Sta-Home Home Health Agency, Inc. v. Shalala ( 1994 )

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_________________________________
No. 93-7592
_________________________________
STA-HOME HOME HEALTH AGENCY, INC.,
Plaintiff-Appellant,
versus
DONNA E. SHALALA, Secretary of U.S.
Department of Health and Human Services,
Defendant-Appellee.
___________________________________________
Appeal from the United States District Court
for the Southern District of Mississippi
_____________________________________________
(September 26, 1994)
Before POLITZ, Chief Judge, and DUHÉ and BARKSDALE, Circuit Judges.
RHESA HAWKINS BARKSDALE, CIRCUIT JUDGE:
This appeal, arising out of the denial of Medicare program
reimbursement to Sta-Home Home Health Agency, Inc., for that
portion of salaries deducted from the pay checks of its employees
and retained by it, concerns whether the Secretary of the
Department of Health and Human Services reasonably interpreted
applicable statutes and regulations to conclude that an employee's
gross salary is not a reimbursable "reasonable cost" to the extent
that a portion of the salary is never paid to the employee. The
district court upheld the Secretary, and we AFFIRM.
I.
Sta-Home is a provider of medical services in the Medicare
program, pursuant to Title XVIII of the Social Security Act, 42
U.S.C. §§ 1395 et seq., which provides health insurance for the
aged and disabled. The Medicare program reimburses participating
hospitals and other medical providers for the "reasonable cost" of
medical services provided to eligible beneficiaries. 42 U.S.C. §
1395f(b)(1).1 Among other things, for a cost to be reasonable, it
must be "actually incurred". 42 U.S.C. § 1395x(v)(1)(A).2
Because Sta-Home is a non-profit corporation, its only revenue
comes from Medicare or other insurance reimbursements, and private
donations.3 In 1985, in order to generate funds to cover non-
reimbursed costs, Sta-Home initiated a program whereby its
employees were provided with forms to indicate their willingness to
1
A "home health agency" provides skilled nursing services and
other therapeutic services at the patient's residence under
supervision by the patient's physician. 42 U.S.C. §§ 1395x(m) &
(o).
2
Providers receive Periodic Interim Payments each month, and
these payments should approximate the reimbursable costs. The
final decision on reimbursement is based on a detailed cost
review prepared by the provider at the end of each year. A
provider's fiscal intermediary makes the initial decision whether
a particular cost may be reimbursed under the applicable
regulations. 42 U.S.C. § 1395h. If the provider is dissatisfied
with the intermediary's decision, it can obtain a hearing before
the Provider Reimbursement Review Board (PRRB). 42 U.S.C. §
1395oo. Within 60 days after the PRRB renders its decision, the
Administrator of the Health Care Financing Administration may, on
its own motion, reverse, affirm or modify the PRRB decision. 42
U.S.C. § 1395oo(f)(1); 42 C.F.R. § 405.1875.
3
According to the testimony at the PRRB hearing, Sta-Home's
Medicare utilization is approximately 94%.
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donate a portion of their salaries to Sta-Home.4 According to Sta-
Home, these contributions were necessary to cover Medicare and
Medicaid losses in indigent care -- incurred costs that were not
covered by Medicare regulations for reimbursement.5
The program was first presented to the employees at a meeting
by Vic Caracci, then CEO of Sta-Home, who discussed the poor
financial condition of the company and suggested that each employee
contribute one hour of their salary every two weeks. Sta-Home
management personnel were stationed outside the meeting with the
appropriate forms to be completed by willing employees.
Approximately 55% of the employees chose to contribute, and their
paychecks were reduced accordingly. Therefore, the contributed
amount never left Sta-Home's account; in other words, it was never
paid to the employee.
4
According to Sta-Home, the donation program was prompted by
an employee's suggestion; before its institution, employees had
engaged in various fund raising activities, such as bake sales,
to generate additional funds for Sta-Home. Vic Caracci, former
Sta-Home CEO, testified that, after the suggestion was made, he
contacted the chief auditor of the intermediary and was told that
the contribution program would be acceptable. Caracci was also
given a copy of a March 8, 1978, letter from the predecessor to
HHS, which stated:
In any case where a provider agrees to compensate
an employee and includes such amount in allowable
costs but the employee through agreement or
arrangement with the provider receives and retains
less than the full compensation with the effect
that the provider purposely inflates its costs,
then appropriate reduction must be made to the
provider's recorded costs to reflect actual costs
incurred.
5
Sta-Home had received contributions from "key" employees in
1982, and those contributions were disallowed.
