Home Health Services of the U.S., Inc. v. Schweiker

• Decision Date: 16 August 1982
• Docket Number: No. 81-5431,81-5431
• Citation: 683 F.2d 353
• Parties: HOME HEALTH SERVICES OF THE U. S., INC., etc., Plaintiff-Appellant, v. Richard S. SCHWEIKER, Secretary of the Department of Health and Human Services, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 353

683 F.2d 353

HOME HEALTH SERVICES OF THE U. S., INC., etc., Plaintiff-Appellant, v. Richard S. SCHWEIKER, Secretary of the Department of Health and Human Services, Defendant-Appellee.

No. 81-5431.

United States Court of Appeals Eleventh Circuit.

Aug. 16, 1982.

Donna D. Fraiche, Danielle M. Lombardo, New Orleans, La., for plaintiff- appellant.

Henry R. Goldberg, Dept. of H.H.S., Baltimore, Md., Lloyd G. Bates, Jr., Asst. U.S. Atty., Miami, Fla., Joel Lerner, Atty., Dept. of Health & Human Ser., Atlanta, Ga., for defendant-appellee.

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

Before TUTTLE, RONEY and CLARK, Circuit Judges.

TUTTLE, Circuit Judge:

This appeal involves a claim for compensation under the Health Insurance for the Aged Act, commonly known as the Medicare Act, 42 U.S.C. §§ 1395 et seq. (1976 and Supp. IV). The plaintiff-appellant, Home Health Services of the United States, Inc., sought judicial review in the district court of an administrative decision entered by the Provider Reimbursement Review Board denying a portion of the claimed compensation. The district court entered an order granting summary judgment in favor of the government. On appeal, we affirm for the reasons which follow.

The Medicare Act created a federally funded "hospital insurance" program which allows beneficiaries of the Act to receive services rendered by "providers," ¹ including home health agencies, for a nominal fee. The beneficiaries are required to pay only an annual deductible charge and a coinsurance amount. 42 U.S.C. § 1395e(a) and (b). The government normally pays the "reasonable costs" of the covered services directly to the providers rather than the beneficiaries. Under this reimbursement plan, the provider receives interim payments on a monthly basis. Adjustments for underpayments or overpayments are made by either the Secretary of Health and Human Services or a fiscal intermediary after the close of the provider's fiscal year. 42 U.S.C. §§ 1395g and 1395x(v)(1)(A)(ii); 42 C.F.R. § 405.402(b)(1), (2) and § 405.454. This final determination of the reimbursable cost is based upon a cost report which the provider is required to file. 42 C.F.R. § 405.406(b). After analyzing the cost report and undertaking an audit if necessary, the fiscal intermediary furnishes the provider with a written notice of program reimbursement. 42 C.F.R. § 405.1803. If dissatisfied with the intermediary's determination, the provider may, where the amount in controversy is $10,000 or more, request a hearing before the Provider Reimbursement Review Board (Board). ² 42 U.S.C. § 1395oo.

The determination of the amount of "reimbursable costs" is guided by the provision of the Medicare Act which states that the amount paid to providers shall be the lesser of the "reasonable costs" of the services covered by the Act or the customary charges for such services. 42 U.S.C. § 1395f(b). The Act defines "reasonable cost" as the "cost actually incurred, excluding therefrom any part of incurred cost found to be unnecessary in the efficient delivery of needed health services ... 42 U.S.C. § 1395x(v)(1)(A). This statutory section authorizes the Secretary to establish the methods to be used and the items to be included in determining the reasonable costs for the different types of providers. ³ Id. Pursuant to this authorization, the Secretary has promulgated various regulations. 42 C.F.R. §§ 405.401-405.488. These regulations provide for the reimbursement of all necessary and proper costs, including administrative costs, related to the rendering of services covered by the Act. These regulations further recognize that:

The costs of providers' services vary from one provider to another and the variations generally reflect differences in scope of services and intensity of care. The provision in (the Medicare Act) for payment of reasonable cost of services is intended to meet the actual costs, however widely they may vary from one institution to another. This is subject to a limitation where a particular institution's costs are found to be substantially out of line with other institutions in the same area which are similar in size, scope of services, utilization and other relevant factors.

42 C.F.R. § 405.451(c)(2). In addition, the Secretary has promulgated the Health Insurance Manual 15, Provider Reimbursement Manual (HIM-15, PRM) which contains guidelines for determining reasonable costs. The guidelines set forth further criteria for determining when actual costs are "reasonable."

