OPINION
This matter is before the Court on the parties’ cross motions for summary judgment. Plaintiffs, a hospital group, brought this action seeking judicial review of the Secretary of Health and Human Service’s denial of reimbursement under the Medicare statute for certain insurance premium payments made by plaintiffs. After careful consideration of the parties’ papers, the attached exhibits, and the entire record in the case, the Court will grant defendant’s motion for summary judgment in its entirety. 2
*116 I. BACKGROUND
The Medicare Act, Title XVIII of the Social Security Act, 42 U.S.C. § 1395
et seq.,
creates a federally funded health insurance program for the elderly and disabled. The Centers for Medicare and Medicaid Services (“CMS”) is the component of the Department of Health and Human Services that administers the Medicare program for the Secretary. Part A of the Medicare Act reimburses hospitals for the operating costs of certain inpatient services.
See
42 U.S.C. § 1395ww. In order to obtain this reimbursement, eligible hospitals file cost reports with their “fiscal intermediaries,” allocating a portion of those costs to Medicare.
See
42 C.F.R. § 413.20. The intermediaries determine thе amount owed by the Secretary to the hospitals for the fiscal year at issue.
See
42 C.F.R. § 405.1803(a). Hospitals may appeal the payment determination to the Provider Reimbursement Review Board (the “Board”) within 180 days.
See
42 U.S.C. § 1395oo(a). The Board may reverse, affirm or modify the intermediary’s decision; similarly, the Secretary subsequently may reverse, affirm or modify the Board’s decision.
See
42 U.S.C. §§ 1395oo(d) and (f)(1). Hospitals still dissatisfied with the final decision may seek judicial review by filing suit in the appropriate United States district court.
See
42 U.S.C. § 1395oo(f);
In re Medicare Reimbursement Litig.,
Provider hospitals receive reimbursement for the “reasonable cost” of Medicare services provided. 42 U.S.C. § 1395x(v)(1)(A). Following her statutory directive, the Secretary of Health and Human Services promulgated regulations outlining principles for reasonable cost reimbursement. See 42 C.F.R., Part 413. The Secretary also created a manual, called the Provider Reimbursement Manual (“PRM”), to provide further detail to fiscal intermediaries to determine appropriate reimbursement. See Pl. Mot., Ex. 1, excerpts of U.S. Dept. of Health and Human Services, Medicare Provider Reimbursement Manual (“PRM”). Premiums that hospitals pay for malpractice insurance allocable to Medicare costs generally are reimbursable. See PRM § 2162.2.A. The PRM disallows from reimbursement, however, insurance liability premiums paid to captive insurers (those that are wholly-owned by the provider hospitals) that are domiciled offshore and invest more than ten percent of their assets in equity securities. See PRM § 2162.2.A.4.
Plaintiff Catholic Health Initiatives (“CHI”) is a non-profit health care organization based in Denver, Colorado. See Def. Mot., Statement of Material Facts as to which there is no Genuine Dispute (“Def. Facts”) ¶ 1. The plaintiff hospitals are fifty-five Medicare participating hospitals. See Def. Facts ¶ 2. Plaintiff hospitals paid premiums to First Initiatives Insurance Ltd. (“FIIL”) for malpractice, other liability and workers’ compensation coverage for the Medicare cost reporting periods ending in 1997 through 2002. See Def. Facts ¶¶ 3-4. FIIL is a captive insurer, wholly-owned by CHI, and domiciled in the Cayman Islands. See Def. Facts ¶¶ 3, 5. FIIL invests forty to fifty percent of its assets in equity securities. See Def. Facts ¶ 6.
Based on PRM § 2162.2.A.4, plaintiffs self-disallowed the premiums they paid to FIIL on their Medicare cost reports. See Def. Facts ¶ 8. Plaintiffs then requested a *117 hearing challenging their self-disallowance of these insurance рremiums, which the Board conducted on November 4, 2004. See Def. Facts ¶¶ 10, 12. On January 24, 2007, the Board issued a decision upholding the disallowance of the insurance premiums paid to FIIL. See Def. Facts ¶ 13. On March 9, 2007, the CMS Administrator declined to review the Board decision, essentially upholding it. See Def. Facts ¶ 17. Plaintiffs filed suit in this Court on March 20, 2007.
II. STANDARD OF REVIEW
Summary judgment may be granted “if the pleadings, the discovery and disclosure materials on file, and any affidavits [or declarations] show that there is no genuine issue as to any material fact and that the movant is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c). In a case involving rеview of a final agency action under the Administrative Procedure Act, 5 U.S.C. § 706, however, the Court’s role is limited to reviewing the administrative record, so the standard set forth in Rule 56(c) does not apply.
