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BROOKLYN HOSP. v. SCHWEIKER

October 24, 1984

THE BROOKLYN HOSPITAL, a New York non-profit corporation with its principal place of business at 121 DeKalb Avenue, Brooklyn, New York, Plaintiff, against RICHARD S. SCHWEIKER, IN HIS OFFICIAL CAPACITY AS SECRETARY OF HEALTH AND HUMAN SERVICES, 200 Independence Avenue, S.W., Washington, D.C. 20201, Defendants.


The opinion of the court was delivered by: GLASSER

MEMORANDUM AND ORDER

GLASSER, United States District Judge:

 Plaintiff and defendant have cross-moved for summary judgment on plaintiff's appeal from a final decision of the Secretary of Health and Human Services regarding reimbursements for services provided to Medicare beneficiaries. Specifically, plaintiff challenges the Secretary's determination on three of six categories of costs claimed by plaintiff under the Medicare Act for which the Secretary disallowed reimbursement: interest income offset, information desk costs, and labor/delivery room cost apportionment. For the reasons which follow, summary judgment is granted in favor of the defendant on all three issues.

 I. Statutory Background

 This case arises under the Medicare program, Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395, et seq. Under Part A of the program coveringhospital insurance, 42 U.S.C. §§ 1395(c), et seq., "providers of health care services," to eligible beneficiaries are reimbursed by the federal government through private organizations acting as "fiscal intermediaries." 42 U.S.C. § 1395(h). Reimbursement is based on the lesser of the provider's reasonable cost or its "customery charges" for rendering the covered services and its actual costs. See 42 U.S.C. § 1395(f)(b).

 In calculating a provider's "reasonable costs," there are three relevant reference points. 42 U.S.C. § 1395(x)(V)(1)(A) broadly defines such costs as "the cost[s] actually incurred excluding therefrom any part of incurred cost[s] found to be unnecessary in the efficient delivery of needed health services." More specific guidelines are provided in regulations promulgated by the Secretary, see 42 C.F.R. §§ 405.401, et. seq. In addition, the Secretary issues a Provider Reimbursement Manual, Health Insurance Manual 15 (HIM-15), which interprets the Medicare reimbursement regulations. Although the agency's interpretation of its regulations is entitled to considerable deference, see Udall v. Tallman, 380 U.S. 1, 16-17, 13 L. Ed. 2d 616, 85 S. Ct. 792 (1965), the court still must determine whether the interpretation is consistent with the language and purpose of the regulations, Northern Indiana Service Co. v. Porter County Chapter of the Izaak Walton League of America, Inc., 423 U.S. 12, 15, 46 L. Ed. 2d 156, 96 S. Ct. 172 (1975), and whether the regulation itself is consistent with the statute. United States v. Larionoff, 431 U.S. 864, 873, 53 L. Ed. 2d 48, 97 S. Ct. 2150 (1977); Morton v. Ruiz, 415 U.S. 199, 237, 39 L. Ed. 2d 270, 94 S. Ct. 1055 (1974).

 A preliminarydetermination regarding the amount of reimbursement due to a provider, or the method of its calculation, is made by the fiscal intermediary, based on a "cost report" submitted by the hospital at the close of the fiscal year. See 42 U.S.C. §§ 405.406(b), 405.454(f). If a provider disagrees with this determination, it may obtain an administrative hearing before the Provider Reimbursement Review Board ("PRRB"), 42 U.S.C. § 1395(oo); 42 U.S.C. § 405.1835, which can make an independent evaluation of the intermediary's decision. 42 U.S.C. § 1395(oo)(d). The decision of the PRRB becomes final unless the Secretary on her own motion and within sixty days after the Provider is notified of the decision, reverses, affirms, or modifies the decision. 42 U.S.C. § 1395(oo)(f)(1).

 The final decision of the Board or the Secretary may be appealed to the District Court under 42 U.S.C. § 1395(oo)(f)(1). The scope of judicial review under this section is governed by the applicable provisions of the Administrative Procedure Act ("APA"), 5 U.S.C. §§ 701, et seq. Section 706(1) of the APA provides that:

 The reviewing court shall . . . (2) hold unlawful and set aside any agency action, findings, and conclusions found to be . . . (A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law, . . . [or] (E) unsupported by substantial evidence. . . .

 In making the foregoing determination, the court shall review the whole record or those parts of it cited by a party. . . .

 In applying the standards of 5 U.S.C. § 706 to review an agency's actions, a court may not substitute its own judgment for that of the Secretary solely because the court might have arrived at a different decision. Home Health Services of the United States, Inc. v. Schweiker, 683 F.2d 353, 356 (11th Cir. 1982). Moreover, where "the agency interpretation of its own regulations is reasonable, it must stand even though it may not appear as reasonable as some other." Homan & Crimen, Inc. v. Harris, 626 F.2d 1201, 1208 (5th Cir. 1980). On the other hand, a reviewing court is not bound by such an interpretation. "The weight of such a judgment in a particular case will depend on the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier or later pronouncements, and all those factors which give it power to persuade, if lacking power to control." Skidmore v. Swift & Co., 323 U.S. 134, 140, 89 L. Ed. 124, 65 S. Ct. 161 (1944). As to medicare cases in particular, the task of the district court was summed up by the Court of Appeals for the D.C. Circuit as follows:

 A reviewing court may not set aside the agency interpretation merely because another interpretation . . . seems better, so long as the agency's interpretation is within the range of reasonable meaning that the words of the regulation admit.

 Psychiatric Institute of Washington, D.C., Inc. v. Schweiker, 216 U.S. App. D.C. 14, 669 F.2d 812, 814 (D.C.Cir. 1981).

 I will now address separately the facts and the legal authority regarding each of the three issues on which plaintiff has appealed an adverse decision by the Secretary.

 II. Discussion

 A. Investment Income Offset

 The first issue raised is whether the revenue generated by plaintiff's investment of monies in its operating fund checking account (the "float") was properly offset against medicare reimbursement for plaintiff's allowable interest expenses. An official for the hospital testified that the float is invested "in various types of commercial paper . . . and we earn investment income while those finances are not deducted from our bank account at the bank." Tr. at 15, 24, 30. The intermediary's determination that this income should be offset against interest expenses was based on Subsection 222.2 of Part I of the Provider Reimbursement Manual, which requires that:

 [w]here the provider has invested funds from gifts or grants which are unrestricted as to use and these funds are co-mingled with other funds, the provider's allowable interest expense is reduced by the ...


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