Mercy Home Health v. Secretary HHS ( 2006 )

Opinions of the United
2006 Decisions 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Precedential or Non-Precedential: Precedential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
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2006
Recommended Citation
"Mercy Home Health v. Secretary HHS" (2006). 2006 Decisions. Paper 1520.
http://digitalcommons.law.villanova.edu/thirdcircuit_2006/1520
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2006 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 05-2082
MERCY HOME HEALTH,
Appellant
v.
*MICHAEL O. LEAVITT,
SECRETARY OF HEALTH AND HUMAN SERVICES
*(Substituted Pursuant to F.R.A.P. 43(c))
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civ. No. 03-06860)
Honorable Juan R. Sanchez, District Judge
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
Assistant United States Attorney
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”), 42 U.S.C. § 1395 et seq., the Secretary administers the
2
Medicare program through the Centers for Medicare and Medicaid
Services (“CMS”).1 Most Medicare providers receive reimbursement
through fiscal intermediaries (“intermediaries”) for services provided
to Medicare beneficiaries. Intermediaries contract with the Secretary
to determine the amounts due and are bound by the Secretary's
regulations and interpretive rules. See 42 U.S.C. §§ 1395h, 1395kk-
1; 42 C.F.R. § 421.100.
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 42 U.S.C. §
1395x(v)(1)(A)). The Secretary’s implementing regulations define
“reasonable cost” as including reimbursement of only “necessary and
proper” costs for furnishing covered services related to beneficiary
care. 42 C.F.R. § 413.9(a). During the time period at issue,
Medicare reimbursed home health agencies based on their “cost
actually incurred,” less any costs “unnecessary in the efficient
delivery of needed health services.” 42 U.S.C. § 1395x(v)(1)(A).
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. Id. To prevent cross-subsidization, the act further
directs the Secretary to “provide for the making of suitable retroactive
corrective adjustments where . . . the aggregate reimbursement
produced by the methods of determining costs proves to be either
inadequate or excessive.” Id.
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
1
CMS formerly was known as the Health Care Financing
Administration (“HCFA”).
3
as the Secretary may request in order to determine the amounts due
such provider” for the cost period at issue. 42 U.S.C. § 1395g(a).
The implementing regulations further state that “[p]roviders receiving
payment on the basis of reimbursable cost must provide adequate cost
data.” 42 C.F.R. § 413.24(a). According to the regulations, the data
must be “accurate and in sufficient detail to accomplish the purposes
for which it was intended,” and the data must be auditable. Id. at §
413.24(c).
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 42 U.S.C. § 1395cc. Nevertheless,
inasmuch as home offices may perform certain centralized services
for a provider subsidiary, Medicare treats those support services as
though “obtained from [the provider] itself.” 42 C.F.R. §
413.17(c)(2). The Secretary’s interpretive rules, found in the
Provider Reimbursement Manual, CMS Pub. 15-1 (“PRM”), address
how a provider may obtain reimbursement for home office support
functions.
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 id. at § 2150.3(A). Second, the home office
uses “direct allocation” to allocate as many of its costs as possible.
Direct allocation accounts for home office costs that are for the
benefit of, or directly attributable to, its Medicare subsidiary or its
other subsidiaries. See id. at § 2150.3(B). Third, the home office
must allocate as many of the remaining costs as possible on a
“functional basis.” See id. at § 2150.3(C).
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 id. at § 2150.3(D). If the
chain consists of companies providing health care services and other
types of companies, all the companies “share in the pooled home
office costs in the same proportion that the total costs of each
4
component (excluding home office costs) bear to the total costs of all
components in the chain.” Id. at § 2150.3(D)(2)(b). Thus, the CMS-
prescribed default methodology for allocating pooled costs is a cost-
to-total cost allocation methodology.
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 id. at § 2150.3(D)(2)(b).
The PRM specifies the procedure the home office should follow if it
wants to use an alternative allocation method:
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.
Id.
4. Cost Reconciliation and Review
The Medicare Act requires payments to providers, at least
monthly, based on estimated costs. See 42 U.S.C. § 1395g(a). The
act also requires the Secretary to establish a process to reconcile
estimated payments made with the actual amount due and requires
that regulations create a reconciliation process. See id. at §
1395x(v)(1)(A).
The provider initiates the cost reconciliation process by filing
an annual cost report with the intermediary. See 42 C.F.R. §
5
413.20(b). The intermediary audits the cost report, see id. at §
421.100(c), and issues a notice of program reimbursement (“NPR”),
which informs the provider of the amount of reimbursement due for
Medicare services during that fiscal year, id. at § 405.1803. The
intermediary then adjusts ongoing payments to account for
overpayments or underpayments. See 42 U.S.C. § 1395g(a). To
further ensure that intermediaries correctly reimburse Medicare
providers, the Secretary’s regulations allow intermediaries to reopen
cost determinations within three years of the date of the NPR. See 42
C.F.R. § 405.1885(a). Intermediaries must reopen a determination if
CMS notifies them that an NPR is inconsistent with applicable law,
regulations, or CMS general instructions. See id. at §
405.1885(b)(1)(i); see also PRM § 2931.2.
