*3 SMITH, Before HEANEY and GRUENDER, Judges. Circuit GRUENDER, Judge. Circuit Baptist Memorial Medical Center- Memorial”) (“Baptist North Little Rock challenges a decision Payment Prospective System Health and Human lished Department (“HHS”) (“PPS”) denying, Medicare as an incentive for Services efficiently. edu purposes, operate costs and more reimbursement reduce 98-25, (1983), for classroom activity” status H.R.Rep. cational No. at 132 See in con by Baptist incurred reprinted, in 1983 U.S.C.C.A.N. affiliation with a PPS, with its nection provider hospital receives Under upheld court1 district school. reimbursement a flat rate Medicare dis For reasons decision. patient’s catego- patient each based on below, affirm. cussed Id.; ry treatment. 1395ww(d). *4 I. BACKGROUND a from Congress exempted few costs the Medicare HHS administers PPS, continued allowing reasonable-cost seq., through § 42 et U.S.C. 1395 gram, 1395f(b) § Medicare reimbursement under and Med- Centers for Medicare component treatment”) for, among oth (“pass-through (“CMS”). Secretary The icaid Services things, activi “approved er educational intermediaries, such with fiscal contracts 1395ww(a)(4). § 42 ties.” Con U.S.C. in the instant as Blue Shield Cross/Blue “approved did not educational gress define Medi- audit costs submitted Secretary activities” the statute. The dis- approve or provider hospitals care ap a regulation stating that published 42 See Medicare reimbursement. approve nei proved educational activities included (de- § 1395h; § 42 C.F.R. 405.902 U.S.C. en training of students not “[c]linical ther intermediary). provider A fining fiscal approved in an education rolled may hospital appeal reimbursement 42 provider,” C.F.R. operated intermediary to decision the fiscal 413.85(d)(6)(1986) added), (emphasis nor § Reimbursement Review HHS’s Provider that do not involve activities “[o]ther (“PRRB”). § 42 1395oo. Board operation approved of an education actual the final PRRB’s decision becomes 413.85(d)(7). During § id. program,” agency unless the Secre- decision regula phase of the notice-and-comment affirm, motion, own tary, on his decides publication, Secretary elaborated tion’s Id. modify the decision. reverse “only costs of those 1395oo(f)(l). § di programs operated education medical 1983, Medicare-eligible all costs Prior from by a excluded rectly hospital [are] by provider hospital were reim- incurred 1984) (Jan. Fed.Reg. [PPS].” aon “reasonable cost” basis —es- bursed added).2 (emphasis in- actual costs sentially, hospital’s each for programs In addition to costs dollar-for-dollar curred reimbursed ac- qualify approved educational Secretary long as found the so 413.85, § Congress under 42 1395f(b). tivities C.F.R. § In reasonable. See U.S.C. for an- pass-through treatment established Security Amend- Title YI of the Social educational-activity costs 98-21, category of 65 other Pub.L. 97 Stat. ments (“PPS § by provider hospitals in estab- legislation”), Congress borne (f) 413.85(c)(1), Wilson, Jr., hospital. 42 C.F.R. R. Unit- See The Honorable William (2001). Judge Dis- in 2001 for the Eastern This version became final ed States District inapplicable to the instant trict of Arkansas. and is therefore change made the case. The regula- ''clarify” previous version of promulgated ver- a new 2. The later Fed.Reg. tion at issue here. regulation expressly in- which sion (Jan. 2001). of direct cludes Act Budget separate Reconciliation of ness units and maintained book- the Omnibus (“OBRA 1989”), 101-239, keeping. hospital Pub.L. Each had its own Medi- 4004(b) (1989), number, §in but provider extended care Health Stat. legal entity Reconciliation Act of was the that contracted for the Budget the Omnibus (“OBRA 1990”), 101-508, Pub.L. 104 numbers. (1990). pass-through This Stat. 1388 system, the institution of the PPS After only category treatment includes the costs Baptist Health allocated the costs of the programs clinical school con- among its four hospitals. of, but premises ducted on the not neces- hospital Each then characterized its share sarily directly by, provider operated hos- those costs as educational long pital specified so as certain conditions pass-through activities” and received reim in OBRA 1990 are met. 1990, however, region bursement. In short, pro al hospitals’ activities at CMS office notified the fiscal hospital qualify pass- intermediary vider that do not that the School costs eligible treatment under either C.F.R. were not treat OBRA 1990 provider hospitals 413.85 or are reimbursed as ment because the did *5 part Nursing flat-rate for payment operate PPS School. In re hospital’s operating sponse, normal Baptist costs. Pass- Health moved all Nursing treatment for Baptist educational activi School costs to Memori financially ties is desirable for the al’s provider Baptist books.4 Memorial hospital payment Nursing because the PPS for nor School executed a Memorandum operating essentially depends mal of Agreement costs outlining responsibilities only upon patients the number Baptist support dis Memorial to the school. charged diagnoses, and their and does not Baptist From 1991 to 1994 Memorial directly compensate the costs of education submitted Nursing School costs for al activities.3 treatment, pass-through in- but the fiscal
Baptist
is
operated
termediary
Memorial
owned and
denied reasonable-cost
reim-
Inc.,
Health,
by Baptist
non-profit
corpo-
appeal,
bursement. On administrative
reversed,
operated
ration that also owned
PRRB
finding
three
the costs
Medicare-provider hospitals
qualified
other
from
pass-through
for
treatment
anas
Baptist
“approved
1994.
