Kindred Hospitals East v. Kathleen Sebelius
2012 U.S. App. LEXIS 19116
| 8th Cir. | 2012Background
- Kindred Hospitals challenge DHHS decision to reclassify pool payments as reductions of FRA tax expenses on Medicare Cost Reports for 2000–2003.
- Hospitals formed a pooling arrangement (MSC) where pool funds were distributed based on contributions and Medicaid add-ons.
- FRA tax is a broad-based hospital tax to generate federal matching funds for Medicaid.
- OIG deemed pool payments improper Medicaid revenue; CMS instructed reclassification to offset against FRA tax expense.
- Provider Reimbursement Board reversed, Administrator reinstated the adjustments; district court affirmed.
- Court holds Administrator’s interpretation reasonable and within authority to deny reimbursement for costs not actually incurred.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Do pool payments reduce Medicare costs actually incurred? | Kindred argues no; payments are not refunds and do not reduce costs. | Administrator treated pool payments as refunds/reductions of expenses, not as revenue. | Yes; pool payments reduce costs actually incurred and are reimbursable |
| Was reliance on the PRM appropriate or improper? | Kindred claims PRM is binding on reimbursement principles. | PRM cited only as guidance, not sole authority; regulations and statutes govern. | Proper; decision rests on statutory authority, with PRM as supplementary guidance |
| Were pool payments donations or unrestricted grants? | Kindred argues payments were donations between hospitals. | MSC controlled payment amounts; record supports non-donation characterization. | Substantial evidence supports not donations; Administrator’s view was reasonable |
| What is the proper standard of review? | Not expressly stated beyond disagreement with outcome. | Administrative decision reviewed for arbitrariness, abuse of discretion, or lack of substantial evidence. | Agency decision not arbitrary or contrary to law; substantial evidence supports outcome |
Key Cases Cited
- Sta-Home Home Health Agency Inc. v. Shalala, 34 F.3d 305 (5th Cir. 1994) (refunds concept supported by substance over labels)
- Abbott-Nw. Hosp., Inc. v. Schweiker, 698 F.2d 336 (8th Cir. 1983) (agency may offset income when another program reimburses a cost)
- Creighton Omaha Reg'l Health Care Corp. v. Sullivan, 950 F.2d 563 (8th Cir. 1991) (agency may deny reimbursement where another program reimburses costs)
- Schweiker v. Turner, n/a (n/a) (referenced for authority to reimburse only costs actually incurred)
- Thomas Jefferson Univ. v. Shalala, 512 U.S. 504 (1994) (high court on agency interpretation of complex regulatory program)