Medical Rehabilitation Services, P.C. v. Shalala

• Decision Date: 22 February 1994
• Docket Number: No. 93-1043,93-1043
• Citation: 17 F.3d 828
• Parties: , Medicare&Medicaid Guide P 42,111 MEDICAL REHABILITATION SERVICES, P.C., a Michigan corporation, Plaintiff-Appellant, v. Donna SHALALA, Secretary of Health and Human Services, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 828

17 F.3d 828

43 Soc.Sec.Rep.Ser. 733, Medicare&Medicaid Guide P 42,111

MEDICAL REHABILITATION SERVICES, P.C., a Michigan

corporation, Plaintiff-Appellant, v. Donna SHALALA, Secretary of Health and Human Services,

Defendant-Appellee.

No. 93-1043.

United States Court of Appeals, Sixth Circuit.

Argued and Submitted Jan. 19, 1994.

Decided Feb. 22, 1994.

Alice M. MacDermott, Logan & Associates, Bingham Farms, MI (briefed), for plaintiff-appellant.

Kathleen Bradley, Dept. of Health and Human Services, Office of Gen. Counsel, Region V, Chicago, IL (argued and briefed), Pamela J. Thompson, Asst. U.S. Atty., Detroit, MI, for defendant-appellee.

Before: KENNEDY, MILBURN, and GUY, Circuit Judges.

KENNEDY, Circuit Judge.

Medical Rehabilitation Services, P.C., ("MRS" or the "provider") appeals the District Court's grant of summary judgment to the Secretary of Health and Human Services (the "Secretary"). MRS sought review in the District Court of the final decision of the Provider Reimbursement Review Board (the "PRRB" or the "Board"), which found that Blue Cross and Blue Shield of Michigan's ("Blue Cross" or the "intermediary") adjustments to MRS' Medicare cost reports for the periods ending December 31, 1984 and May 31, 1985 were proper. The specific adjustments at issue are (1) the disallowance of a claim for the reimbursement of bad debts, and (2) the decrease of the total Medicare charges, increase in the total patient charges, and increase in the amount of interim payments reported by MRS on the cost reports. For the reasons that follow, we affirm the judgment of the District Court.

I.

A. Medicare Reimbursement Procedures

This case arises under Title XVIII of the Social Security Act, 42 U.S.C. Sec. 1395 et seq., commonly known as the Medicare Act. The Medicare program, which primarily provides medical benefits to eligible persons over the age of 65, consists of two parts: Part A, which serves as "hospital insurance", covering hospital and post-hospital extended care services; and Part B, which serves as "supplementary medical insurance", covering medical and other health services. Medicare providers are reimbursed by the Medicare program through private organizations acting as "fiscal intermediaries" under contract with the Secretary.

Medicare beneficiaries are responsible for paying deductible and coinsurance amounts. Where a Medicare beneficiary is also a Medicaid recipient, a state Medicaid agency may pay the Medicare deductibles and coinsurance for its recipients as part of its Medicaid program.

Under the Medicare Act, the Secretary prescribes methods for determining a provider's "reasonable cost" of providing services to Medicare beneficiaries. These methods are found in regulations, guidelines, letters and other binding publications including the Provider Reimbursement Manual (the "Manual"). The intermediary determines the provider's reasonable cost based upon an annual cost report submitted by the provider. Because a provider's actual reasonable cost of services cannot be determined until the end of the provider's cost report period, interim payments are made to the provider on at least a monthly basis.

The intermediary subjects a provider's cost report to an "initial retroactive readjustment," a field or desk audit and "final retroactive readjustment," which reconciles a provider's total allowable costs with its interim payments and any deductible and coinsurance payments it received from beneficiaries to determine the provider's reimbursement. The provider is notified of the intermediary's determination in a written notice known as a "notice of program reimbursement" ("NPR").

A provider that is dissatisfied with an intermediary's determination is entitled to a hearing before the PRRB so long as the amount in controversy is $10,000 or more and the provider makes a timely request within 180 days of the date that the NPR was mailed to the provider. 42 U.S.C. Sec. 1395oo (a); 42 C.F.R. Secs. 405.1835(a), 405.1841(a). The PRRB's decision may be reversed, affirmed, or modified by the Secretary. 42 U.S.C. Sec. 1395oo (f). The district court has jurisdiction to review a final reimbursement decision by the PRRB or the Secretary, id., pursuant to the Administrative Procedure Act, 5 U.S.C. Sec. 701 et seq.