See Cottage Health System v. Sebelius,
The standard of review under the APA “ ‘is a highly deferential one. It presumes agency action to be valid.’ ”
Humane Soc’ty of the United States v. Kempthorne,
relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.
Motor Vehicle Mfrs. Assoc. v. State Farm Mutual Auto. Insurance Co.,
As explained in greater detail below, plaintiffs’ principal argument calls into question the Secretary’s interpretation of the Medicare statute and regulations. When the action under review involves an agency’s interpretation of a statute that the agency is charged with administering, the court applies the familiar analytical
*118
framework set forth in
Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.,
As this Court has previously explained, in the District of Columbia Circuit,
“Chevron
step two review is similar to (but conceptually distinct from) the standard ‘arbitrary and capricious style analysis’ described [above].”
Humane Society v. Kempthorne,
III. DISCUSSION
Plaintiffs challenge the Board’s decision disallowing reimbursement.
See
Compl. ¶¶ 115-17. Much of the parties’ discussion suggests that plaintiffs are challenging the PRM provision directly, presumably because the Board first ruled that the PRM was consistent with the statute and the regulations and then relied on it in its determination in this case. While the PRM provision itself would be due less deference than a Board decision,
see Public Citizen, Inc. v. DHHS,
A. The Medicare Statute
1. Chevron Step One
Plaintiffs contend that the Board’s denial of reimbursement for insurance premiums paid to offshore captive insurers that invest more than ten percent
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of their assets in equity securities is inconsistent with the plain meaning and intent of the Medicare statute to reimburse providers for their “reasonable costs.”
See
42 U.S.C. § 1395x(v)(1)(A). A challenge to the Secretary’s interpretation of the Medicare statute, as explained by the Secretary in a final action on a Board decision, is analyzed under
Chevron. See Abington Crest Nursing & Rehab. Ctr. v. Sebelius,
“Reasonable cost” is defined by the Medicare statute as follows:
The reasonable cost of any services shall be the cost actually incurred, excluding therefrom any part of incurred cost found to be unnecessary in the efficient delivery of needed health services, and shall be determined in accordance with regulations establishing the method or methods to be used, and the items to be included, in determining such costs for various types or classes of institutions, agencies, and services; exсept that in any case to which paragraph (2) or (3) applies, the amount of the payment determined under such paragraph with respect to the services involved shall be considered the reasonable cost of such services.
42 U.S.C. § 1395x(v)(1)(A). Plaintiffs argue that the Board’s decision conflicted with the plain language of Section 1395x(v)(1)(A) because it disallowed reimbursement for a “reasonable cost” that was “actually incurred.” Plaintiffs are wrong; the statutory language does not mandate the conclusion that any actual cost incurred must be reimbursed. While the phrase, “the cost actually incurred,” standing alone, could be interpreted to mean that hospitals generally should be reimbursed for their actual expenses, the subsequent clause indicates Congress’s intent to give the Secretary broad discretion in determining what those expenses may or may not include: “... excluding therefrom any part of incurred cost found to be unnecessary in the efficient delivery of needed health services, [which] shall be determined in accordance with regulations establishing the method or methods to be used, and the items to be included, in determining such costs for various types or classes of institutions, аgencies, and services.” 42 U.S.C. § 1395x(v)(1)(A) (emphasis added). 3 This statutory language gives the Secretary much more discretion in determining what is a “reasonable cost” than plaintiffs’ narrow reading would allow.
While it is true that occasionally the Secretary’s decisions not to reimburse certain costs that were actually incurred by hospitals have been set aside by the courts,
see, e.g., Memorial Hospital/Adair County Health Center, Inc. v. Bowen,
Because the Medicare statute, by its terms, does not say whether insurance premiums paid to captive insurers that are domiciled offshore and invest more than ten percent of their assets in equity securities are reimbursable, the Court will move to Chevron step two, to consider whether the agency’s interpretation is permissible.
2. Chevron Step Two
In its decision, the Board framed the issue as whether the restrictions in the policy manual were “[ Jconsistent with the program’s underlying principle that providers be paid the reasonable costs they incur in furnishing health care services to Medicare beneficiaries.” A. R. at 11. Concluding that they were consistent, it explained its rationale as follows:
The investment restrictions of [PRM] § 2162.A.4 are a valid extension of 42 U.S.C. § 1395x(v)(1)(A) [the statutory definition of “reasonable cost”] and 42 C.F.R. § 413.9 and are, therefore, compulsory. 42 U.S.C. § 1395x(v)(1)(A) defines reasonable cost for purposes of program reimbursemеnt, and 42 C.F.R. § 413.9 states that reasonable cost includes all costs that are “necessary and proper ” (emphasis added). Because offshore captives are under the control of foreign governments and are not subject to the same level of industry regulations applied to onshore agencies by State insurance commissions, CMS provided guidance and instructions to intermediaries and providers regarding how it would determine the necessary and proper costs with respect to offshore captives set up by related parties. No evidencе has been provided that would lead the Board majority to conclude that the investment restrictions of [PRM] § 2162.2A.4 are inappropriate or unreasonable. Rather, the record shows that the 10% limitation/restrietion on equity securities is in line with the asset allocations found among domestic insurance companies. The Board majority finds that CMS was well within its authority and acted appropriately by imposing investment limitations on offshore captives in the determination of reasonable costs. In addition, it is well documented that these provisions were well known to the Providers, and that they made a decision to ignore them.
