agency's final action is reviewed under the judicial review provisions of the Administrative Procedure Act ("APA"), 5 U.S.C. § 701 et seq.
This matter is before the Court on plaintiff's appeal from the Board's decision, left intact by the Secretary, in two administrative proceedings relating to Good Samaritan and Desert Samaritan. The Board decisions which plaintiff challenges followed hearings conducted before the Board on October 12, 13 and 14, 1983. In the first proceeding, pertaining to Good Samaritan Hospital, the Board considered Samaritan's appeal from reimbursement decisions by its fiscal intermediary, Blue Cross and Blue Shield Association of Arizona ("Blue Cross"), and resolved each of three issues in favor of Blue Cross and against Samaritan. In the second proceeding, pertaining to Desert Samaritan Hospital, the Board considered Samaritan's challenge to Blue Cross' reimbursement decision and resolved each of two issues in favor of Blue Cross and against Samaritan.
Samaritan claims here generally that the decisions reached by the Board were not supported by substantial evidence; were arbitrary, capricious and an abuse of discretion; and were violative of Samaritan's due process rights as guaranteed by the Fifth Amendment of the United States Constitution. Samaritan's more specific contentions and defendant's responses are examined below, addressing in turn each of the five issues raised in the Board proceedings.
The first issue is Good Samaritan's reclassification in its 1977, 1978 and 1979 cost reports of certain costs related to care of newborns. The fiscal intermediary, Blue Cross, on September 30, 1981 issued a notice of program reimbursement which rejected Good Samaritan's attempt to reclassify costs in the manner described below.
The Board upheld Blue Cross' treatment of these costs, and Samaritan here appeals the Board's decision.
Good Samaritan in 1977, 1978 and 1979 maintained three separate facilities for the care of newborn babies. Well babies -- those who had normal deliveries and no post-natal complications -- received care in the "Transitional Nursery." The "A-3 Nursery," a rooming-in arrangement that permitted mothers to be with their newborns, also was used for care of healthy newborns. Babies in the A-3 and Transitional nurseries received only custodial care, e.g., feeding, diapering and bathing. G.S.Ad.R. at 1041-45.
The second facility was the "Border Area,"
which housed infants who had developed problems in the A-3 or Transitional nurseries, or who no longer required the high level of care afforded in the Intensive Care Unit. The infants in the Border Area were monitored with sophisticated diagnostic equipment and attended by a specialized staff. Id. at 1047-49.
The third facility was the Intensive Care Unit ("ICU"), which treated critically ill infants. The ICU featured advanced equipment and a highly specialized staff. Id. at 1049-53.
Good Samaritan also operated a Pediatric Unit to care for ill infants and children. Newborns were occasionally admitted to the Pediatric Wing if they developed problems after being sent home. The care provided infants in the Pediatric Ward was essentially the same as the care received by infants in the Border and ICU areas. Id. at 1055-58.
In 1975, Good Samaritan filed a cost report reclassifying the ICU and Border area days and costs as pediatric days and costs. See id. at 1776-77. It included these pediatric days and costs in its average cost per diem for purposes of Medicare reimbursement.
Good Samaritan also reclassified the A-3 nursery costs to the Transitional Nursery cost center in order to consolidate "routine nursery" costs. Good Samaritan determined these costs on the basis of revenues. Although Blue Cross did not question this methodology during cost reporting years 1975-78, Blue Cross on September 30, 1981 issued a notice of program reimbursement which rejected Good Samaritan's reclassification of these costs and its inclusion of them in calculating its average cost per diem. Id. at 0010.
The Secretary has promulgated regulations detailing the calculation of reimbursable costs. During the cost years at issue, the regulation that set forth the method for calculation of "average cost per diem for routine services" provided in pertinent part that that figure was "computed by dividing the total allowable inpatient cost for routine services (excluding . . . nursery costs) by the total number of inpatient days of care (excluding . . . newborn days)." 42 C.F.R. § 405.452(b)(7) (1979) (emphasis added).
Samaritan contends that Blue Cross and the Board err in relying on this provision to reject Samaritan's reclassification of its ICU and Border Area infant care costs and days as pediatric days and costs properly included in its average cost per diem and reimbursable as such. According to Samaritan, section 405.452(b)(7) excluded nursery costs from average per diem routine cost because "newborns do not receive any routine care and therefore do not generate any routine costs. It would be unfair to have routine costs apportioned to them when they create none." St. Mary of Nazareth Hospital Center v. Schweiker, 231 U.S. App. D.C. 47, 718 F.2d 459, 468 (D.C. Cir. 1983). Thus, according to Samaritan, nursery costs are ordinarily not "routine" (and reimbursable as such) because they are associated with a lower level of services than is the norm for a hospital.