Implicit in the intention that actual costs be paid to the extent they are reasonable, is the expectation that the provider seeks to minimize its costs and that its actual costs do not exceed what a prudent and cost-conscious buyer pays for a given item or services (see § 2103). If costs are determined to exceed the level that such buyers incur, in the absence of clear evidence that the higher costs were unavoidable, the excess costs are not reimbursable under the program.

HIM-15, PRM § 2102. These guidelines specifically address reasonable compensation to employees. The guidelines instruct fiscal intermediaries to conduct surveys and further designate various factors which should be considered in establishing ranges of compensation for comparable institutions within geographic areas. See HIM-15, PRM §§ 904, 905.

In the instant case, Home Health Services of the United States, Inc., the provider, filed a cost report for a nine month period ending on September 30, 1975. The provider claimed Medicare reimbursement for compensation of its Administrator, Donald Kroner, in the amount of $33,666 (an annualized figure of approximately $45,000). This claim was broken down as $25,060 for salary, $7,715 for pension (representing 25% of salary) and $841 as insurance. The fiscal intermediary, Blue Cross of Florida, conducted an audit and determined that the total reimbursement cost for this item should be limited to $18,198. Dissatisfied with the intermediary's adjustment of its claim, the provider requested and obtained a hearing before the Board on March 28, 1978. In a decision rendered on July 25, 1978, the Board upheld the intermediary's adjustment, finding that the amount of compensation claimed was unreasonable. On September 7, 1978, the Health Care Financing Administration declined to review the Board's decision, which decision thus constituted final agency action. 42 U.S.C. § 1395oo(f)(1); 42 C.F.R. §§ 4051.875. The provider then sought judicial review of the Board's decision pursuant to 5 U.S.C. § 706 and 42 U.S.C. § 1395oo(f)(1). Finding that the Board's decision was supported by substantial evidence in the record, the district court granted summary judgment in favor of the government.

On appeal, the provider asserts that the decisions of the Board and the district court are erroneous. The thrust of the provider's argument is that the Board improperly relied on an invalid survey in determining that the amount of compensation claimed was unreasonable. Moreover, the provider asserts that since other surveys demonstrate that its costs were not "substantially out of line" with costs incurred by comparable institutions, the Board's decision in this case is not supported by substantial evidence.

The scope of review of agency actions is limited to a determination of whether the Board's findings are arbitrary, capricious, an abuse of discretion, not in accordance with the law or unsupported by substantial evidence in the record as a whole. 5 U.S.C. § 706(2)(A), (E); 42 U.S.C. § 1395oo(f)(1); see, e.g., Missouri-Kansas-Texas R.R. Co. v. United States, 632 F.2d 392 (5th Cir. 1980), cert. denied, 451 U.S. 1017, 101 S.Ct. 3004, 69 L.Ed.2d 388 (1981); School Board of Broward County v. Department of Health, Education and Welfare, 525 F.2d 900 (5th Cir. 1976). In the context of judicial review of agency actions, substantial evidence means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. See, e.g., Universal Camera Corp. v. NLRB, 340 U.S. 474, 71 S.Ct. 456, 95 L.Ed. 456 (1951); School Board of Broward County v. Department of Health, Education and Welfare, supra. Under this narrow standard of review, a court lacks the power to substitute its judgment for that of the administrative agency. If the agency's findings are supported by substantial evidence and are not arbitrary or capricious, the reviewing court cannot reverse the findings of the agency on the basis that it would have decided the case differently. See, e.g., NLRB v. Nevada Consolidated Copper Corp., 316 U.S. 105, 62 S.Ct. 960, 86 L.Ed. 1305 (1942); Harvey v. Nunlist, 499 F.2d 335 (5th Cir. 1974).

In evaluating the reasonable costs for compensation of administrators, the Board focuses on both objective and subjective factors. See, e.g., Unicare v. Califano, CCH Med. & Med. Guide P 28,862 (D.D.C.1978); Fox Valley Home Health Services, Inc. v. Blue Cross Association, CCH Med. & Med. Guide P 30,447 (PRRB dec., Jan. 4, 1980). The objective factors relied on by the PRR in the instant case included a variety of surveys. The provider argues that these surveys were invalid and thus the Board's decision is not supported by substantial evidence. Although the record in this case is somewhat unclear, it appears that the Board reviewed at least four separate surveys in arriving at its decision. Two of these...