Health also
activity”
owned
educational
because
operated Baptist
Nursing Baptist
in,
School of
engaged
Memorial “was
School”)
extent,
(“Nursing
during
significant
The
operation
time.
Nursing
four
and the
nursing
education
The
program.”
Admin-
separate subsidiary
CMS,
were not
corporations
acting
istrator
under the authori-
separate
but were
operated
ty
Secretary,
each
busi-
vacated the PRRB’s
Baptist
3.
asserts that
Memorial
PPS reim-
issue
not sufficient
allow to
us
determine
one,
for
bursement
educational activities
actual-
assumption
whether the
is a valid
and in
ly no
provider
reimbursement
all because a
any event resolution of the issue would have
hospital
quali-
with educational activities not
appeal.
no effect on the outcome of this
fying
pass-through
/for
treatment
re-
payment
ceive/the same flat-rate PPS
as an
attempted
Memorial then
to further
hospital
provider
identical
with no education-
among
remaining hospi-
allocate the costs
making
al activities whatsoever.
this as-
tals,
intermediary
but
the fiscal
reclassified
sertion, Baptist
apparently
assumes
Therefore, only Baptist
those costs.
Memori-
that such educational activities would have no
Nursing
al was reimbursed for
School costs
financially
indirect
beneficial
effects on the
from 1991 to 1994.
hospital.
The
on
record
Thompson,
Hosp.
not Methodist
315 F.3d
Baptist Memorial did
because
decision
Cir.2003)
(8th
How-
directly
School.
operate
(quoting Hennepin
ever,
to the
remanded
Shalala,
the Administrator
County Med. Ctr. v.
F.3d
any
a determination of whether
PRRB for
(8th Cir.1996)); see
also
qualified
school costs
(E).
706(2)(A),
“We review the district
re-
costs under OBRA
On
clinical
novo, making
court’s decision de
our own
mand,
PRRB
all submitted
Secretary’s
independent review of the
de
treatment
pass-through
clinical
the APA.”
cision under
Shalala
St.
reinstated its
under
1990 and also
OBRA
Ctr.,
Paul-Ramsey Med.
F.3d
finding
the non-clini-
already rejected
(8th Cir.1995).
cal,
classroom,
eligible for
costs were
an treatment as
pass-through
Secretary’s Interpretation
A.
activity.” The Administrator
the Statute
eligi-
that the clinical costs were
affirmed
argues
it is
under
treatment
ble
capricious
for the
again
but reversed
on
OBRA 1990
statutory language “ap
interpret
Baptist Memorial
classroom costs because
activity”
proved educational
to include
directly
operate
did not
hospital
provider
di
School.
rectly operate
program.
the educational
for review of
Memorial sued
The Chevron test determines whether the
court.
decision in federal district
agency’s
permissible interpre
rule is a
The district court affirmed the Administra-
tation of the statute:
decision,
on
Circuit’s
relying
tor’s
the D.C.
*6
similar
a
in
dispute
resolution of
Commu-
ask first whether “the intent of
[W]e
Thompson,
318
nity Care Foundation
Congress
precise
is clear” as
“the
(D.C.Cir.2003). Baptist
F.3d 219
Memori-
If,
question
by “employing
at issue.”
now
the
of
appeals
al
denial
statutory
tools
construc-
traditional
of
costs associat-
treatment for the classroom
tion,”
Congress’
in-
we determine
School,
arguing that
ed with the
clear,
tent
is
“that
is the end
not a
operation”
is
the “direct
But “if the statute is silent or
matter.”
the
permissible interpretation of
statute
specific
ambiguous
respect
to the
with
Secretary’s
and that it conflicts with the
issue,
for the court
question
the
interpretation.
Baptist Memorial
prior
agency’s
the
answer is based on
whether
that,
the direct-
argues
even under
also
permissible
construction
stat-
standard, its affiliation with the
gap
agency’s reading
ute.” If the
fills a
an
qualified
“approved
as
inway
in a
or defines a term
reasonable
activity.”
