The opinion of the court was delivered by: WEBER
These cases grew out of the Secretary's denial of Medicare reimbursement to many hospitals around the country for certain expenses. In the interim between the time plaintiffs filed these cases and the present, the primary issue has been aired before four circuits of the Court of Appeals, various district courts, and review boards. During this time, both parties have worked diligently to keep the court abreast of the latest developments by submitting voluminous briefs and updates. Thus prepared to consider the matter, we will address the parties' cross-motions for summary judgment. There is no dispute over relevant facts.
In these cases we face two types of claims for reimbursement. The first involves both plaintiffs and focuses on the Secretary's revised consideration of the expenses attributed to mothers about to give birth, the labor/delivery patients. The second issue applies only to Greene Hospital and concerns the Secretary's refusal to reimburse certain expenses of Greene's employee sick leave program.
I. THE LABOR/DELIVERY ISSUE
A. Regulatory Background.
The Medicare program subsidizes the medical care of elderly and disabled citizens. Medicare beneficiaries obtain treatment from health care providers, primarily hospitals, which participate in the program by choice. The Government typically reimburses these providers through "fiscal intermediaries" such as Blue Cross. The fiscal intermediaries function under contract with the Department of Health and Human Services ("HHS"). 42 U.S.C. § 1395.
As one might expect of a national program with a budget in the tens of billions, Medicare reimbursement is controlled by a complex system of regulations. In reimbursing health care providers, the Secretary generally pays the reasonable cost of services rendered to Medicare patients. Section 1395f(b)(1). Reasonable cost is defined as "the cost actually incurred excluding therefrom any part of incurred cost found to be unnecessary in the efficient delivery of needed health services and shall be determined in accordance with regulations establishing the method or methods to be used." Section 1395x(v)(1)(A). In further breaking down reasonable cost, the regulations distinguish the respective costs of "routine services" and "ancillary services." Routine services are those for which no additional charge above the customary fee is made and which every inpatient uses; room, food, and nursing care, for example. 42 C.F.R. § 405.452(d)(2). Ancillary services are those involving discrete added costs which are specific to each patient, such as blood tests, x-rays, and CAT scans. 42 C.F.R. § 405.452(d)(3). The Secretary follows a two-step formula in reimbursing reasonable costs which perhaps is best understood when expressed mathematically.
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.
See Saint Mary of Nazareth Hospital Center v. Schweiker, 231 U.S. App. D.C. 47, 718 F.2d 459, 462 n. 7 (D.C. Cir. 1983).
The hospitals felt that including labor/delivery patients in the reimbursement formula without including attendant costs unfairly diluted their Medicare reimbursement. See slip op. p.3 infra, denominator of part 1. They argue simply that women in labor/delivery areas of the hospital are not generating routine costs; they are receiving the specialized care accorded delivering mothers for which a separate charge is made. They also contend that ...