Samaritan contends, however, that the regulations create an implied exception to section 405.452(b)(7)'s exclusion of nursery costs. Section 405.452(d)(2) (1979) defines "routine services" to mean "the regular room, dietary and nursing services, minor medical and surgical supplies, and the use of equipment and facilities for which a separate charge is not customarily made." Samaritan reasons that the services provided to the newborns in the Border and ICU areas, involving a higher level of care than services provided to newborns in the A-3 and Transitional Nurseries,
met this definition and, therefore, were "routine services" rather than usual nursery services. Samaritan argues that those costs thus were properly included in computing Good Samaritan's average per diem costs.
In support of this proposition, Samaritan refers to the Secretary's Provider Reimbursement Manual, which gives instructions for completing cost reporting forms. The statistics that are used to compute the average cost per diem for the routine cost component of the Provider cost are requested on lines 4, 5 and 6 of the cost reporting forms. The Secretary advises:
An infant remaining in the hospital after the mother is discharged and not occupying a newborn bed in the nursery, or an infant delivered outside the hospital and later admitted to the hospital but not occupying a newborn bed in the nursery, or an infant admitted or transferred out of the nursery for an illness should be included in the total inpatient days reported on lines 4 and 6.
Provider Reimbursement Manual II, § 304.3, Medicare and Medicaid Guide (CCH) P 9304C.
The Secretary responds that the "regulations make no distinction between the levels of care [provided] in a nursery." G.S.Ad.R. at 0012 (emphasis added). The Secretary notes that 42 C.F.R. § 405.452(b)(7) flatly excluded "nursery" care from the per diem calculations and further notes that the areas in question were identified by plaintiff as "nursery" units.
See G.S.Ad.R. at 0728-0735. Moreover, the Secretary argues, the State of Arizona treats the facilities at issue as nurseries for state licensing purposes.
Samaritan, as the provider, bears the burden of proof in actions brought under 42 U.S.C. § 1395 oo (f), Diplomat Lakewood Inc. v. Harris, 198 U.S. App. D.C. 276, 613 F.2d 1009, 1018 (D.C. Cir. 1979). Samaritan must, in order to prevail, demonstrate that the agency action challenged was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law or unsupported by substantial evidence in the record as a whole. Home Health Services of the U.S., Inc. v. Schweiker, 683 F.2d 353, 356 (11th Cir. 1982). If the agency action is not appropriately characterized in that fashion, "the reviewing court cannot reverse the findings of the agency on the basis that it would have decided the case differently." Id. at 357. Similarly, "[a] reviewing court may not set aside the agency's interpretation merely because another interpretation . . . seems better, so long as the agency's interpretation is within the range of reasonable meanings 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). See also Diplomat Lakewood, supra, 613 F.2d at 1018 ("We would be obliged to affirm the decision below if we could find a rational basis in the record for the Secretary's action").
On the issue of the reclassification of costs, Samaritan has not sustained its burden of showing that the Secretary's action was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law, or unsupported by substantial evidence. 42 C.F.R. § 405.452(b)(7) by its plain terms excluded "nursery costs" from the per diem calculation and it is uncontroverted that plaintiff itself identified the areas in question as "nursery" units. See G.S.Ad.R. at 0722-0735. Although plaintiff might prefer to introduce a multi-level definition of the term "nursery," the Secretary has not done so,
and "the agency's interpretation is within the range of reasonable meanings that the words of the regulation admit." Psychiatric Institute, supra, 669 F.2d at 814.
Plaintiff argues, however, that the Secretary is estopped from disallowing Good Samaritan's pediatric reclassification. Plaintiff claims that Blue Cross allowed such reclassification in earlier years, that Good Samaritan relied on Blue Cross' determination to its detriment, and that the Secretary improperly changed her position. Plaintiff's argument on this issue is unpersuasive. As the Supreme Court noted in Heckler v. Community Health Services of Crawford County, 467 U.S. 51, 104 S. Ct. 2218, 81 L. Ed. 2d 42 (1984):
As a recipient of public funds well acquainted with the role of a fiscal intermediary, respondent knew [that its intermediary] only acted as a conduit; . . . The relevant statute, regulations, and reimbursement manual, with which respondent should have been and was acquainted, made that perfectly clear. Yet respondent made no attempt to have the question resolved by [the Secretary]. It was satisfied with the policy judgment of a mere conduit.