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 42 U.S.C. § 1395oo(a); 42 C.F.R. §
405.1835; see also 42 C.F.R. § 405.1889 (providing that intermediary
determinations after reopening are subject to appeal). The PRRB may
hold a hearing and issue a decision that is subject to further review by
the Secretary’s delegate, the CMS Administrator. See 42 U.S.C. §
1395oo(f)(1); 42 C.F.R. § 405.1875. The CMS Administrator may
decline to review or may, affirm, reverse, modify or remand a PRRB
decision. See 42 C.F.R. § 405.1875(d)(2), (g)(1). The final decision
of the Secretary (issued by the PRRB or the CMS Administrator), is
subject to judicial review. See 42 U.S.C. § 1395oo(f)(1).
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
2
During the period at issue, the Home Office had four
subsidiaries: (1) MHH, the sole Medicare provider; (2) a private duty
home nursing agency; (3) a home health care staffing agency; and (4) a
durable medical equipment supplier.
6
subsidiaries with high personnel costs, [such as MHH].”3 App. at 32.
The Home Office claimed in a letter dated November 15, 1993, that
there would be a distorted allocation to its durable medical equipment
subsidiary under the CMS-prescribed default method due to that
subsidiary’s high cost of goods sold.
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.” Id. at 34. In
response the Home Office provided a more detailed description of its
proposed alternative allocation method and referred Independence
Blue Cross to other data it previously had supplied in connection with
quarterly reports. Specifically, the Home Office explained that it
believed an allocation of costs to all subsidiaries on a cost-to-total
cost basis (the CMS-prescribed default method) would result in an
inappropriately large allocation of Home Office costs to its durable
medical equipment subsidiary.4 On February 11, 1994, Independence
Blue Cross approved the request.
3
Liberty Health System, later renamed Mercy Home Health
Services after Mercy Health System acquired Liberty in 1995, sent the
letter, but we refer to the parent company of MHH, now Mercy Home
Health Services, as the Home Office and to the provider component as
MHH.
4
Specifically, the letter stated, in part:
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.
App. at 35.
7
The Home Office used this alternative allocation method
through fiscal year 1996. On June 26, 1996, Independence Blue
Cross, without elaborating on the basis for its decision, notified the
Home Office that as of January 1, 1997, it no longer would accept the
Home Office’s alternative cost allocation method. In response, MHH
unilaterally implemented a second alternative allocation method,
effective January 1, 1997, but Independence Blue Cross never
approved this method.
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.
5
Wellmark, Inc. succeeded Independence Blue Cross as the fiscal
intermediary on August 4, 1997, and Cahaba Government Benefit
Administrators succeeded Wellmark on June 1, 2000. Because the
events at issue include actions taken by both Wellmark and Cahaba, we
will refer to them singularly as the “successor intermediary” to
Independence Blue Cross.
8
2. Decision of the Secretary
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
6
The Deputy Administrator signed the Secretary’s final decision,
but we will refer to the “Administrator” as having made the decision.
9
prior approval, or the lack thereof, cannot negate “the Medicare cost
principle prohibiting cost shifting.” App. at 29.
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 42 C.F.R. § 405.1885(b)(1), which follows the
congressional directive of 42 U.S.C. § 1395x(v)(1)(A) to provide for
retroactive corrective adjustments of prior costs reports, even after a
provider has submitted its fiscal and statistical reports. The court
rejected MHH’s claim that it reasonably relied on the intermediary’s
prior approval of its cost allocation methodology, and the court
concluded that the Administrator’s rejection of the alternative
allocation methodology for fiscal years 1995-1996 was supported by
substantial evidence. On April 6, 2005, MHH timely filed its notice
of appeal.
III. JURISDICTION AND STANDARDS OF REVIEW
The district court exercised jurisdiction pursuant to 42 U.S.C.
§ 1395oo(f)(1), and we have jurisdiction under 28 U.S.C. § 1291 over
MHH’s appeal. We can set aside the Administrator’s decision only if
it is “unsupported by substantial evidence,” is “arbitrary, capricious,
an abuse of discretion, or [is] otherwise not in accordance with law.”
5 U.S.C. § 706(2)(A), (E); see also 42 U.S.C. § 1395oo(f)(1)
(providing that judicial review of reimbursement decisions shall be
made under the Administrative Procedures Act, 5 U.S.C. § 706).
Because we apply the same standard of review as the district court,
we will proceed de novo with respect to our review of the district
court disposition. See Mercy Catholic Med. Ctr. v. Thompson, 380
F.3d 142, 151 (3d Cir. 2004); see also Robert Wood Johnson Univ.
Hosp. v. Thompson, 297 F.3d 273, 280 (3d Cir. 2002).
