The opinion of the court was delivered by: HOGAN
THOMAS F. HOGAN, UNITED STATES DISTRICT JUDGE
Plaintiffs bring suit under Part A of Title XVIII of the Social Security Act, 42 U.S.C. § 1395, et seq, ("the Act"), commonly known as the Medicare statute. In Count I of the complaint, plaintiffs allege that defendant unlawfully denied an exception to plaintiffs' cost limits. In Count II of the complaint, plaintiffs maintain that defendant unlawfully denied them a retroactive cost adjustment. Presently before the Court are the parties' cross-motions for summary judgment. In consideration of the motions, the oppositions thereto, oral argument by counsel, and the entire record of the case, the Court shall deny plaintiffs' motion for summary judgment as to Count I and grant summary in favor of defendant as to Count I. The Court shall, however, grant plaintiffs' motion for summary judgment as to Count II and remand the case to the Secretary for further proceedings in accordance with the following opinion.
FACTUAL AND STATUTORY BACKGROUND
Plaintiffs, Hennepin County and Hennepin County Medical Center (collectively, "HCMC"), challenge the decision of the Provider Reimbursement Review Board ("PRRB") denying HCMC's request for an exception to the medicare routine cost limits for its 1980 cost reporting year for atypical medical education costs.
Plaintiffs also contest the refusal of the Secretary of the Department of Health and Human Services (the "Secretary") to grant a retroactive corrective adjustment for HCMC's 1980 cost year.
The Medicare statute furnishes providers of health care services with reimbursements for certain costs associated with the treatment of the aged and disabled.
Specifically, the health care provider shall be reimbursed for the lesser of the reasonable costs of the services, as defined under section 1395x(v), or the provider's customary charge for such services. 42 U.S.C. § 1395f(b)(1).
"Reasonable costs" are 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." 42 U.S.C. § 1395x(v)(1)(A). The statute authorizes the Secretary to establish the methods for determining costs. Id. In defining the rather broad contours of the Secretary's rulemaking authority, the statute states that regulations promulgated by the Secretary
42 U.S.C. 1395x(v)(1)(A).
Pursuant to this authority, the Secretary established cost limits for reimbursable routine costs. See 42 C.F.R. § 405.460; 39 Fed. Reg. 20,164 (June 6, 1974).
The Secretary established a procedure for determining the cost limits whereby "prior to the beginning of a cost period to which revised limits will be applied, HCFA [the Health Care Financing Administration] will publish a notice in the Federal Register, establishing cost limits and explaining the basis on which they were calculated." 42 C.F.R. § 405.460(b)(3). The Secretary first promulgated a regulation and schedule of limits on the costs of general inpatient hospital routine services in 1974.
Basically, there are two avenues for adjusting cost limits which do not adequately reimburse the health care provider's reasonable costs. First, a health care provider may seek an exception to the cost limits in certain circumstances. 42 C.F.R. § 405.460(f). An exception will be made
only to the extent the costs are reasonable, attributable to the circumstance specified, separately identified by the provider, and verified by the intermediary.
Id. The circumstance implicated in this case involves an exception for health care providers operating an approved graduate medical education program.
The Secretary grants such a health care provider an exception if it
can demonstrate that, when compared to other providers in its group, it incurs increased costs for items or services covered by limits under this section because of its operation of an approved education program.
Id. § 405.460(f)(4).
The second means for seeking an adjustment to a provider's reimbursement is by invoking the retroactive corrective adjustment provision in section 1395x(v)(1)(A)(ii) which specifically directs the Secretary to establish regulations to
provide for the making of suitable retroactive corrective adjustments where, for a provider of services for any fiscal period, the aggregate reimbursement produced by the methods of determining ...