Lancaster Hosp. Corp. v. Becerra
| Decision Date | 18 January 2023 |
| Docket Number | 21-1636 |
| Citation | 58 F.4th 124 |
| Parties | LANCASTER HOSPITAL CORPORATION, formerly doing business as Springs Memorial Hospital, Plaintiff - Appellant, v. Xavier BECERRA, Secretary, U.S. Department of Health and Human Services, Defendant - Appellee. |
| Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED: Mark Douglas Polston, KING & SPALDING, LLP, Washington, D.C., for Appellant. Caroline D. Lopez, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON BRIEF: Juliet M. McBride, Houston, Texas, Michael LaBattaglia, KING & SPALDING LLP, Washington, D.C., for Appellant. Brian M. Boynton, Acting Assistant Attorney General, Abby C. Wright, Civil Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.; Daniel Berry, Acting General Counsel, Dana J. Petti, Chief Counsel, Howard Lewis, Assistant Regional Counsel, Region IV, UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, Atlanta, Georgia; M. Rhett DeHart, United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Charleston, South Carolina, for Appellee.
Before WILKINSON and HEYTENS, Circuit Judges, and MOTZ, Senior Circuit Judge.
Affirmed by published opinion. Judge Heytens wrote the opinion, in which Judge Wilkinson and Senior Judge Motz joined.
The Department of Health and Human Services denied a Medicare provider's request for reimbursement because the provider failed to submit information in a form that could be audited. Seeing no reversible error, we affirm the district court's grant of summary judgment to HHS.
The Medicare program provides federally funded health insurance for the elderly and people with disabilities. Under the program, healthcare providers enter written agreements with the Secretary of HHS to supply services to Medicare beneficiaries. See 42 U.S.C. § 1395cc.
This case involves how service providers get paid. Although practices have since changed, providers used to be reimbursed under a "reasonable cost" method, see 42 U.S.C. §§ 1395f(b)(1), 1395x(v)(1)(A), and the parties agree all reimbursements at issue were governed by that method.
Under the reasonable cost method, providers may seek reimbursement for "cost[s] actually incurred, excluding ... any part of incurred cost found to be unnecessary in the efficient delivery of needed health services." § 1395x(v)(1)(A). HHS regulations state this method "is intended to meet [a provider's] actual costs, however widely they may vary from one institution to another." 42 C.F.R. § 413.9(c)(2) ; accord § 413.9(c)(3) (similar). At the same time, the regulations emphasize providers are not entitled to reimbursement for all expenditures, including those "substantially out of line with [costs of] other [similar] institutions" and those "not related to patient care, specifically not reimbursable under the program, or flowing from the provision of luxury items or services." § 413.9(c)(2) & (3).
Congress empowered HHS to get the information it needs to make reimbursement decisions—indeed, federal law states that "no [ ] payments shall be made to any provider unless it has furnished such information as [HHS] may request in order to determine the amounts due such provider." 42 U.S.C. § 1395g(a).
HHS regulations lay out the necessary information. "The principles of cost reimbursement," the regulations instruct, "require that providers maintain sufficient financial records and statistical data for proper determination of costs payable under the [Medicare] program." 42 C.F.R. § 413.20(a). "Providers receiving payment on the basis of reimbursable cost must provide adequate cost data." § 413.24(a). And, critically here, the required cost data "must be based on [a provider's] financial and statistical records" and be "capable of being audited." § 413.24(a) & (c).
Plaintiff Lancaster Hospital Corporation (formerly Springs Memorial Hospital) operates an inpatient rehabilitation facility that provides services for Medicare beneficiaries. In 1994, Lancaster hired a full-service subcontractor to manage all aspects of that facility in exchange for a per-patient-per-day rate for any services provided to its patients. Under this arrangement, Lancaster paid the subcontractor and then sought reimbursement from HHS.
This dispute has narrowed since its inception. The controversy began when an initial decisionmaker (currently known as a Medicare Administrative Contractor) disallowed reimbursement for fiscal years 1997, 1998, 1999, and 2000 because Lancaster submitted inadequate documentation. After Lancaster supplied more information, the Administrative Contractor allowed reimbursement for fiscal year 1999 but continued to deny payment for the remaining years.
