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Delaware County Memorial Hospital v. Bowen

filed: January 25, 1989.

DELAWARE COUNTY MEMORIAL HOSPITAL, APPELLANT
v.
OTIS R. BOWEN, M.D., SECRETARY OF HEALTH AND HUMAN SERVICES



On Appeal from the United States District Court for the Eastern District of Pennsylvania, D.C. Civil No. 86-2539, District Judge: Hon. Louis C. Bechtle.

Gibbons, Chief Judge, Seitz and Greenberg, Circuit Judges.

Author: Gibbons

Opinion OF THE COURT

GIBBONS, Chief Judge:

Delaware County Memorial Hospital appeals from a summary judgment in favor of the Secretary of Health and Human Services in its suit seeking to set aside the Secretary's determination that the Hospital would not be reimbursed on a cost basis for services to patients in the Hospital's rehabilitation unit during the fiscal years ending June 30, 1985 and June 30, 1986. Our review is plenary. We will affirm.

I.

Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395 et seq. (the Medicare Act) provide federal funding for medical care for the aged and disabled. Part A of that Act provides for hospital insurance funded from Social Security taxes. 42 U.S.C. §§ 1395 c and i. Prior to 1983, Medicare providers were reimbursed for the reasonable cost of covered services. In 1983, Congress amended the Medicare Act establishing a prospective payment system in place of cost reimbursement under which Medicare providers are paid a predetermined amount for each discharge, which varies according to the diagnosis of the patient. Pub. L. 98-21 § 601(e); 42 U.S.C. § 1395ww(d). The 1983 amendment exempted from the prospective payment system those hospitals and hospital units which provide long-term care, including rehabilitation care. The pertinent section of the 1983 statute exempts from the prospective payment system "(ii) a rehabilitation hospital (as defined by the Secretary)," 42 U.S.C. § 1395ww(d)(1)(B), and "in accordance with regulations of the Secretary, a . . . rehabilitation unit of the hospital which is a distinct part of the hospital (as defined by the Secretary)." Id.

On September 1, 1983, the Secretary issued a definition of the term "distinct part rehabilitation unit." 48 Fed. Reg. 39,752, 39,756. In order to qualify such a unit must:

have treated, during its most recent 12-month cost reporting period, an inpatient population of which at least 75 percent required intensive rehabilitation for the treatment of one or more of [eight conditions].

42 C.F.R. § 4O5.471(c)(2)(ii) [redesignated in 1985 as 42 C.F.R. § 412.29(a)]. (The 75 percent rule).

On July 3, 1984, the Secretary issued a Notice of Proposed Rulemaking proposing changes in the regulations governing exclusion of rehabilitation units from the prospective prepayment system. 49 Fed.Reg. 27,422. Some comments received in response to this notice criticized the 75 percent rule on the ground that requiring a unit to have a 12-month cost reporting history was unfair to hospitals establishing new units. Responding to those comments the Secretary issued a regulation providing in pertinent part:

(e) Exclusion of new rehabilitation units and expansion of excluded rehabilitation units -- (1) units. If a hospital has not previously sought exclusion for any rehabilitation unit, and has obtained approval for added bed capacity under State Iicensure and under its Medicare certification, it may identify the new beds as a new rehabilitation unit for the first full 12-month cost-reporting period during which the beds are used to furnish inpatient care. A unit that is comprised of some beds that were previously licensed and certified, and some new beds, will be recognized as a new rehabilitation unit only if the majority of beds are new. For the first cost reporting period in which a hospital seeks exclusion of a new rehabilitation unit, the hospital may provide a written certification that the inpatient population it intends the unit to serve meets the requirements of paragraph (c)(4)(iii)(A) [the 75 percent rule] of this section instead of showing that it has treated such a population during its most recent 12-month cost-reporting period.

49 Fed. Reg. 34,757 et seq. (Aug. 31, 1984); 42 C.F.R. § 405.471(e) [redesignated in 1985 as 42 C.F.R. § 412.30(a)] (the ...


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