A. R. at 11-12.
The Court concludes that the Board’s decision, which the Secretary adopted, was within the Secretary’s broad discretion under the statute to exclude reimbursement for costs “found to be unnecessary in the efficient delivery of needed health services.” 42 U.S.C. § 1395x(v)(1)(A);
see also Richey Manor v. Schweiker,
In the course of its discussion, and as part of its explanation for why the limitation on reimbursement for these insurance premiums was consistent with the development of the “reasonable cost” concept, the Board expressed its concern that offshore captives “are not subject to the same level of industry regulation applied to onshore agencies by State insurance companies” and thus are inherently more risky. See A. R. at 11. It noted, for example, that hearing testimony revealed that liquidations of captive insurers increased by fifty percent between 2001 and 2002. A. R. at 9. Plaintiffs argue that not all states impose the ten percent restriction on investment in equity securities. Be that as it may, the record evidence supports the Board’s conclusion that the ten percent limitation was in line with general state practice. 4 Plaintiffs also argue that the Mеdicare program does not refuse reimbursement to hospitals for insurance liability premiums paid to captive insurers domiciled domestically, even when those insurers invest more than ten percent of their assets in equity securities. While that may be true, it was not unreasonable for the Board to conclude that it could rely on the regulatory framework of the various states to reduce the risk of failure of insurance companies domiciled domestically — even though the state regulatory environments may differ from state-to-state— while at the samе time concluding that there was an “inherent risk” concerning the regulation of offshore insurance companies. A. R. at 12.
While the Board did not delve deeply into the relative regulatory environments between the various states and between the various states and foreign governments, its decision nevertheless is reasonable. As the Board noted, plaintiffs did not provide evidence that would have led it to conclude that the investment restrictions were “inappropriate or unreasonable.” A. R. at 11. For example, plaintiffs did not introduce evidence showing that offshore captives, as a group, are regulated to a similar degree as are domestically domiciled captives by the various state insurance commissioners or that they are no more risky than domestic captives. In fact, the evidence before the Board suggested that the level of regulation in the Cayman Islands was extremely lax. Whether the Court on its own would reach the same decision as did the Board is irrelevant. There was substantial evidence in the record to support the Board’s findings, and it reasonably relied on these findings in support of its interpretation of
*122
the statute.
See Abington Crest Nursing & Rehab. Ctr. v. Sebelius,
B. Medicare Regulations
Plaintiffs also argue that the Secretary’s disallowance of insurance premiums paid to captive insurers that are domiciled offshore and invest more than ten percent of their assets in equity securities conflicts with the Medicare statute’s implementing regulations. In considering this challenge to the Secretary’s decision to uphold the Board’s ruling,
Chevron
is not the appropriate analytical framework. Rather, as the court of appeals recently stated in another Medicare reimbursement casе, “[w]e must give substantial deference to an agency’s interpretation of its own regulations. Our task is not to decide which among several competing interpretations best serves the regulatory purpose. Rather, the agency’s interpretation must be given controlling weight unless it is plainly erroneous or inconsistent with the regulation.”
Abington Crest Nursing & Rehab. Ctr. v. Sebelius, 575
F.3d at 722 (quoting
Thomas Jefferson Univ. v. Shalala,
The Medicare statute expressly gives the Secretary the authority to issue regulations establishing the methods to be used and the items to be included in determining “reasonable costs” that will be reimbursed, 42 U.S.C. § 1395x(v)(1)(A), and it is established that the Secretary has broad discretion in doing so.
See Shalala v. Guernsey Memorial Hosp.,
Plaintiffs argue that the costs for which they seek reimbursement must be allowed because the regulations do not prohibit them. The Supreme Court has recognized, however, that the Medicare regulations do not, and need not, “address every concеivable question in the process of determining equitable reimbursement.”
Shalala v. Guernsey Mem’l Hosp.,
Plaintiffs are correct that reimbursement for malpractice and certain other insurance premiums is allowed under the
*123
Medicare statute, even though the regulations do not specifically provide for them.