Lancaster filed an administrative appeal to the Provider Reimbursement Review Board (see 42 U.S.C. § 1395oo ), which upheld the Administrative Contractor's decision in part and overturned it in part. During the appeal process, Lancaster provided additional documentation for fiscal years 1998 and 2000 that was "similar to what was used by the [Administrative] Contractor to audit" the costs for fiscal year 1999. JA 50. The Board remanded those years to the Administrative Contractor "to audit the documentation" for fiscal years 1998 and 2000 and pay Lancaster the expenses for those years "that the Medicare Contractor determines are reasonable." JA 51.
Like the Administrative Contractor, however, the Board found fault with Lancaster's documentation for fiscal year 1997. "Unlike FYs 1998 and 2000," the Board explained, "the record does not contain documentation that supports the reasonableness of [Lancaster's] payments to [the subcontractor] for services ... for FY 1997." JA 51. "Specifically," the Board noted:
Id. Because Lancaster "did not provide auditable documentation for" fiscal year 1997, the Board ruled "the Medicare Contractor properly denied" reimbursement for that year. Id.
Unhappy with the Board's decision about fiscal year 1997, Lancaster filed suit in federal district court. See 42 U.S.C. § 1395oo(f)(1) (authorizing judicial review). The district court granted summary judgment to HHS.
We review a district court decision granting summary judgment de novo, "applying the same standard as that court." National Audubon Soc'y v. United States Army Corps of Eng'rs , 991 F.3d 577, 583 (4th Cir. 2021). Like the district court, we review the Board's decision under the Administrative Procedure Act. See 42 U.S.C. § 1395oo(f)(1). Under the APA, agency action is unlawful if it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law" or "unsupported by substantial evidence." 5 U.S.C. § 706(2)(A), (E). "The scope of review under the ‘arbitrary [or] capricious’ standard is narrow and a court is not to substitute its judgment for that of the agency." Motor Vehicle Mfrs. Ass'n of U.S. v. State Farm Mut. Auto. Ins. Co. , 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983).
Lancaster faces an uphill climb. The Medicare statute contains a sweeping grant of authority to HHS to require providers to submit information to support reimbursement requests, declaring "no such payments shall be made to any provider unless it has furnished such information as the Secretary may request in order to determine the amounts due such provider." 42 U.S.C. § 1395g(a) (emphasis added). Exercising that authority, the Secretary promulgated regulations stating that "[p]roviders receiving payment on the basis of reimbursable cost"—the method at issue—"must provide adequate cost data." 42 C.F.R. § 413.24(a). That cost data, the regulations continue, "must be based on [a provider's] financial and statistical records which must be capable of verification by qualified auditors" and be "capable of being audited." § 413.24(a) & (c). Here, the Board denied reimbursement for fiscal year 1997 because it concluded the information Lancaster submitted for that year was not auditable.
Lancaster does not ask us to overturn the Board's decision on the ground that the information it supplied for 1997 was, in fact, "capable of being audited" within the meaning of the Secretary's regulations. Nor does Lancaster challenge the validity of 42 C.F.R. § 413.24(c), the regulation containing that requirement. Instead, Lancaster argues: (1) this case is governed by a different regulation; and (2) the alternative information it offered to provide "would have more than sufficed to substitute for the payroll records [HHS] sought." Lancaster Reply Br. 2. Like the district court, we are unpersuaded.
The most prominent strand of Lancaster's argument is that 42 C.F.R. § 413.9(c)(2) establishes "the substantive standard for payment," and that "[n]either the Medicare statute nor the regulations ... permit the Board to deny payment on the basis of a demand for irrelevant documentation." Lancaster Br. 2–3. According to Lancaster, the only justification for denying reimbursement is "if a particular institution's costs are found to be substantially out of line with other [similar] institutions in the same area." 42 C.F.R. § 413.9(c)(2). And, Lancaster continues, HHS may not deny reimbursement based on inadequate documentation if the provider submits other documents that could serve the same purpose as those HHS requests.
The problem for Lancaster is that neither the statute nor the regulations say that. The statute itself mandates another basis for denying reimbursement: A...
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