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BOND HOSPS., INC. v. HECKLER

May 16, 1984

BOND HOSPITALS, INC., et al., Plaintiffs,
v.
Margaret M. HECKLER, Secretary of The Department of Health and Human Services, Defendant



The opinion of the court was delivered by: PARKER

 BARRINGTON D. PARKER, District Judge:

 Introduction

 The plaintiffs in this action seek judicial review of a final decision of the defendant, the Secretary of Health and Human Services ("Secretary"), denying their Medicare cost reimbursement claim under 42 U.S.C. § 1395 oo (f)(1). Plaintiffs are the Hospital Corporation of America, a Tennessee corporation which owns, operates and manages hospitals, and 44 of its subsidiary hospital corporations. For purposes of this Memorandum Opinion, the plaintiffs are collectively referred to as "HCA" or the "Corporation." HCA is a provider of Medicare services under Part A of the Medicare program, 42 U.S.C. §§ 1395c-1395i.

 The matter presented for the Court's consideration is whether the Medicare program must reimburse the plaintiffs for interest paid on federal and state income tax deficiencies. The material facts are not in dispute, and the parties have filed cross motions for summary judgment. For the reasons stated below, the Court concludes that the Secretary's actions were not arbitrary, capricious, or contrary to law, and accordingly, affirms the denial of plaintiffs' request for reimbursement.

 Background

 HCA submitted a Medicare Home Office Cost Statement for the fiscal year ending December 31, 1974 to Blue Cross of Tennessee, seeking reimbursement for the interest paid to the IRS and the TDR. As a private Medicare fiscal intermediary, Blue Cross is required to issue a written notice setting forth the amount of reimbursement which a hospital is entitled to receive for a given fiscal year. 42 U.S.C. § 1395h; 42 C.F.R. § 405.1803. Pursuant to its authority under 42 C.F.R. § 405.1831, Blue Cross determined that HCA's interest costs were not reimbursable costs under 42 U.S.C. § 1395f(b)(1), and HCA appealed this adverse determination to the Provider Reimbursement Review Board ("PRRB" or "Board"). 42 U.S.C. § 1395 oo (a); 42 C.F.R. § 405.1837. On August 11, 1982, the PRRB issued a split decision which reversed Blue Cross' denial of the plaintiffs' claim. 42 U.S.C. § 1395oo(d); 42 C.F.R. § 405.1871.

 Next, the Deputy Administrator of the Health Care Financing Administration, acting on behalf of the Secretary, reviewed the decision of PRRB pursuant to 42 U.S.C. § 1395 oo (f)(1). On October 8, 1982, the Secretary reversed the decision of the Board. In support of her decision, the Secretary relied on decisions holding that providers are not entitled to reimbursement for payment of income taxes because such taxes are not related to patient care. The Secretary concluded that since the underlying income taxes are not related to patient care, any interest deficiency arising from these taxes is similarly unrelated to patient care. Thus, the Secretary reinstated the earlier disallowance of the Corporation's interest claim, and this appeal ensued on December 13, 1982.

 LEGAL ANALYSIS

 A.

 Statutory Background

 This Court has jurisdiction over the plaintiffs' claims under 42 U.S.C. § 1395 oo (f). Under this Medicare statutory scheme, providers of services are paid the "reasonable cost" of covered services furnished to Medicare beneficiaries. The statute broadly defines "reasonable cost" as "the cost actually incurred, excluding therefrom any part of incurred cost found to be unnecessary in the efficient delivery of needed health services. . . ." 42 U.S.C. § 1395x(v)(1)(A). The Secretary is also given the authority to promulgate "regulations establishing the method or methods to be used, and the items to be included, in determining such costs. . . ." Id. Costs in ...


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