Loma Linda University v. Schweiker

• Citation: 705 F.2d 1123
• Decision Date: 09 May 1983
• Docket Number: No. 82-5213.,82-5213.
• Parties: LOMA LINDA UNIVERSITY, a California non-profit corporation, Plaintiff-Appellant, v. Richard S. SCHWEIKER, Secretary of the Department of Health and Human Services; Earl M. Collier, Jr., Deputy Administrator, Health Care Financing Administrator, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

705 F.2d 1123

LOMA LINDA UNIVERSITY, a California non-profit corporation, Plaintiff-Appellant, v. Richard S. SCHWEIKER, Secretary of the Department of Health and Human Services; Earl M. Collier, Jr., Deputy Administrator, Health Care Financing Administrator, Defendants-Appellees.

No. 82-5213.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted January 6, 1983.

Decided May 9, 1983.

COPYRIGHT MATERIAL OMITTED

J. Robert Liset, Musick, Peeler & Garrett, Los Angeles, Cal., for plaintiff-appellant.

Carolyn Reynolds, Asst. U.S. Atty., Los Angeles, Cal., Jeanne Schulte Scott, Washington, D.C., for defendants-appellees.

Before SKOPIL, NELSON and CANBY, Circuit Judges.

SKOPIL, Circuit Judge:

Loma Linda University appeals the district court's summary judgment for the Secretary of Health and Human Services. The district court found that substantial evidence supported the Deputy Administrator's determination that Loma Linda University Hospital's intensive care areas did not qualify as "special care inpatient units" under 42 C.F.R. § 405.452(d)(10) (1972). The issues on appeal are whether: (1) the Deputy Administrator's decision is supported by substantial evidence; (2) the Deputy Administrator's decision was based upon a review of the record as a whole; and (3) the Deputy Administrator has authority under the applicable regulations to undertake own motion review of the Provider Reimbursement Review Board's (PRRB) decision. We affirm.

FACTS AND PROCEEDINGS BELOW

Loma Linda University operates a hospital and teaching facility equipped to provide all levels of medical and nursing care. During the years at issue, 1974 through 1977, the hospital used an experimental dependency methodology billing system. Under this system all of the rooms in the hospital could be adapted to function as intensive care units by adding the necessary equipment and staff. The attending physician's instructions determined the level of care provided. The nurses working on each shift recorded the amount of "dependency care" each patient received and the patient was billed accordingly.

The hospital claimed costs related to greater dependency care as special care unit costs under 42 C.F.R. § 405.452(d)(10) (1972) when it filed its annual medicare cost reports for medicare reimbursements. The Fiscal Intermediary concluded that the hospital had not separately identified and accounted for these special care units, as required by the regulation. The Intermediary recalculated these costs using the average or routine per diem formula. Loma Linda contended the recalculation resulted in a reduction of one million dollars in its medicare reimbursement and appealed the Intermediary's decision to the PRRB.

The PRRB found that the special care units were physically identifiable and that adequate records had been kept justifying the increased reimbursements Loma Linda claimed. Upon his own motion, the Deputy Administrator reviewed the PRRB decision and reversed the portion concerning the special care units. The Administrator concluded that the PRRB had improperly interpreted 42 C.F.R. § 405.452(d)(10) (1972), which required the hospital to separately identify the special care units. He further concluded that the hospital's dependency methodology billing system did not comply with the regulations concerning cost identification.

Loma Linda filed a complaint in district court. The district court remanded the case to the Deputy Administrator for reconsideration because he reviewed a record from which one hundred exhibits were missing. The Deputy Administrator reviewed the entire record and confirmed his original decision. After a hearing the district court affirmed the Deputy Administrator's decision denying special care unit reimbursements to the hospital for the years 1974 through 1977.

SUBSTANTIAL EVIDENCE

The Medicare Act allows a provider of medical services, such as Loma Linda University, to recover the reasonable cost of services provided to those patients eligible for medicare benefits. 42 U.S.C. §§ 1395 et seq. Section 1395x(v)(1)(A) states that reasonable costs are to be determined in accordance with the appropriate regulations. The regulations provide for a higher rate of reimbursement for intensive care than for routine care. During the relevant time, 42 C.F.R. § 405.452(d)(10) (1972) required that intensive care units be "physically identifiable as separate from general patient care areas." The Deputy Administrator determined that because Loma Linda's special care units were not physically separate from the routine care areas, the hospital could receive reimbursement only at the lower rate for routine care areas. The Administrator also determined that the hospital had not adequately identified the costs attributable to the special care units.

When reviewing the Deputy Administrator's decision, this court gives due deference to the agency's interpretation of a statute or regulation. Batterton v. Francis, 432 U.S. 416, 424-25, 97 S.Ct. 2399, 2404-05, 53 L.Ed.2d 448 (1977); White Memorial Medical Center v. Schweiker, 640 F.2d 1126, 1129 (9th Cir.1981); Psychiatric Institute of Washington, D.C., Inc. v. Schweiker, 669 F.2d 812, 813-14 (D.C.Cir.1981) (per curiam). The agency's construction must be reviewed in relation to the governing statutes, however, and the regulations must be consistent with and in furtherance of the purposes and policies embodied in the congressional statutes that authorize them. Pacific Coast Medical Enterprises v. Harris, 633 F.2d 123, 131-32 (9th Cir.1980). An agency's interpretation must be affirmed if it is within the range of reasonable meanings the words permit. Psychiatric Institute of Washington, D.C., Inc., 669 F.2d at 813-14.

Here the Deputy Administrator's interpretation of the regulation is reasonable. He concluded that the term "physically identifiable as separate" in the 1972 regulation, meant actual physical separateness of the intensive care areas from the routine patient care areas and that the special cost identification procedures must be followed in order for the provider to receive reimbursements at the higher rate. Uniform accounting procedures make the cost identification and reimbursement process for this complex program more efficient. Physical separateness is a reasonable means of identifying the special care units and apportioning the costs to them. The manner in which the two classes of care were differentiated for the provision of reimbursement was initially the Secretary's decision and application of the system continues to be within the Secretary's discretion.

Substantial evidence supported the Secretary's decision that Loma Linda's intensive care areas did not qualify as special care units under the regulations and that the dependency methodology billing system did not satisfy the cost identification requirements. Although each room at Loma Linda could be converted to an intensive care facility, the rooms were not physically separate as the Secretary had interpreted that requirement. The dependency methodology billing system did not comply with the uniform accounting methods necessary to the cost identification process.

Loma Linda argues that the Secretary's requirement of physical separateness was new and that it was not in effect during the years 1974 through 1977. This argument is without merit. The regulation as initially promulgated and in effect during the relevant years stated that the intensive care units "must be physically identifiable as separate from general patient care." 237 Fed.Reg. 10355 (May 20, 1972). The language in the present regulation states that the "unit must be physically and identifiably separate from the general routine patient care areas...." 42 C.F.R. § 405.-452(d)(10)(ii) (1982). The...