opportunity to establish that they are entitled to reimbursement for costs in excess of such limits.


A complex statutory and regulatory regime governs reimbursement, rough description of which is necessary background to this case. To begin, Congress has required the Secretary to repay the lesser of the "reasonable cost" or "customary charg[e]." See 42 U.S.C. § 1395f(b)(1). Rather than attempt to define "reasonable cost" with precision, Congress empowered the Secretary to issue appropriate regulations setting forth the methods to be used in computing such costs. See 42 U.S.C. § 1395x(v)(1)(A).1

Prior to 1972, the Secretary's regulations contemplated reimbursement of the entirety of a provider's services to Medicare patients unless its costs were found to be "substantially out of line" with those of similar institutions. See, e.g., 20 CFR § 405.451(c) (1967).2 In 1972, apparently fueled by concern that providers were passing on inefficient and excessive expenses, see H.R.Rep. No. 92-231, pp. 82-85 (1971); S.Rep. No. 92-1230, pp. 188-189 (1972), Congress amended the statute to specify that "reasonable costs" meant only those "actually incurred, excluding therefrom any part of incurred cost[s] found to be unnecessary in the efficient delivery of needed health services," 42 U.S.C. § 1395x(v)(1)(A), and to authorize the Secretary—as part of the "methods" of determining costs—to establish appropriate cost limits. See 42 U.S.C. § 1395x(v)(1)(A).

Accordingly, the Secretary promulgated regulations, updated yearly and establishing routine cost limits based on factors such as the type of health care provider (hospi tals, skilled nursing facility, etc.), type of services it rendered, its geographical location, size, and mix of patients treated. See 20 CFR § 405.460 (1975). Hospitals are divided in terms of bed size, and of whether they are urban—i.e., located in a Standard Metropolitan Statistical Area (SMSA)—or rural. As of 1979, the labor-related component of provider costs was to be determined by a wage index keyed to the hospital's location. See, e.g., 46 Fed.Reg. 33637 (1981).

The regulations generally provide that reimbursable costs must be within the cost limits. The regulations also allow for adjustments to the limits as applied to a provider's particular claim. A provider classified as a rural hospital can apply for reclassification as an urban one. 42 CFR § 413.30(d) (1992). An exemption from the applicable cost limits can be obtained under certain specified situations—e.g., when excess expenses are due to "extraordinary circumstances," when the provider is the sole hospital in a community, a new provider, or a rural hospital with fewer than fifty beds. § 413.30(e). In addition, exceptions are available for, inter alia, "atypical services," extraordinary circumstances beyond the provider's control, unusual labor costs, or essential community services. § 413.30(f).3

Two statutory provisions are of central importance to this litigation. First, apparently to protect providers' liquidity, the statute contemplates a system of interim, advance payments during the year. Specifically, the Secretary "shall periodically determine the amount which should be paid . . . and the provider of services shall be paid, at such time or times as the Secretary believes appropriate (but not less often than monthly) . . . the amounts so determined, with necessary adjustments on account of previously made overpayments or underpayments." 42 U.S.C. § 1395(g)(a). These interim payments by definition are only...

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