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Butler County Memorial Hospital v. Heckler

December 30, 1985


On Appeal from the United States District Court for the Western District of Pennsylvania (Pittsburgh), C.A. No. 83-1650.

Author: Adams

Before: ADAMS, Acting Chief Judge, GIBSON, and STAPLETON, Circuit Judges.


ADAMS, Acting Chief Judge.

This civil action challenges a final determination of the Secretary of Health and Human Services concerning the proper rate of Medicare reimbursement for certain hospital services. The district court disputed the Secretary's conclusions, and entered summary judgment for the plaintiff. Since we conclude that this decision did not accord the appropriate deference to administrative policies in a complex area, we will reverse.


The Medicare program, Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395-1395zz (West 1983), provides federal funding for medical care for the aged and disabled, and consists of two parts. Part A is an insurance program covering inpatient hospital care and extended post-hospital or home health care; it is funded by Social Security payroll contributions. Id. at §§ 1395c-1395i-2. Part B provides insurance benefits for physician services and outpatient services and supplies: it is funded by individual premium payments and federal contributions. Id. at §§ 1395j-1395w. This appeal involves the Part A program.

For the 1983 and earlier cost years, the Secretary reimbursed providers such as plaintiff, Butler County Memorial Hospital, for the reasonable cost of Part A services. Id. at §§ 1395x(u), 1395x(v)(1)(A).*fn1 The statute allows the Secretary to appoint a "fiscal intermediary" to ascertain the reasonable costs owed to providers and to process claims and disburse funds. Id. at § 1395h.

Most provider costs are reimbursed at a single per diem rate, but a regulations promulgated by the Secretary allows a higher level of payment for "special care units" (SCUs). During the relevant time, it provided:

Intensive care units, coronary care units, and other special care inpatient hospital units. To be considered an intensive care unit, coronary care unit, or other special care inpatient hospital unit, the unit must be in a hospital, must be one in which the care required is extraordinary and on a concentrated and continuous basis and must be physcially identifiable as separate from general patient care areas. There shall bespecific written policies for each of such designated units which include, but are not limited to burn, coronary care, pulmonary care, trauma, and intensive care units but exclude postoperative recovery rooms, post-anesthesia recovery rooms, or maternity labor rooms.

42 C.F.R. § 405.452(d)(10)(1978).

In this matter, the fiscal intermediary, Blue Cross of Western Pennsylvania, determined that costs incurred by a certain unit in the Butler Hospital should be reimbursed at the lower level in the 1980 cost year and not as an SCU. Blue Cross decided that the hospital's "Maxicare Unit" (MCU) met all of the regulatory requirements for SCUs, except that the care provided was not "extraordinary, concentrated and continuous." This decision decreased the hospital's claimed reimbursement by $45,000 in the 1980 cost year.*fn2 The hospital first appealed to the Provider Reimbursement Review Board, which affirmed the intermediary, and then to the Deputy Administrator of the Health Care Financing Administration, who also affirmed. The decision of the Deputy Administrator represents the final position of the Secretary. 42 U.S.C. § 1395oo(f)(1) (West Supp. 1985).

The Deputy Administrator wrote that the regulatory terms do not lend themselves to precise definition, thus in determining whether a unit qualifies as an SCU the specific types of SCUs enumerated in the regulated should be used as points of reference. The Secretary's position is that the intensity of care provided by an SCU should not only be significantly greater than routine care but also "substantially the same" as that provided in the other types of units mentioned in § 405.452(d)(10). In applying this standard, the Secretary considered evidence relating to the hospital's intensive care unit (ICU) and found that the care provided there was substantially more intensive than MCU care. In reversing this decision, the district court rejected the Secretary's interpretation of the regulation. It decided that the only ...

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