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At the end of the 1985 fiscal year, Sta-Home sought
reimbursement for the gross amount of all employees' salaries,
including the portion never paid the employees. The intermediary
offset the amount claimed for salaries by the amount of the
contribution, so that Sta-Home was reimbursed only the amount
actually paid its employees.6
Sta-Home sought review of the intermediary's decision by the
Provider Reimbursement Review Board (PRRB).7 Following an
evidentiary hearing, the PRRB held in favor of Sta-Home.
The Administrator of the Health Care Financing Administration
(HCFA), however, reversed the PRRB decision. The Administrator
stated that the evidence established that the employee
contributions were used by Sta-Home to pay for costs not covered
for Medicare, with the result that, by providing reimbursement for
the full amount of salary, Medicare would be "paying for those
6
Sta-Home's cost report for that year reflected that its
revenues exceeded expenses by $42,377. According to an anonymous
letter dated December 26, 1984, to the Mississippi Health Care
Commission, a "concerned employee" claimed that Sta-Home had
purchased "13 new cars and a new van [and taken] trips ... to
North Carolina, San Francisco, and Dallas to workshops."
7
Before review by the PRRB, the parties apparently agreed,
and then disagreed, to submit the matter to the Blue Cross
Association (BCA) for resolution. BCA issued an opinion in favor
of Sta-Home, but that opinion was seemingly based on the
incorrect assumption that the intermediary had withdrawn its
objections to the contributions. The BCA opinion is not before
us for review, and neither party has asserted that it is in any
way binding on them or this court. Sta-Home apparently
emphasizes this incident to suggest that the Secretary or the
intermediary engaged in some kind of impropriety with regard to
the preparation or disclosure of that opinion, and we reject that
suggestion.
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nonallowable costs, in violation of the regulations".8 Along that
line, the Administrator found that, "[i]n substance", the
contributions were "reductions or refunds of salary expense" under
42 C.F.R. § 413.98(c), and should properly reduce the expenses for
the period in which they are received. He noted that "contribution
schemes such as this are not a generally accepted practice in the
region", and that "Medicare has previously noted that such
practices ... have the effect of inflating the provider's costs and
are not acceptable". Finally, the Administrator stated that he
agree[d] with the PRRB that the practice of
accepting employee donations through payroll
deductions, as in this case, creates a perception
of impropriety. That the amount claimed as
salaries fall[s] within the guidelines for
"reasonable salaries," is irrelevant. To the
extent they were "contributed" to the Provider, and
not paid, they do not represent a "cost incurred."
Accordingly, the Administrator allowed the reimbursement
sought for salaries to be offset by the amount of contributions.
The district court upheld that decision.
II.
The Supreme Court recently re-stated the principles guiding
our review of the Secretary's decision:
The [Administrative Procedures Act], which is
incorporated by the Social Security Act, commands
8
Sta-Home misconstrues the Administrator's decision, reading
it to hold that the total salary expense was disallowed because
expenses were not properly documented. Employees contributed to
Sta-Home to compensate for costs that were incurred but not
reimbursed by Medicare for various reasons, including failure to
document properly. In issue is the contribution scheme, not why
underlying costs were held not covered by Medicare. It was
because of those non-covered costs that the scheme was
implemented.
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reviewing courts to "hold unlawful and set aside"
agency action that is "arbitrary, capricious, an
abuse of discretion, or otherwise not in accordance
with law." 5 U.S.C. § 706(2)(A). We must give
substantial deference to an agency's interpretation
of its own regulations. Our task is not to decide
which among several competing interpretations best
serves the regulatory purpose. Rather, the
agency's interpretation must be given "``controlling
weight unless it is plainly erroneous or
inconsistent with the regulation.'" In other
words, we must defer to the Secretary's
interpretation unless an "alternative reading is
compelled by the regulation's plain language or by
other indications of the Secretary's intent at the
time of the regulation's promulgation." This broad
deference is all the more warranted when, as here,
the regulation concerns "a complex and highly
technical regulatory program," in which the
identification and classification of relevant
"criteria necessarily require significant expertise
and entail the exercise of judgment grounded in
policy concerns."
Thomas Jefferson University v. Shalala, 114 S. Ct. 2381, 2386-87
(1994) (citations omitted).
In reviewing an agency's construction of a statute which it
administers, we must first determine "whether Congress has directly
spoken to the precise question at issue." Chevron U.S.A. v.
Natural Resources Defense Council, 467 U.S. 837, 842 (1984). "If
a court, employing traditional tools of statutory construction,
ascertains that Congress had an intention on the precise question
at issue, that intention is the law and must be given effect";
however, "if the statute is silent or ambiguous with respect to the
specific issue," the court asks whether the agency's answer is
based on a "permissible construction", or "reasonable
interpretation", of the statute. 467 U.S. at 843-44 & n.9. Sta-
Home bears the "difficult burden" of proving that the Secretary's
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interpretation of the applicable statutes conflicts with the
statutory scheme. Sun Towers, Inc. v. Heckler, 725 F.2d 315, 325
(5th Cir. 1984).
