Before EDWARDS and WILLIAMS, Circuit Judges, and JOYCE HENS GREEN,* District Judge.
UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT
SAMARITAN HEALTH SERVICE, an Arizona not-for-profit
Appeal from the United States District Court for the District of Columbia (Civil Action No. 84-02840).
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE WILLIAMS
This appeal concerns a health care provider's entitlement to reimbursement under the Health Insurance for the Aged and Disabled Act (the "Act"), 42 U.S.C. §§ 1395-1395zz (1982 & Supp. III 1985). The Act establishes a national health insurance plan for individuals who are 65 or older, disabled, or suffering from end-stage renal disease. To carry out this plan the United States reimburses health care providers for the reasonable costs of rendering certain services to Medicare beneficiaries. See 42 U.S.C. §§ 1395f (b)(1), 1395x (v)(1)(1982).
Petitioner Samaritan Health Service owns and operates Good Samaritan Hospital, a short-term acute-care hospital providing medical services to Medicare and non-Medicare beneficiaries. At issue in Good Samaritan's right to reimbursement for certain costs incurred in the operation of two of its facilities, namely units caring for sick newborns and an ultra-sophisticated emergency room. The Secretary determined that costs incurred in the operation of Good Samaritan's newborn units constituted "nursery" costs within the meaning of a regulation treating nursery costs as not "routine" and therefore non-reimbursable. Good Samaritan Hosp. v. Blue Cross & Blue Shield Ass'n/Blue Cross/Blue Shield, Inc.,
Good Samaritan operates four infant care units. Each is separate and provides a different level of care. The "A-3 Nursery" cares for healthy newborns while their mothers recover from delivery. The "Transitional Nursery" provides the same level of care as the A-3 Nursery except that newborns' vital signs are more frequently monitored. Neither the Transitional Nursery nor the A-3 Nursery contains any medical equipment of note, and the care they offer is essentially custodial and not medical.
The other two units care exclusively for sick newborns. The "ICU Unit" cares for critically ill newborns and the "Border Unit" cares for all other sick newborns requiring medical treatment. Unlike the A-3 and Transitional nurseries, these units possess sophisticated medical equipment and comprehensive medical staffs.
Each of Good Samaritan's infant care units is licensed by the state of Arizona as a nursery, and prior to 1975 Good Samaritan classified all four units as nurseries for Medicare purposes. In 1975, Good Samaritan reclassified the Border and ICU units as "pediatric" units in order to obtain Medicare reimbursement for a portion of the costs of providing routine services*fn1 in those units.
The Secretary's method of reimbursing providers is somewhat counter-intuitive. Rather than requiring providers to account for the routine services used by each Medicare patient, Medicare reimburses providers for a portion of their total cost of providing such services to all patients. See 42 U.S.C. § 404.452 (1979). The provider's hospital-wide routine costs are aggregated to yield a "total cost of routine services" which is divided by the provider's "total number of inpatient days" to yield an "average cost per diem". The average cost per diem is then multiplied by the number of Medicare beneficiary inpatient days to yield the Medicare reimbursement. *fn2 This simple formula is complicated by the fact that the regulations specifically exclude certain costs, including "nursery costs," from a provider's total cost of routine services, and certain days, including "newborn days," from a provider's total number of inpatient days. *fn3 42 C.F.R. § 405.452 (d) (7) (1979).
1. total cost of routine services / total number of inpatient days = average cost per diem.
2. (average cost per diem) x (number of Medicare beneficiary inpatient days) = amount reimbursed.
Saint Mary of Nazareth Hosp. Center v. Schweiker, 231 U.S. App. D.C. 47, 718 F.2d 459, ...