B. Facts of the Case

MRS, a Medicare provider located in southeastern Michigan, provided physical and speech therapy, which are Part B services, to patients at the Van Buren Convalescent Center ("Van Buren") and other skilled nursing facilities ("SNF"). ¹ MRS filed cost reports with Blue Cross for services rendered at Van Buren during the fiscal years ending November 30, 1984 and FYE May 31, 1985. ² Blue Cross performed an audit of the cost reports and sent MRS a NPR letter dated October 7, 1986. On March 25, 1987, MRS requested a hearing before the Board because it was dissatisfied with some of the intermediary's adjustments. At the hearing, two issues remained after settlement discussions. The first was whether Medicare was liable for deductible and coinsurance amounts, related to services rendered by MRS at Van Buren, that were paid by the state Medicaid program to Van Buren but never received by MRS because of Van Buren's bankruptcy. The second issue concerned the propriety of the intermediary's adjustments, which decreased the total Medicare charges and increased the total patient charges and interim payments reported by MRS.

On May 29, 1991, the Board issued its decision, finding for the Secretary on both issues. The Board found that because the state Medicaid agency had paid Van Buren for coinsurance and deductibles, as it was obligated to do under its Medicaid program, the amounts were not allowable as bad debts under section 322 of the Manual. Regarding the total patient charges, the Board found that the intermediary's decision to rely on the provider's patient logs rather than the provider's revenue logs for the determination of total patient charges was consistent with the Secretary's regulations. The Board also found that the intermediary had properly relied on its own records of Medicare charges rather than those reported by MRS. Finally, the Board found that Blue Cross had properly adjusted the interim payments reported by MRS. On March 19, 1992, the Administrator of the Health Care Financing Administration ("HCFA") declined to review the PRRB's decision, making the Board's decision the final decision of the Secretary. 42 U.S.C. Sec. 1395oo (f)(1).

On March 23, 1992, MRS sought review of the Board's decision in the United States District Court for the Eastern District of Michigan. In a ruling from the bench, the court affirmed the Board's decision in all respects. The court held that section 322 of the Manual, which declares that where a Medicaid program must pay Medicare coinsurance and deductibles, such amounts are not allowable bad debts under the Medicare program, applies to both Part A and Part B services. Hearing Tr. 12/3/92 at 38. It believed that the provider's losses were due to the failure of Van Buren to reimburse MRS and that the provider's claim must lie against Van Buren. Id. at 39. The court further held that the intermediary's other adjustments were supported by substantial evidence and were neither arbitrary and capricious nor contrary to law. Id. MRS then appealed to this Court.

II. Standard of Review

When reviewing agency action, this Court must affirm unless the action is arbitrary and capricious, contrary to law, or unsupported by substantial evidence. 5 U.S.C. Sec. 706(2). Substantial evidence is "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Young v. Secretary of Health & Human Servs., 925 F.2d 146, 147 (6th Cir.1990) (quoting Richardson v. Perales, 402 U.S. 389, 401, 91 S.Ct. 1420, 1427, 28 L.Ed.2d 842 (1971)). Great deference is generally owed to an agency's interpretation of its own regulations. Fox v. Bowen, 835 F.2d 1159, 1162 (6th Cir.1987). "In making a determination of the action by [the PRRB] and the Secretary, it must be recognized that an administrative agency's interpretation of its own regulation is accorded considerable deference on judicial review unless it is inconsistent with the terms of the regulation, especially in areas like Medicare reimbursements." University of Cincinnati v. Heckler, 733 F.2d 1171, 1173-74 (6th Cir.1984). A reviewing court may not "reverse an agency 'simply because it would have interpreted the [regulation] in a different manner.' " Bedford County Gen. Hosp. v. Heckler, 757 F.2d 87, 90 n. 1 (6th Cir.1985) (quoting Batterton v. Francis, 432 U.S. 416, 425, 97 S.Ct. 2399, 2405, 53 L.Ed.2d 448 (1977)).

III. Bad Debt Claim

A.

MRS provided Part B services to residents of Van Buren from October 1980 through November 1982. Medicare reimbursed MRS for 80% of the reasonable cost of such services for the MRS patients who were Medicare beneficiaries. Most of the patients at Van Buren were also Medicaid recipients. In Michigan, the state Medicaid program covers Medicare deductibles and coinsurance for its beneficiaries. As the law existed when this case arose, rehabilitation agencies such as MRS were prohibited from treating long-term-care patients in their own facilities. Such services could only be provided in a long-term-care facility and those providing the services were required to bill Medicaid through the facility. ³ Medical Assistance Program Bulletin No. 5390-82-01, State of Michigan; Admin.Rec. at 238. MRS submitted Medicaid claims to the state under Van Buren's Medicaid provider number. The state paid approximately $243,000 to Van Buren on these claims. Van Buren, however, did not in turn pay MRS this money.

Van Buren filed for bankruptcy on September 8, 1981. MRS recovered approximately $70,000 as a preferred creditor in the bankruptcy proceedings. MRS then filed a claim against the State of Michigan in the state court of claims for the balance of its claim. Su...