MERCY HOME HEALTH, Appellant v. MICHAEL O. LEAVITT, SECRETARY OF HEALTH AND HUMAN SERVICES
No. 05-2082
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
February 3, 2006
PRECEDENTIAL
Opinions of the United States Court of Appeals for the Third Circuit
2-3-2006
Mercy Home Health v. Secretary HHS
Precedential or Non-Precedential: Precedential
Docket No. 05-2082
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Recommended Citation
“Mercy Home Health v. Secretary HHS” (2006). 2006 Decisions. Paper 1520. http://digitalcommons.law.villanova.edu/thirdcircuit_2006/1520
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Argued December 7, 2005
BEFORE: RENDELL, FISHER, and GREENBERG, Circuit Judges
(Filed: February 3, 2006)
Mark H. Gallant (argued)
Kimberly A. Hynes
Cozen & O‘Connor
1900 Market Street
4th Floor
Philadelphia, PA 19103
Attorneys for Appellant
Patrick L. Meehan
United States Attorney
Virginia A. Gibson
Chief, Civil Division
Annetta F. Givhan
Office of the United States Attorney
615 Chestnut Street
Suite 1250
Philadelphia, PA 19106
Jan M. Lundelius (argued)
Department of Health & Human Services
Office of the General Counsel
150 South Independence Mall West
The Public Ledger Building
Suite 418
Philadelphia, PA 19106
Attorneys for Appellee
OPINION OF THE COURT
GREENBERG, Circuit Judge.
I. INTRODUCTION
This matter comes on before this Court on an appeal by Mercy Home Health (“MHH“) from an order of the district court entered March 18, 2005, granting summary judgment in favor of the Secretary of Health and Human Services (the “Secretary“). MHH sought review in the district court of the Secretary‘s final decision denying certain Medicare reimbursements for home office costs that MHH claimed pursuant to an alternative cost allocation method previously approved by the Medicare fiscal intermediary. For the reasons set forth below, we will affirm.
II. FACTUAL AND PROCEDURAL HISTORY
A. Medicare Reimbursement
Under Title XVII of the Social Security Act (the “Medicare Act“),
Congress authorized the Secretary “to promulgate regulations ‘establishing the method or methods to be used’ for determining reasonable costs.” Shalala v. Guernsey Mem‘l Hosp., 514 U.S. 87, 91-92, 115 S.Ct. 1232, 1235 (1995) (citing
1. Prohibition on Cross-Subsidization
The Medicare Act requires the Secretary‘s regulations to “take into account both direct and indirect costs of providers of services,” and to ensure that Medicare does not pay costs of non-Medicare patients, and that other insurance programs do not pay the costs of Medicare patients.
2. Record Keeping Requirements
Because the Secretary must verify the provider‘s actual costs to ensure proper payment, “[i]t is hardly surprising that the reimbursement process begins with certain record keeping requirements.” Guernsey Mem‘l Hosp., 514 U.S. at 94, 115 S.Ct. at 1236. To this end, the Medicare Act provides that “no such payments shall be made to any provider unless it has furnished such information
3. Cost Allocation
The home office of a chain of commonly-owned health care providers is not a Medicare provider and cannot directly receive Medicare reimbursement. See
To obtain reimbursement for home office support functions related to the care of Medicare patients, the provider‘s home office files a cost statement, which identifies the allowable home office costs and how they are allocated among each of its subsidiary companies (also called “components“). See PRM § 2150.3. First, the home office totals all of its own costs, including those that it incurred on behalf of its subsidiary companies, and deletes from that total all unallowable costs. See
After the home office allocates as many home office costs as possible to its subsidiaries by direct and functional allocation, a “pool” of allowable costs for general management or administrative services remains (“pooled costs“). See
If a home office has higher costs for one of its non-Medicare providers, but performs few services for that company, the home office may use a more sophisticated alternative allocation method to allocate the pooled costs more precisely. See
If evidence indicates that the use of a more sophisticated allocation basis would provide a more precise allocation of pooled home office costs to the chain components, such basis can be used in lieu of allocating on the basis of either inpatient days or total costs. However, intermediary approval must be obtained before any substitute basis can be used. The home office must make a written request with its justification to the intermediary responsible for auditing the home office cost for approval of the change . . . .