Legislature’s design,
give
of
light
the
if
controlling weight, even
reading
II. DISCUSSION
court would
it is not the answer “the
The
of
final decision
the
initially
if
had
question
have reached
under the Administrative Proce-
reviewed
judicial proceeding.”
arisen in a
(“APA”),
§
seq.
5
701 et
dure Act
U.S.C.
Shalala,
448,
522 U.S.
Regions Hosp.
1395oo(f)(l)
(incorporating
§
42 U.S.C.
909,
457, 118
tal also
return.
Conflicting
B. The PRRB’s
In-
Prior
terpretations
example,
For
it
obtains
services of
(often
the trainee
direct
no
cost to
In three decisions8 announced
itself).
do not
that
type
We
believe
this
1997, involving
between 1993 and
cost
relationship
Congress
was what
in- years
PRRB
from 1987 to
ana
it provided
pass
tended when
for a
lyzed “approved educational activities” un
of the costs of
medical
“engaged
der the
John’s Hickey
St.
in”
Rather,
programs.
education
we believe
standard, rather than the more strict di
Congress
that
was concerned with those
rect-operation
originally
standard
associat
itself,
programs
hospital operates
that a
413.85(d)(6) (1986).
§
ed with 42 C.F.R.
it
for which incurs substantial direct
declined review of those
costs.
decisions.
argues
Memorial
that it
405.421(d)(6)
§
revising
We are
[later
capricious
for the Secre
413.85(d)(6) (1986)
clarify
C.F.R.
tary
change
interpretation
]
now to
his
costs of
training
apply
direct-operation
clinical
standard
in programs,
disagree.
students enrolled
case.9
other
We
Shield,
argues
specific
v. Blue
No.
PRRB
93-D61
Cross/Blue
21, 1993).
(July
training”
reference to "clinical
indicates that
direct-operation requirement
only
in-
corollary, Baptist
argues
9.As
costs,
apply
tended to
to clinical
not class-
position
change
Medicare rule-
violates
However,
room costs.
the reference to "clin-
change
procedures
training”
response
ical
occurs in
to some
("No rule,
1395hh(a)(2)
requirement,
or
specific
raised
concerns
commenters. The
policy
other statement of
...
that establishes
response
first sentence of the
indicates that
changes
legal
gov-
a substantive
standard
regulation requires
"approved
all
erning
payment
...
...
for services
shall take
programs,”
just
medical education
clini-
promulgated
effect
it is
unless
the Secre-
programs,
"operated
training
cal
directly
be
However,
....”).
tary by regulation
agree
(Jan. 3,
by hospital.”
Fed.Reg.
provi-
with the
courts
have held that this
*9
1984).
imposes
greater
sion
no standards
than those
See,
e.g., Erringer
established
the APA.
v.
8.
Mary’s
The three PRRB
are St.
decisions
625,
(9th Cir.2004)
the mere fact
agency position
a prior
tion contradicts
agency.
The instant case
sions
unexplained
not fatal.
Sudden
1994,
years
the
deals with
cost
to
not take
change
change
does
three previous
while the
decisions covered
legitimate
prior
of
reliance on
account
years
cost
1987 to 1989. The first decision
arbitrary, capri-
interpretation may be
Administrator,
the
on behalf of the
Sec-
ifBut
or an abuse of discretion.
cious
direct-operation
retary, applying the
stan-
avoided,
is not
pitfalls
change
are
these
in this case was issued
while
dard
point
since
whole
invalidating,
previous decisions were issued
the three
to leave
discretion
Chevron is
result,
1997. As a
between
SSM
ambiguities
of a statute
vided
suggest
finding of
does not
arbitrariness
agency.
the implementing
with
Contrary
Baptist
Memorial’s as-
here.
(S.D.), N.A., 517 U.S.
Smiley v. Citibank
sertion,
years
because different cost
were
L.Ed.2d 25
decisions,
involved
the three PRRB
this
(internal
quotations
citations and
agency
a case
an
applie[d]
is not
“[w]here
omitted).
similarly
different standards
situated
argues that
“[w]here
Ry.
N. &
Burlington
entities.”
Santa Fe
different standards
agency applies
an
Co.,
F.3d at
similarly
sup
fails to
situated entities and
a rea
disparate
treatment with
port
generally,
More
we do not find the
explanation and substantial evidence
soned
Secretary’s
apply
decision to
the direct-
record,
action is
in the
its
requirement after the three ear
Bur
upheld.”
and cannot be
capricious
PRRB decisions to be “sudden and
lier
Ry.
N.
Fe
lington & Santa
Co. Surface
Smiley, 517
unexplained.”
U.S.
(D.C.Cir.