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
10
give effect to the unambiguously expressed intent of Congress.”
Chevron, 467 U.S. at 843, 104 S.Ct. at 2781. If we decide that
Congress has not spoken directly to the issue and “the statute is silent
or ambiguous with respect to the specific issue,” we must ask whether
the agency’s interpretation is based on a “permissible construction of
the statute.” Id. If we find that it is, we afford deference to that
interpretation. Id. If Congress “explicitly left a gap for an agency to
fill . . . a court may not substitute its own construction of a statutory
provision for a reasonable interpretation made by the administrator of
an agency.” Id. at 843-44, 104 S.Ct. at 2782.
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.” Id.
(citation and internal quotation marks omitted); see also Wisconsin
Dept. of Health and Family Serv. v. Blumer, 534 U.S. 473, 497, 122
S. Ct. 962, 976-77 (2002). Thus, a court does not have the “task . . . to
decide which among several competing interpretations best serves the
regulatory purpose.” Thomas Jefferson Univ. Hosp., 512 U.S. at 512,
114 S.Ct. at 2386. Instead, “the agency’s interpretation must be given
controlling weight unless it is plainly erroneous or inconsistent with
the regulation.” Id.
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
11
the Act,” app. at 28, must be elevated above the PRM prior approval
provisions. To this end, MHH submits that the Administrator’s
decision runs afoul of the “plain terms of the agency’s own
longstanding rules,” and that consequently we owe it no deference.
See appellant’s br. at 22-27. Specifically, MHH argues that the
Administrator contravened the plain language of the PRM §
2150.3(D)(2)(b), a “binding interpretative rule.” See id. at 24-25.
The “plain language” to which MHH refers is, of course, the
requirement in PRM § 2150.3(D)(2)(b) that a provider must apply an
approved alternative allocation method to all subsequent accounting
periods, “unless the intermediary approves a subsequent change for
the home office.” Nothing in the Administrator’s decision, however,
contravenes PRM § 2150.3(D)(2)(b), let alone its plain language.
There is notably absent from section 2150.3(D)(2)(b) any language
indicating that the intermediary’s approval binds the Secretary or that
the approval insulates a provider from the reopening and retroactive
corrective adjustment provisions designed to prevent cross-
subsidization. As an analytical matter, it seems entirely possible that
a provider may be required to implement an approved alternative
allocation method, yet nonetheless remain subject to reopening and
audit with an obligation to furnish sufficient, accurate and auditable
data supporting its alternative method and claims for reimbursement.
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 42 U.S.C. §
12
1395x(v)(1)(A). Given that the plain language of PRM §
2150.3(D)(2)(b) does not bind the Secretary, and in light of the clear
congressional prohibition on cross-subsidization and the regulatory
machinery in place to achieve compliance with this mandate, we
conclude that the Administrator’s interpretation is based on a
permissible construction of the Medicare statute and regulations.
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
13
in light of the reopening provisions.
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.
14
Furthermore, contrary to MHH’s contention, none of the cases
it cites establish a rule whereby the approval of an intermediary shifts
the burden of proof on the sufficiency of the evidence to the
Secretary. Rather, in both of the cases cited, the PRRB based its
decisions, in part, on findings that the providers proffered adequate
costs data capable of verification. See VNA of Dallas v. BC/BS
Group Hosp. Servs., Inc., PRRB Dec. No. 87-D100, Medicare and
Medicaid Guide (CCH) P 36, 647 (Sept. 3, 1987) (“Rarely has the
Board seen either the extent or the quality of documentary evidence
as that presented by the provider in this case to support the Board’s
conclusion [that the provider’s time studies were auditable].”)
(emphasis added), aff’d, HCFA Adm’r Dec., Medicare and Medicaid
Guide (CCH) P 36, 751 (Nov. 4, 1987); Rhode Island Hosp. v. Blue
Cross and Blue Shield Ass’n, HCFA Adm’r Dec., Medicare and
Medicaid Guide (CCH) P 34, 968 (Aug. 26, 1985) (“The Board
reviewed the evidence presented in this case, and found that the
records and statistical data maintained and furnished by the provider
were sufficient to support [its cost method].”) (emphasis added).
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. 42
U.S.C. § 1395g(a). Similarly, the Secretary’s implementing
regulation requires that “[p]roviders receiving payment on the basis of
reimbursable cost must provide adequate cost data.” 42 C.F.R. §
413.24(a). As noted above, the data must be “capable of being
audited,” and be “accurate and in sufficient detail to accomplish the
purposes for which it is intended.” 42 C.F.R. § 413.24(c).
Accordingly, the Administrator did not err in requiring MHH to
produce adequate cost data to support its alternative allocation
method and claim for reimbursement.
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,
15
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
16
explained that its rationale for excluding certain cost of goods sold
was “equally applicable” to both methodologies. See provider’s
consol. post-hr’g br. at 17, n.9.
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.
17