Where the intermediary approves the home office request, the change must be applied to the accounting period for which the request was made, and to all subsequent home office accounting periods, unless the intermediary approves a subsequent change for the home office.
4. Cost Reconciliation and Review
The Medicare Act requires payments to providers, at least monthly, based on estimated costs. See
The provider initiates the cost reconciliation process by filing an annual cost report with the intermediary. See
If the provider is dissatisfied with the intermediary‘s determination and meets the amount in controversy requirement, the provider may appeal to the Secretary‘s Provider Reimbursement Review Board (“PRRB“). See
B. Factual Background
MHH is Mercy Home Health Services’ (the “Home Office“) only Medicare provider subsidiary.2 On July 12, 1993, the Home Office sent a letter to its fiscal intermediary, Independence Blue Cross, requesting permission to use an alternative allocation method for the pooled home office costs of its various chain components. The letter stated, “[s]ince the majority of our business is service oriented, the costs in the [H]ome [O]ffice should be largely allocated to those
On August 4, 1993, Independence Blue Cross responded by letter requesting “additional information,” including a more detailed justification for the change. App. at 33-34. Independence Blue Cross indicated that it would make a final determination after reviewing the additional information and noted that “all methodologies that we approve are subject to verification during audit.”
In 1997, Independence Blue Cross voluntarily terminated its contract as a Medicare fiscal intermediary.5 By notice dated September 30, 1998, the successor intermediary reopened and adjusted MHH‘s and the Home Office‘s cost reports for fiscal year 1995 to substitute the CMS-prescribed default method for the first alternative method approved by Independence Blue Cross. This adjustment decreased MHH‘s allowable costs by $272,000. The successor intermediary similarly reopened and adjusted the cost reports for fiscal year 1996, reducing Medicare reimbursement by $495,868. The successor intermediary also adjusted all costs reports for 1997-1999 based on the default method, thereby rejecting MHH‘s second alternative allocation methodology, which MHH had adopted unilaterally.
C. Procedural History
1. Decision of the PRRB
MHH separately appealed to the PRRB from the successor intermediary‘s adjustments to fiscal years 1995-1996 and 1997-1999. After a consolidated hearing, the PRRB reversed the disallowance for fiscal years 1995-1996 but affirmed the disallowance arising out of MHH‘s unapproved use of the second alternative allocation method during fiscal years 1997-1999. In reversing the disallowance for fiscal years 1995-1996, the PRRB held that MHH‘s reliance on the intermediary‘s written instruction should be protected even if the successor intermediary subsequently changes its position.
The parties sought review of the PRRB decision by the Acting Deputy Administrator (“Administrator“) of the CMS, who granted review and partially reversed by reinstating the successor intermediary‘s adjustments to fiscal years 1995-1996.6 The Administrator concluded that the first alternative allocation method used in 1995-1996 was similar to and based on the same rationale as the second alternative allocation method that the PRRB examined and disapproved for use in 1997-1999. Upon a review of the entire record, the Administrator determined that MHH “failed to demonstrate that the prior approved methodology for allocating [1995-1996] home office costs is, in fact, a more accurate and sophisticated method.” App. at 29.
Notably, the Administrator rejected MHH‘s reliance argument:
The Administrator does not agree that the methodology for the FYs 1995 and 1996 can be allowed only on the basis that it was approved by the prior intermediary. This basis for such an allowance ignores the dictates of the Medicare program set forth in § 1861(v)(1)(A) of the Act and elevates the PRM prior approval provisions above the requirements of the statute. A general principle under Medicare set forth at § 1861(v)(1)(A) of the Act is that to be reimbursable, the cost must be related to patient care and that Medicare shall not pay for costs incurred by non-Medicare beneficiaries, and vice-versa, that is, Medicare prohibits cross-subsidization of costs. Moreover, the documentation requirements of the statute and the regulation places the burden of demonstrating that costs are to be paid by Medicare on the provider.
