Good Samaritan Hospital v. Shalala

PETITIONER: Good Samaritan Hospital et al.
RESPONDENT: Shalala
LOCATION: An apartment on the North Side

DOCKET NO.: 91-2079
DECIDED BY: Rehnquist Court (1991-1993)
LOWER COURT: United States Court of Appeals for the Eighth Circuit

CITATION: 508 US 402 (1993)
ARGUED: Mar 22, 1993
DECIDED: Jun 07, 1993

ADVOCATES:
Carel T. Hedlund - on behalf of the Petitioners
Edward C. DuMont - on behalf of the Respondent

Facts of the case

Question

Media for Good Samaritan Hospital v. Shalala

Audio Transcription for Oral Argument - March 22, 1993 in Good Samaritan Hospital v. Shalala

William H. Rehnquist:

We'll hear argument next in Number 91-2079, Good Samaritan Hospital v. Donna E. Shalala.

Ms. Hedlund, you may proceed whenever you're ready.

Carel T. Hedlund:

Mr. Chief Justice and may it please the Court:

This case involves the reasonable cost methodology under the Medicare program.

Under that provision, the Secretary is to reimburse providers for their reasonable cost of providing services to Medicare beneficiaries.

The statute defines "reasonable costs" as those costs actually incurred, excluding therefrom any part of incurred costs found to be unnecessary in the efficient delivery of needed health services.

The statute requires the Secretary to do two things.

The first is, it authorizes the Secretary to use a variety of methods to determine a provider's reasonable costs in the first instance, and then in clause 2 of the same section, it requires the Secretary to make suitable retroactive, corrective adjustments for individual providers when the methods produce inaccurate results.

The issue in this case is what kind of individual retroactive corrective adjustments does clause 2 require?

Are they adjustments to bring an individual provider's reimbursement into line with reasonable cost as it's defined in the statute... that is, actual costs excluding those due to unnecessary services or to inefficiency?

That is the position the hospital contends that clause 2 requires... or is it simply an adjustment to reconcile the interim payments the provider receives during the year with the amount that the methods say that you get, with the Secretary's regulatory method?

In this case, the petitioners are six rural Nebraska hospitals.

Prior to the cost years under appeal, their costs were always under the Medicare cost limit.

Beginning with the years under appeal, however, their costs exceeded the Medicare cost limits for the first time.

The hospitals still had the same necessary costs that they had in prior years.

The record shows there were no findings that the hospitals operated inefficiently.

The Secretary admitted in his answer to the complaint that the cost limits for areas that have a high percentage of part-time employment is artificially low, it is set artificially low, and yet the cost limits were applied in this case to disallow a substantial portion of the hospitals' necessary operating costs.

The Secretary applies the Medicare cost limits in a conclusive fashion.

That means a provider cannot be reimbursed for costs in excess of the cost limits even if the provider can demonstrate that the costs are reasonable and necessary unless the provider's costs fall within one of a very few narrow exceptions that the Secretary has provided for, and in this case both parties agree there were no regulatory exceptions applicable to these providers.

In this Court, we are not challenging the validity of the routine cost-limit methodology as a general rule.

We are saying that for these particular providers the reimbursement produced by the Secretary's methods was inadequate under the statutory standard.

That is, it failed to reimburse the provider's actual, necessary costs, excluding those costs due to inefficiency or unnecessary services, and what the hospitals are seeking is the opportunity to show that their costs in excess limits of the cost limits were reasonable.

Byron R. White:

And you think the statute expressly provides it in that final provision.

Carel T. Hedlund:

I believe Clause (ii) provides that.

The words of Clause (ii) are obviously central to this case, and they say that the Secretary shall provide for the making of a suitable retroactive corrective adjustment where for a provider of services for any fiscal period the aggregate reimbursement produced by the methods of determining costs proves to be inadequate or excessive.

Byron R. White:

And you assert that the Georgetown opinion supports you.

Carel T. Hedlund:

Yes.

Byron R. White:

And your opponent--

Carel T. Hedlund:

And they say it doesn't.

Byron R. White:

--They say it doesn't, yes.