A.
Pursuant to the Social Security Act, Sta-Home is to be
reimbursed only for "reasonable costs", 42 U.S.C. §1395o, a term
defined, in part, as "the cost actually incurred". 42 U.S.C. §
1395x(v)(1)(A). The Secretary maintains that the portions of
salaries contributed (returned) to Sta-Home by payroll deduction
were not "actually incurred". As stated, if the Secretary's
interpretation of the statute is reasonable, we defer to it.
Chevron, 467 U.S. at 843-44.
It is undisputed that the portion of some employees' salaries
designated as a donation to Sta-Home never left its account and was
never paid to those employees. Because Sta-Home was never required
to pay this portion of the salaries, it was most reasonable for the
Secretary to conclude that that cost was not "actually incurred".9
Moreover, contrary to Sta-Home's contention, this statutory
interpretation is not inconsistent with the applicable regulations.
The refunds of expenses regulation referenced by the Administrator,
42 C.F.R. § 413.98(c), provides that
9
Because we conclude that the total amount of the salaries
was not actually incurred, we need not consider whether they were
reasonable in amount. We note, however, that the 1978 letter,
see supra n. 4, does not require the Secretary to prove that the
provider inflated salaries, but rather states that an agreement
or arrangement between the provider and the employee to return a
portion of salary has the effect of inflating salaries.
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refunds of expenses are reductions in the cost of
goods or services purchased ... If they are
received in the same accounting period in which the
purchases were made or expenses were incurred, they
will reduce the purchases or expenses of that
period....
If the contributed portion of the salary is a "refund", it is clear
that it was properly offset under § 413.98(c).
"Refunds" are defined by 42 C.F.R. §413.98(b)(3) as "amounts
paid back or a credit allowed on account of an overcollection".
Sta-Home asserts, based on an artful grammatical analysis, that the
contributions were not refunds because they were not paid back "on
account of an overcollection". Under this scenario, however, any
amount that is paid out by Sta-Home as a reimbursable expense and
then is returned by the payee for any reason other than "on account
of an overcollection", is not subject to offset. (For example, if
a thermometer manufacturer sold Sta-Home a thermometer for $100 and
then, pursuant to a separate agreement, voluntarily gave Sta-Home
$75 of that money back, Sta-Home would be able to be reimbursed
$100 by the Medicare program, without any offset, because the $75
was not paid "on account of an overcollection".)
In any event, as noted earlier, the Administrator held that
"[i]n substance, the employee contributions ... were merely
reductions or refunds of salary expense." (Emphasis added.) The
cited regulation was just one of several bases relied on by the
Administrator for his ruling. The guiding principle is found in
the Act; reimbursement is allowed only for "cost[s] actually
incurred". The Secretary's interpretation is in keeping with this
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statutory directive; that is, refunds are any amounts paid back.10
Therefore, the decision is not arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law; we are not
authorized to set it aside.
B.
Sta-Home raises additional points attacking supporting bases
looked to by the HCFA for his decision. Because we uphold that
decision on the ground that the excess (refunded) salary costs were
not "actually incurred", we need not address these issues.11 See
Thomas Jefferson University v. Shalala, 114 S. Ct. 2381 (1994).
III.
Accordingly, the judgment is
AFFIRMED.
10
Another factor supporting this interpretation is that the
Secretary has consistently applied this interpretation. At the
hearing, there was evidence of two other instances in which
employee contributions had been made; and in both, the Secretary
offset the gross salaries by the amount of contributions.
Interestingly, one of the instances involved Sta-Home. There was
no proof that the Secretary had ever interpreted the statute or
regulation in an inconsistent manner.
11
We note, however, that Sta-Home's reliance on § 604 of the
Provider Reimbursement Manual ("PRM"), which provides that
"[u]nrestricted contributions are not deducted from costs in
computing allowable costs", is misplaced, inasmuch as the PRM
does not carry the force and effect of law, Mother Frances
Hospital v. Shalala, 15 F.3d 423 (5th Cir. 1994), petition for
cert. filed, 62 U.S.L.W. 3827 (U.S. May 31, 1994) (No. 93-1907),
and certainly does not displace a reasonable statutory
interpretation. Further, we reject Sta-Home's contention that it
was denied a "just" administrative process. This contention,
which was properly construed by the district court as one of
estoppel, is not cognizable in a claim for public funds, Office
of Personnel Management v. Richmond, 496 U.S. 414 (1990); and,
furthermore, the claim of any improper scheme to mislead Sta-Home
as to the allocability of certain costs is without support in the
record.
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