App. at 28-29. The Administrator reiterated that “regardless of the prior approval (which is subject to audit),” the successor intermediary properly disallowed MHH‘s cost allocation methodology because MHH “failed to articulate a valid rationale” supporting its methodology. App. at 29. Above all, the Administrator stressed that
3. Decision of the District Court
MHH sought review of the Secretary‘s final decision in the district court. The parties filed cross-motions for summary judgment, and the district court denied MHH‘s motion and granted summary judgment in favor of the Secretary. The district court based its decision primarily on
III. JURISDICTION AND STANDARDS OF REVIEW
The district court exercised jurisdiction pursuant to
The decision of the agency is entitled to deference as articulated in Chevron U.S.A. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43, 104 S.Ct. 2778, 2781-82 (1984). See Robert Wood Johnson Hosp., 297 F.3d at 281. Under Chevron, we first must determine if Congress has spoken directly to the question at issue, and if Congress’ intent is clear, our inquiry ends as we “must
It is well settled that a court must afford substantial deference to an agency‘s interpretation of its own regulations. Thomas Jefferson Univ. Hosp. v. Shalala, 512 U.S. 504, 512, 114 S.Ct. 2381, 2386 (1994). This broad deference is particularly appropriate in contexts that involve a “complex and highly technical regulatory program, such as Medicare, which requires significant expertise and entail[s] the exercise of judgment grounded in policy concerns.”
IV. DISCUSSION
MHH asserts that we do not owe deference to the Administrator‘s decision allowing the successor intermediary to reopen cost reports for fiscal years 1995 and 1996 and disallowing the alternative cost allocation method approved by the prior intermediary because it contradicted the controlling rules and prior administrative decisions applying them. In addition, MHH submits that the Administrator‘s decision was not supported by substantial evidence.
A. Reopening and Disallowance of Alternative Allocation Method
MHH contends that the Administrator erred in concluding that the “dictates of the Medicare program set forth in § 1861(v)(1)(A) of
According to MHH, prior approval by an intermediary effectively renders the provider‘s alternative allocation method binding upon all future cost reports and unreviewable until the intermediary prospectively approves a change. See, e.g., reply br. at 9 (invoking a purported “unbroken series of final agency decisions that recognize the binding effect of an Intermediary‘s prior approval until after that approval is withdrawn by the Intermediary“) (first emphasis added). But PRM § 2150.3(D)(2)(b) does not exist in a vacuum; rather, it is part of the overall Medicare reimbursement scheme, see Guernsey Mem‘l Hosp., 514 U.S. at 94, 115 S.Ct. at 1236, which includes the “dictates of the Medicare program set forth in § 1861 (v)(1)(A) of the Act,” app. at 28, cited by the Administrator. The question before us is not whether we believe that the Administrator‘s decision represents the best interpretation of the Medicare statute and regulations but rather whether it is reasonable. See Smiley v. Citibank, N.A., 517 U.S. 735, 744-45, 116 S.Ct. 1730, 1735 (1996). This is particularly so given the scope and complexity of the Medicare statute and regulations, see, e.g., Blumer, 534 U.S. at 497, 122 S.Ct. at 976-77, and the clear congressional directive to the Secretary to promulgate regulations to “provide for the making of suitable retroactive corrective adjustments,” see
Furthermore, we reject MHH‘s argument that we do not owe deference to the Administrator‘s decision because the decision “suddenly veers from its long established and more contemporaneous interpretation.” Appellant‘s br. at 26; see also reply br. at 2 (“The agency‘s prior decisional law is uniformly consistent with MHH‘s position as well.“). On the contrary, some cases suggest that a provider remains on notice of an intermediary‘s authority to reopen and perform retroactive corrective adjustments notwithstanding the intermediary‘s prior advice. See, e.g., St. Joseph Med. Ctr. v. Blue Cross Blue Shield Ass‘n, HCFA Adm‘r Dec. No. 94-D76, Medicare and Medicaid Guide (CCH) P 42, 957 (Nov. 14, 1994) (“[W]hile the Provider may have initially relied on incorrect information conveyed by its Intermediary . . . the Provider remained on notice that the Intermediary retained the authority to reopen the determinations in the event that they reflected payment owed in contravention of the governing statutes and regulations[.]“).
