The opinion of the court was delivered by: Ricardo M. Urbina United States District Judge
GRANTING THE DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND DENYING THE PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
This matter comes before the court on the parties' cross motions for summary judgment. The plaintiff is a hospital that facilitates and operates a skilled nursing facility ("SNF"). The defendant, the Secretary of the United States Department of Health and Human Services, is responsible for the administration of the Medicare program, including reimbursing SNFs for reasonable costs incurred in treating Medicare patients. The plaintiff alleges that the defendant denied it approximately $500,000 in reasonable costs in 1991 and 1992 when he refused to recognize as timely its exception requests to revised notices of program reimbursement ("NPRs"). Because the court gives substantial deference to the defendant's decision and because the plaintiff has not shown that the defendant violated the Administrative Appeals Act ("APA"), it grants the defendant's motion for summary judgment.
II. FACTUAL & PROCEDURAL BACKGROUND
Medicare is a federal health insurance program covering patients who are at least 65 years of age and are disabled. 42 U.S.C. § 1395i-2(a). The plaintiff provides SNF services to Medicare patients. Compl. ¶ 6. These services are covered under the Medicare statute. 42 U.S.C. § 1395d(a)(2). The defendant is responsible for determining the amounts payable to SNFs for providing these services to Medicare patients. 42 U.S.C. § 1395g(a). The defendant delegates management of the Medicare program to the Centers for Medicare and Medicaid Services ("CMS"),*fn1 an agency within the Department of Health and Human Services. 42 C.F.R. §§ 405.500, et seq. In addition, the defendant contracts with private organizations to act as fiscal intermediaries charged with making initial reimbursement determinations. 42 U.S.C. § 1395h(a); 42 C.F.R. § 400.202. SNFs are eligible to receive reimbursement for reasonable costs expended in providing services to Medicare patients. 42 U.S.C. § 1395d(a)(2). A "reasonable cost" is a 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). To assist in determining reasonable costs, Congress authorized the defendant to establish routine per diem cost limits ("cost limits") above which SNFs may not receive reimbursement. Id.
Every fiscal year an SNF must provide a report to the fiscal intermediary outlining its costs for the previous year and the portion of those costs used to treat Medicare patients. 42 C.F.R. § 413.20. Upon review of the report, the fiscal intermediary issues an NPR to the SNF indicating the amount of reimbursement. 42 C.F.R. § 405.1803. The disbursement decisions are made using an estimated market basket index based on forecasts and economic trends.*fn2 Joint Appendix ("J.A.") at 21. If the SNF believes it is eligible to receive an exception for payment above the cost limit, it must file an exception request with the fiscal intermediary within 180 days of the issuance of the NPR. 42 C.F.R. § 413.30(c). Once the fiscal year ends and the actual market basket index is calculated, fiscal intermediaries will issue revised NPRs "if the market basket index for a fiscal year differs from the estimated rate of change by at least 0.3 of one percentage point." J.A. at 21.
The fiscal intermediary issued initial NPRs to the plaintiff on September 2, 1993, for the 1991 fiscal year, and on April 1, 1994, for the 1992 fiscal year. Pl.'s Mot. for Summ. J. ("Pl.'s Mot.") at 10. For both fiscal years the plaintiff's costs exceeded the cost limit but the plaintiff did not request exceptions. J.A. at 6; Pl.'s Resp. to Def.'s Statement of Material Facts ("Pl.'s Resp. to Facts") ¶ 4-5. On October 31, 1996, the fiscal intermediary issued the plaintiff revised NPRs for fiscal years 1991 and 1992. See J.A. at 53-88, 135-39. These were based on a revised market basket index for those years. Id. at 6. The plaintiff filed exception requests to the revised NPRs within 180 days. Id. at 7. The intermediary granted the plaintiff exceptions to the cost limit, but only for the "incremental increase in the amount of the costs that exceeded the cost limit between the original NPR and the revised NPR."*fn3 Id. This represented only a small fraction of the plaintiff's costs the exceeded the cost limit.
The plaintiff appealed that decision to the Provider Reimbursement Review Board ("PRRB" or "the Board") pursuant to 42 U.S.C. § 1395oo(a) and 42 C.F.R. § 405.1835. J.A. at 26-40. The PRRB determined that "there is no basis to limit a provider's exception request made from a revised NPR." Id. at 24. The defendant reversed this decision stating that "a revised NPR does not give a provider new appeal rights for costs that could have been appealed under the original NPR." Id. at 7.
The plaintiff filed a complaint in this court for review of the defendant's decision. The defendant answered the complaint and the parties subsequently filed cross motions for summary judgment. Put simply, the defendant maintains that an exception request made to a revised NPR will not cover costs that could have been appealed from the initial NPR. Def.'s Mot. at 26-34. The plaintiff counters that the regulation governing exceptions to the cost limits allows for SNFs to appeal the entire amount of its exception request from a revised NPR, even if it did not request an exception from the initial NPR. Pl.'s Mot. at 20-21. The plaintiff also argues that an invalid Provider Reimbursement Manual provision ("PRM § 2534.5") was used in determining the cost limit. Id. at 16-17. The defendant contends that the plaintiff did not raise this issue at the administrative level and is barred from arguing it before this court. Def.'s Mot. at 17-21.
A. Legal Standard for APA Review of the Board's Decision
Pursuant to the Medicare statute, this court reviews PRRB decisions in accordance with standard of review set forth in the APA. 42 U.S.C. § 1395oo(f)(1); Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994); Mem'l Hosp./Adair County Health Ctr., Inc. v. Bowen, 829 F.2d 111, 116 (D.C. Cir. 1987). The Administrative Procedures Act ("APA") requires a reviewing court to set aside an agency action that is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law" or "unsupported by substantial evidence in a case . . . otherwise reviewed on the record of an agency hearing provided by statute." 5 U.S.C. § 706(2)(A), (E). The arbitrary-and-capricious standard and the substantial-evidence standard "require equivalent levels of scrutiny."*fn4 Adair County, 829 F.2d at 117. Under both standards, the scope of review is narrow and a court must not substitute its judgment for that of the agency. Motor Veh. Mfrs. Ass'n v. State Farm Mutual Ins. Co., 463 U.S. 29, 43 (1983); Gen. Teamsters Local Union No. 174 v. Nat'l Labor Relations Bd., 723 F.2d 966, 971 (D.C. Cir. 1983). As long as an agency has "examined the relevant data and articulated a satisfactory explanation for its action including a rational connection between the facts found and the choice made," courts will not disturb the agency's ...