International Philanthropic Hosp. Foundation v. Heckler, 82-5847

• Decision Date: 31 January 1984
• Docket Number: No. 82-5847,82-5847
• Parties: , Medicare&Medicaid Gu 33,587 INTERNATIONAL PHILANTHROPIC HOSPITAL FOUNDATION, Appellant, v. Margaret O. HECKLER, * Secretary of Health & Human Services, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1368

724 F.2d 1368

3 Soc.Sec.Rep.Ser. 379, Medicare&Medicaid Gu 33,587

INTERNATIONAL PHILANTHROPIC HOSPITAL FOUNDATION, Appellant, v. Margaret O. HECKLER, ^* Secretary of Health &

Human Services, Appellee.

No. 82-5847.

United States Court of Appeals, Ninth Circuit.

Argued April 7, 1983.

Submitted Oct. 3, 1983.

Decided Jan. 31, 1984.

Patric Hooper, Weisberg & Aronson, Inc., Los Angeles, Cal., for appellant.

Ian Fan, Carolyn M. Reynolds, Asst. U.S. Attys., Los Angeles, Cal., for appellee.

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

Before GOODWIN, TANG and FLETCHER, Circuit Judges.

PER CURIAM.

Plaintiff hospital, a Part A Medicare provider, appeals the dismissal of its action against the Secretary challenging two rulings by the Deputy Administrator which adjusted downward the hospital's claims for reimbursement.

Two principal issues were presented in the review sought in the district court: (1) the exclusion of labor and delivery room patients from the inpatient routine population for purposes of calculating the average per diem cost of general routine inpatient care, and (2) the correct time for submitting of a request for an exception from the standard hourly rate for physical therapy costs under Medicare.

Because the labor and delivery room issue has been fully answered in a careful and scholarly opinion by Judge McGowan, and because the parties have not convinced us that we can improve upon that decision, we follow the lead of the District of Columbia Circuit in Saint Mary of Nazareth Hospital Center, et al. v. Schweiker, 718 F.2d 459 (D.C.Cir.1983). That case held that labor and delivery room patients should not be counted among the routine inpatient population at the midnight census. However, it made its holding subject on remand to a finding (unless the Secretary chooses not to contest the issue) that the number of Medicare patients found nationally in other ancillary areas at the census hour is not sufficient to offset the dilution of Medicare reimbursement created by the inclusion of the excluded patients.

The remaining issue, concerning the proper interpretation of the regulations applicable to the reimbursement of physical therapy costs, is largely controlled by the standard of review of agency actions of this kind. We are not at liberty to set aside the Secretary's action unless it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. Sec. 706. Asarco, Inc. v. U.S. E.P.A., 616 F.2d 1153, 1158 (9th Cir.1980).

The hospital obtains physical therapy service for its patients by contract with a third party and pays a percentage of its physical therapy revenue to the contract provider. Medicare reimburses hospitals for physical therapy at an hourly rate limited to the approximate cost to the hospital had it provided the service using its own employees. 42 U.S.C. Sec. 1395x(v)(5)(A). Exceptions to these limits were established, however, including one for "unique circumstances." 42 C.F.R. Sec. 405.432(f)(2). In April 1976, the Secretary issued Health Insurance Manual (HIM) 15 Sec. 1414.2, requiring a provider to submit a request for an exception "prior to the onset of its cost reporting period." The plaintiff hospital did not submit a request to cover cost years 1977, 1978, and 1979 until November 1979.

Blue Cross, the intermediary in this case, determined that the hospital should be granted an exception to the reimbursement limits for 1980 because of the unique services offered, but declined to award amounts over the statutory limits for the years 1976-1979 because of the hospital's failure to request the exception prior to the onset of its cost reporting period. The district court, 568 F.Supp. 781, affirmed the intermediary's action and the agency's denial of relief for the years 1977, 1978, and 1979.

The hospital argues that:

(1) the Secretary has acknowledged the hospital's qualification for the exception to the physical therapy reimbursement limits;

(2) the hospital could not have known, before the onset of the fiscal period, whether it would exceed the limits;

(3) Blue Cross itself had not determined the actual limit to be applied to the hospital until after the cost reports had been submitted...