We recognize that the PRRB suggested in its decision in Extendicare v. BCBSA in 2000 that a provider ought to be able to rely on advice of its fiscal intermediary, but that suggestion is mere dicta supported only by a single agency decision that predated the Supreme Court‘s decision in Office of Personnel Management v. Richmond, 496 U.S. 414, 420-22, 110 S.Ct. 2465, 2469-70 (1990), abjuring application of equitable estoppel against the government by a party seeking public funds. See Extendicare 1996 Ins. Allocation Group v. BCBSA/United Gov‘t Serv., PRRB Dec. No. 2000-D88, Medicare & Medicaid Guide (CCH) P 80, 573 (Sept. 26, 2000) (citing Chicago Lakeside Hosp. v. Aetna Life Ins. Co., PRRB Dec. No. 89-D66, Medicare and Medicaid Guide (CCH) P 38, 208 (Sept. 27, 1989), aff‘d with modifications, HCFA Adm‘r Dec., Medicare and Medicaid Guide (CCH) P 38, 260 (Nov. 20, 1989)). Our result that the prior approval by an intermediary is not binding is consistent with Monongahela Valley Hosp., Inc. v. Sullivan, 945 F.2d 576, 588-89 (3d Cir. 1991), in which we held that OPM v. Richmond foreclosed a Medicare provider‘s estoppel claim against the Secretary in asserting its claim to additional Medicare reimbursement and that reliance upon intermediary approval as “binding” would not have been reasonable
Overall, we are satisfied that contrary to MHH‘s claim, the agency‘s prior decisions hardly constitute “an unbroken series” of final decisions “uniformly consistent with MHH‘s position.” Reply br. at 2. If anything, the prior decisions can be characterized as elevating Medicare cost principles above the prior approval provisions found in the PRM. As noted by the Administrator, it is significant that prior agency decisions have held that “the lack of prior approval is secondary to the Medicare cost principle prohibiting cost shifting and [to] the accurate payment of costs.” See app. at 29 (citing Sunbelt Health Care Ctrs. Group Appeal v. Aetna Life Ins. Co., PRRB Dec. No. 97-D13, Medicare and Medicaid Guide (CCH) P 44, 923, (Dec. 3, 1996)). It was reasonable for the Administrator to conclude that, just as Medicare cost principles take priority over the absence of prior approval, so, too, do the same cost principles take priority over the presence of prior approval. App. at 29 (“[T]he existence of prior approval in this case does not negate those same Medicare principles and permit the payment of costs not otherwise allowable.“).
B. Substantial Evidence
1. Burden of Producing Adequate Cost Data
As a threshold matter on the substantial evidence issue, the parties disagree about allocating the burden of proof, an inquiry separate from, albeit related to, the sufficiency of the evidence. MHH argues that it was “saddled with the affirmative burden of reproving the accuracy of [the first alternative allocation] method based on data that it was not required to have.” Appellant‘s br. at 38-39. MHH claims the Administrator thus contravened “the broader principle that an agency bears the affirmative burden of justifying a change from a position previously taken.” Appellant‘s br. at 38 (citing Motor Veh. Mfrs. Ass‘n v. State Farm Mut. Ins. Co., 463 U.S. 29, 46-47, 103 S.Ct. 2856, 2868-69 (1983); Atchison, Topeka & Santa Fe R.R. v. Wichita Bd. of Trade, 412 U.S. 800, 808, 93 S.Ct. 2367, 2375 (1973)). The cases cited by MHH stand for the principle that an agency must justify a departure from past practice that results in reversal of agency policy. See Motor Veh. Mfrs. Ass‘n, 463 U.S. at 41-42, 103 S.Ct. at 2865-66; Atchison, 412 U.S. at 807-808, 93 S.Ct. at 2375-76. As explained above, however, here there was no such reversal in agency policy.
