St. Mark's Charities v. Shalala, 2:93-CV-0565-S.
| Citation | 952 F.Supp. 1488 |
| Decision Date | 27 January 1997 |
| Docket Number | No. 2:93-CV-0565-S.,2:93-CV-0565-S. |
| Parties | ST. MARK'S CHARITIES Liquidating Trust, George E. Bates, Trustee, Plaintiff, v. Donna E. SHALALA, Secretary of Health and Human Services, Defendant. |
| Court | U.S. District Court — District of Utah |
Stewart M. Hanson, Jr., Carl F. Huefner, Charles P. Sampson, Suitter Axland & Hanson, Salt Lake City, UT, Robert A. Klelin, Foley Lardner Weissburg & Aronson, Los Angeles, CA, for Plaintiff.
Scott M. Matheson, Jr., U.S. Atty., Jill N. Parrish, Asst. U.S. Atty., District of Utah, Salt Lake City, UT, for Defendant.
Before the court are Objections to Magistrate's Report & Recommendation and Request for Hearing filed by plaintiff St. Mark's Charities Liquidating Trust in which plaintiff objects to a Report and Recommendation signed by the magistrate judge on November 4, 1996.
The court, having considered the matter de novo, concludes the Report and Recommendation is correct in every material respect and adopts it as the court's own opinion. Accordingly, the court hereby AFFIRMS the final administrative decision of defendant Donna E. Shalala, Secretary of Health and Human Services, and DENIES plaintiff's motion for summary judgment.
Plaintiff filed suit under 42 U.S.C. § 1395oo(f)(1) seeking judicial review of the final determination of the Secretary that the government is entitled to recoup depreciation payments received by plaintiff under the Medicare program. The case was referred to the magistrate judge under 28 U.S.C. 636(b)(1)(B) and is presently before the court on plaintiff's motion for summary judgment. (File entry 19.)
Plaintiff is the successor to St. Mark's Hospital, a Utah non-profit corporation, which formerly owned and operated St. Mark's Hospital in Salt Lake City, Utah. St. Mark's Hospital was built in 1973 and was certified as a Medicare provider from 1973 until its sale effective December 31, 1987. Because the sale price of the hospital's depreciable assets exceeded their book value, the fiscal intermediary, Blue Cross and Blue Shield of Utah, acting on behalf of the Secretary determined that the government was entitled to recoup all depreciation payments received by St. Mark's during the years the assets were used in providing Medicare services (1973-87).
St. Mark's appealed the intermediary's determination to the Provider Reimbursement Review Board ("PRRB") by letter dated January 29, 1991. (A.R. at 818-19.) On July 28, 1992, an administrative hearing was held pursuant to 42 U.S.C. 1395oo. (A.R. at 78-214.) On February 19, 1993, the PRRB issued its decision concluding that the intermediary's adjustments recapturing depreciation payments were correct. (A.R. at 16-28.) The Administrator of the Health Care Financing Administration ("HCFA") reviewed the decision of the PRRB pursuant to 42 U.S.C. § 1395oo(f)(1) and issued a decision affirming it on April 15, 1993. (A.R. at 2-6.) The decision of the Administrator is the final agency determination and is subject to judicial review under 42 U.S.C. § 1395oo(f)(1).
Under the Medicare Act, certified Medicare providers are reimbursed for the reasonable cost of services provided to Medicare beneficiaries. "Reasonable cost" is defined 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). In order to receive reimbursement, a provider must submit a "cost report" showing its total costs for the fiscal year and the proportion of the costs that should be allocated to the Medicare program. 42 C.F.R. §§ 413.20(b), 413.24(f)(1), (2) (1995). The fiscal intermediary reviews the cost report and advises the provider of its final determination as to the amount of Medicare reimbursement allowable for the year. 42 C.F.R. § 405.1803.
Under the regulations promulgated by the Secretary, a Medicare provider is entitled to reimbursement for the indirect cost of using tangible assets through an allowance for depreciation. 42 C.F.R. § 413.134. Depreciation is calculated using the straight-line method, based on the historical cost of the asset allocated over its estimated useful life in accordance with American Hospital Association guidelines. Id.