See, e.g., LGH, Ltd. v. Sullivan,
In this case, the Board concluded that the premiums paid to the offshore captive insurers at issue were not “proper” because offshore captives are not “subject to the same level of industry regulations applied to onshore agencies by State insurance commissions.” A. R. at 11. As explained above in the discussion of the Secretary’s interpretation of the statute, this interpretation is not plainly erroneous or inconsistent with the statute or the regulation. It is a reasonable cost principle that is consistent with the Secretary’s discretion to articulate what costs are necessary and proper.
See Shalala v. Guernsey Mem. Hosp.,
Finally, once the Board determined that the denial of reimbursement for this type of insurance premium was consistent with the statute and with the regulations, there could be no question that it would deny reimbursement to these plaintiffs. It is undisрuted that FIIL is an offshore captive insurance company, wholly-owned by plaintiffs, and that it invested forty to fifty percent of its assets in diversified equity securities. In light of these facts, and because doing so was consistent with the statute and regulations, as discussed above, the Board appropriately decided to disallow the costs.
C. The Refusal to Reimburse the Actual Liability Claims Paid
Plaintiffs argue that even if the Secretary’s disallowance of the hospitals’ premium costs is upheld, the Secretary should reimburse the actual liability claims paid during the years at issue. The Board ruled against the plaintiffs on this claim, explaining that it
[f]inds nothing in [PRM] § 2305 that allows costs found to be non-allowable, as are the costs at issue in the present case, to surreptitiously become allowable. The Board majority also finds that the program is not necessarily obligated to share in a provider’s malpractice or other liability losses. [PRM] § 2162.13 states that “where a provider has no insurance protection for malpractice or comprehensive general liability in conjunction with malpractice, either in the form of a limited purpose or commеrcial insurance policy or a self-insurance fund as described in [PRM] § 2162.7, any losses and related expenses incurred are not allowable.”
A. R. at 12-13.
The Court agrees with the Board that plaintiffs are attempting an end run around the disallowed premium costs, and that the plaintiffs are not entitled to relief on these grounds. The claims were paid by plaintiffs’ insurer, FIIL. Plaintiffs seek *124 to recover the value of the paid claims and administrative costs because FIIL is wholly-owned by them; its losses are plaintiffs’ losses. Nothing in the Medicare statute or regulations entitles insurers to reimbursement for paid claims; instead, hospitals are expected to have valid insurance and are reimbursed for premiums they have paid. In this case, the hospitals opted to use insurance whose liability premiums were expressly excluded from reimbursement. This choice does not entitle plaintiffs to reimbursement (for paid liability claims) for which they would otherwise be ineligible. Just as hospitals that do not have malpractice insurance are not entitled to reimbursement for actual liability claims paid pursuant to PRM Section 2162.13, even though those costs are сosts actually incurred in the provision of Medicare services, hospitals that select insurers whose liability premiums are not reimbursable are not entitled to have their insurers receive reimbursement for the liability claims actually paid.
IV. CONCLUSION
For these reasons, the Court will grant defendant’s motion for summary judgment and deny plaintiffs’ motion for summary judgment. An Order consistent with this Opinion will issue this same day.
SO ORDERED.
ORDER
For the reasons stated in the Opinion issued this same day, it is hereby
ORDERED that plaintiffs’ motion for summary judgment [14] is DENIED; it is
FURTHER ORDERED defendant’s motion for summary judgment [15] is GRANTED and judgment shall be entered for defendant; and it is
FURTHER ORDERED that the Clerk of this Court shall remove this case from the docket of this Court. This is a final appealable order. See Fed. R.App. P. 4(a).
SO ORDERED.
Notes
. The following papers are relevant to the pending motions: Plaintiffs’ Motion for Summary Judgment ("PL Mot.”); Defendant’s Motion for Summary Judgment (“Def. Mot.”); Plaintiffs’ Opposition to Defendant's Motion for Summary Judgment and Reply in Further *116 Support of their Motion for Summary Judgment ("PI. Opp.”); Defendant’s Reply to Plaintiffs’ Opposition to Defendant's Motion for Summary Judgment ("Def. Reply”); and the Administrative Record (“A. R.”).
. Plaintiffs do not challenge the Secretary's authority under this statute to issue reasonable cost reimbursement regulations, 42 C.F.R., Pаrt 413, or the specific regulation that defines what costs may be found to be "unnecessary.” See 42 C.F.R. § 413.9. They challenge only the interpretation of the regulation as applied here. Accordingly, the Court will consider below whether the refusal to reimburse the insurance premiums at issue in this case is lawful under the regulatory language.
. The Board relied on exhibits to the fiscal intermediary’s post-hearing brief, see A. R. at 11-12, which showed that when restricted to the relevant insurance industries, medical malpractice and workers compensation, domestically domiciled insurance companies’ average equity investment allocation ranged from 7.82% to 9.37% or 11.89% to 14.43%, respectively, over a five year period. See id.; A. R. at 114-15.