The governing statutes and regulations indicate that the burden of proof remains on the provider. The PRM provision upon which MHH primarily relies places the burden upon providers to make a “written request with its justification to the intermediary” when seeking to utilize an alternative allocation method. See PRM § 2150.3(D)(2)(b). With regard to reimbursement generally, the statute itself prohibits payment “unless [the provider] has furnished such information as the Secretary may request in order to determine the amounts due such provider” for the particular cost period at issue.
2. Sufficiency of Evidence
Substantial evidence is “more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.” Richardson v. Perales, 402 U.S. 389, 401, 91 S.Ct. 1420, 1427 (1971) (quoting Consol. Edison Co. v. NLRB, 305 U.S. 197, 229, 59 S.Ct. 206, 217 (1938)). In our review, we do not consider the case de novo with respect to the Administrator, resolve conflicts in the evidence, or decide questions of credibility. Myers v. Sec‘y of Health & Human Servs., 893 F.2d 840, 842 (6th Cir. 1990).
MHH asserts that the Administrator‘s decision was not supported by substantial evidence. In particular, MHH argues that “[m]ost significantly, [the Administrator] rendered no independent findings relating to the allocations in FY ‘95 & ‘96, but relied entirely on the PRRB‘s findings relating to FY ‘97-‘99[,]” thereby rejecting the first alternative allocation method (1995-1996) based on findings related to the second alternative allocation method (1997-1999). Reply br. at 22-23. We acknowledge that this argument appears persuasive on its face, but it is critical to understand that it is premised on the first alternative allocation method at issue being materially different from the second alternative method, the rejection of which MHH does not challenge. That premise, however, is belied by the Administrator‘s stated justifications:
With respect to FYs 1997 through 1999, the Administrator agrees with the Board‘s determination that the Intermediary‘s adjustments to the Provider‘s home office cost statements were proper. As the Provider set forth, its rationale for the methodology used for the FYs 1995 and 1996 period is also its rationale for the FYs 1997 through 1999 period methodology. The record shows that the Provider failed to collect data or provide any specific computations or reasonable justification to support their contention that the alternative method in fact resulted in more equitable and accurate allocation of costs. The record also shows, as the Board agreed, that the Provider did not offer a valid rationale for excluding the cost of goods sold from the CMS-prescribed allocation method.
App. at 29-30 (footnotes omitted) (emphasis added).
Thus, the Administrator explained the reason for rejecting the first alternative allocation method based on findings related to the second alternative method: the two methodologies were “very similar,” in that “[t]he Provider sets forth [the] same unsupportable rationale for the very similar methodology used for FYs 1995 through 1999.” App. at 30 n.7. This finding that the two allocation methods were based on the same rationale is bolstered by MHH‘s own consolidated post-hearing brief, see app. at 29 n.6, in which MHH
Notably, the PRRB rejected the “equally applicable” rationale as applied to the 1997-1999 methodology:
The Board is persuaded by the Intermediary‘s argument that the cost of labor in the service-oriented affiliates could just as well be equated to the ‘cost of goods sold’ in the [durable medical equipment] affiliate. Thus, there is no valid rationale for excluding the cost of goods sold from the CMS-prescribed allocation methodology.
App. at 20. Accordingly, on this record substantial evidence supports the Administrator‘s decision that the flawed, rejected rationale underlying the 1997-1999 methodology was “equally applicable” to the 1995-1996 methodology, thus warranting rejection of the 1995-1996 methodology.
V. CONCLUSION
For the foregoing reasons, we will affirm the order of the district court entered March 18, 2005.
Notes
App. at 35.In July of 1993, [the Home Office] purchased a [durable medical equipment] company. The nature of this business‘s expenses are highly weighted towards Cost of Goods Sold and Depreciation. Under our current cost to cost allocation methodology, home office cost would be unfairly allocated based on total costs of each subsidiary. This would then include [the Cost of Goods Sold and Depreciation for the durable medical equipment subsidiary,] for which the home office provides little support.