Upon disposal of the asset, the regulations provide for adjustment of the allowable cost determination. If the disposal results in a gain, i.e., the sale price exceeds the book value of the asset, the Secretary may recoup depreciation expenses paid to the provider. The adjustment for a gain is limited to the actual amount of depreciation previously allowed as Medicare allowable costs. 42 C.F.R. § 413.134(f). Conversely, if the sale price is less than the depreciated book value of the asset, the provider is entitled to reimbursement for Medicare's proportionate share of the loss. Id. The amount of an adjustment allowed for a loss is limited to the undepreciated basis of the asset permitted under the program. Id.
Effective December 31, 1987, St. Mark's sold its hospital to a third-party purchaser. The portion of the sales price allocated to the building and fixed assets was approximately $27.4 million. (A.R. at 119.) On the date of the sale, the net book value, i.e., the undepreciated basis, was $7.6 million. (A.R. at 229.) St. Mark's thus had a gain on the sale of approximately $19.8 million (appraised value of assets minus net book value). However, because the historical cost of the assets was only approximately $15.4 million, the adjustment for depreciation was limited to the accumulated depreciation amounting to approximately $7.8 million (historical cost minus net book value).
In its final cost report, St. Mark's did not make an adjustment in its allowable costs to reflect the gain on the sale of its assets. Consequently, the intermediary issued a Notice of Program Reimbursement dated September 19, 1990, in which it made an adjustment for the depreciation St. Mark's had previously claimed under the Medicare program. (A.R. at 804-14.)
Summary judgment should be entered if the record shows that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).
A party moving for summary judgment bears the initial burden of informing the court of the basis of its motion. It may do so by identifying portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, that demonstrate that there is no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). In response, the nonmoving party must go beyond the pleadings and by affidavits, or by depositions, answers to interrogatories, and admissions, designate specific facts showing that there is a genuine issue for trial. Id. at 324, 106 S.Ct. at 2553. If the nonmoving party fails to meet this burden, summary judgment is mandated. See id. at 322, 106 S.Ct. at 2552.
Pursuant to 42 U.S.C. § 1395oo(f)(1), judicial review is governed by Chapter 7 of the Administrative Procedure Act (APA), 5 U.S.C. §§ 701-706. Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 510-11, 114 S.Ct. 2381, 2386, 129 L.Ed.2d 405 (1994). Under the APA, the court's review of the Secretary's decision is limited to whether the administrative decision is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law," or "in excess of statutory jurisdiction, authority, or limitations." 5 U.S.C. § 706(2)(A), (C).
It is well-settled that a reviewing court should accord considerable weight to an agency's construction of the statutory scheme that it is entrusted to administer. Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 844, 104 S.Ct. 2778, 2782-83, 81 L.Ed.2d 694 (1984); Humana, Inc. v. Heckler, 758 F.2d 696, 699 (D.C.Cir.1985) (), cert. denied, 474 U.S. 1055, 106 S.Ct. 791, 88 L.Ed.2d 769 (1986). Similarly, a court must give substantial deference to an agency's interpretation of its own regulations. Thomas Jefferson Univ., 512 U.S. at 510-11, 114 S.Ct. at 2386; Martin v. Occupational Safety and Health Review Comm'n, 499 U.S. 144, 150-51, 111 S.Ct. 1171, 1175-76, 113 L.Ed.2d 117 (1991).
Under the arbitrary and capricious standard, the court exercises a narrow scope of review and may not substitute its judgment for that of the agency. Motor Vehicle Mfrs. Ass'n of the United States v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2866-67, 77 L.Ed.2d 443 (1983); Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 823-24, 28 L.Ed.2d 136 (1971); Bowman Transp., Inc. v. Arkansas-Best Freight Sys., Inc., 419 U.S. 281, 285, 95 S.Ct. 438, 441-42, 42 L.Ed.2d 447 (1974). The court considers only whether the agency decision is based upon a consideration of relevant factors and whether there has been a clear error in judgment. Motor Vehicle Mfrs. Ass'n, 463 U.S. at 43, 103 S.Ct. at 2866-67; Bowman Transp., Inc., 419 U.S. at 285, 95 S.Ct. at 441-42.
Nevertheless, the APA requires the court to engage in a substantial inquiry. While the agency decision is entitled to a presumption of regularity, the presumption does not shield agency actions from a thorough, in-depth review. Citizens to Preserve Overton Park, Inc., 401 U.S. at 415, 91 S.Ct. at 823; Olenhouse v. Commodity Credit Corp., 42 F.3d 1560, 1574 (10th Cir.1994).
Plaintiff argues that there is no statutory basis for the government to recoup payments for past depreciation...
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