Bd.,
F.3d
Transp.
ex
778 Secretary’s Baptist is the deci challenge
Neither Memorial does not contrary “legitimate Secretary’s findings sion to reliance on that responsi- “[t]he PRRB prior interpretation” operation in the deci bilities associated with the of a 742, Smiley, nursing sions. 517 at 116 program U.S. S.Ct. reside with the School of (citing 1730 United v. Penn. Nursing, States Indus. Provider” and “the costs 655, 670-675, Chem. 411 Corp., directly U.S. 93 issue were not incurred 1804, Provider, S.Ct. 567 L.Ed.2d but rather were allocated to the Co., 267, Aerospace Instead, NLRB v. Bell 416 U.S. Provider.” Baptist Memorial 1757, (1974)). S.Ct. L.Ed.2d 134 contends that the Nursing oper- School is Legitimate prior reliance on ated a provider Baptist administrative because Memo- be decisions can shown where “some rial and Nursing part new School are of a liability sought single on imposed corporation, be individ Health. Baptist This past uals for actions argument which were taken in fails. The correctly good-faith pronounce that, reliance on [agency] noted Baptist while Health is a cor- Aerospace, ments.” Bell poration operates U.S. at several provider In schools, S.Ct. 1757. the arrange it nursing does not ment between Memorial and qualify itself as a provider under the stat- Nursing (“The in beginning 1395x(u) School could ute. See U.S.C. term not have made in been reliance on ‘provider of services’ a hospital, means decisions, PRRB which were announced critical hospital, access skilled fa- between 1993 and 1997.10 cility, comprehensive outpatient rehabilita- facility, tion home health agency, hos- [or] We conclude that it is not ”). pice Moreover, program .... the fact capricious for the to apply the provider hospital educational direct-operation standard in this case.
institution are under ownership common Application Direct-Opera- C. does not regulations circumvent the
tion Standard
determine
when
costs of the education-
al
are
institution
attributable
Secretary’s
We review the
deci
hospital
vider
for Medicare purposes. See
sion,
direct-operation
made under the
stan
Skalala,
Thomas
Univ. v.
dard,
Jefferson
Memorial’s classroom
U.S.
Baptist Memorial operator short, was not the the Medicare reimbursement School. system on is based costs incurred tions, argues strictly Memorial also that it binding relied is not Secretary.” on the on the Provider Reimbursement Network, Paragon Thompson, Health Inc. ("PRM”), (7th Cir.2001). Manual which as late 1995 con- 251 F.3d Reliance non-provider-operated tinued to state ed- on the would PRM not have been reasonable meeting "engaged ucational light activities in” of the direct communication from eligible test were August treatment. HHS in asserting that the direct- However, PRM, guide "[t]he while useful regu- contained interpreting regula- the Medicare statute and applied. lations be *11 number, by all tion shared of its subsidiar- hospitals, without re- provider individual ownership structure. underlying ies. gard
Indeed, common- Baptist if Memorial’s evidence, the above I cannot Given theory were ac- ownership reimbursement Baptist separate a agree that Memorial is curate, each of no need for there would be entity Baptist Nursing. from School of operated and the four owned my view, Baptist Health owns both. separate Medicare Baptist Health have provided link two direct between the that conclude sub- numbers. We provider ownership common their' supports evidence stantial Baptist a direct qualifies Memorial as not the finding Baptist Memorial was that Indeed, nursing program. vider of activity. the educational operator of two appear subsidiaries have believed agreed to Baptist much: when III. CONCLUSION nursing it programs, host the school’s did direct-operation that re- hold We through agreement so a memorandum of permissible interpretation quirement contract, than, signato- rather since the educational activities” and subsidiary ries have for each been not represent it does Thus, although I agree the same. that we Secretary’s prior inter- change from deference, substantial Secretary’s findings We also hold that accord the pretation. Secretary’s finding supports the evidence not simply sup- substantial does evidence opera- was not Baptist nursing program view that port activity. According- tor provider operated. was not district judgment ly, affirm
court.
HEANEY, Judge, dissenting. Circuit majority’s holding that
I concur in the pass- to limit was entitled al., M., et on behalf of ELIZABETH through for clinical or reimbursement themselves and on behalf others programs those classroom costs to situated, similarly —Appel Plaintiff s hospital. I directly operated lees, dissent, however, from that respectfully opinion Bap- holds portion Health, Baptist subsidiary
tist Nancy al., MONTENEZ, et Memorial, such reim- qualify does not Appellants. Defendants — bursement. No. 05-2750. single corporation. Baptist Health is a operates both Memo- It owns Appeals, United States Court of Nursing. School of rial and Eighth Circuit. not maintain its Baptist Memorial does Feb. Submitted: separate or have own board trustees operate It corporate officers. does Aug. Filed: whatsoever; merely it is independently Rehearing Rehearing En Banc Likewise, Baptist wing Baptist Health. 5, 2006. Denied Oct. op- board trustees controls Health’s school, nursing erations license.
Health holds the school’s one identifica-
Baptist Health has but tax