Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. IP 80-1225 C -- James E. Noland, Judge.
Bauer, Wood, Circuit Judges, and Campbell, Senior District Judge.*fn* Wood, Circuit Judge, dissenting.
This case involves the appropriate Medicare reimbursement classification for the August F. Hook Physical Rehabilitation Center operated by Plaintiff-appellee, Community Hospital of Indianapolis. Defendant-appellant, the Secretary of Health and Human Services (the Secretary), determined that reimbursement for patient care in the rehabilitation center should be in accordance with the level set for routine rather than special care units. The district court, on cross-motions for summary judgment, reversed the Secretary's decision on the ground that it was not supported by substantial evidence. We agree with the district court that the administrative record in this case did not adequately support the Secretary's decision; accordingly, we affirm the district court judgment.
Community Hospital of Indianapolis (the Hospital) is a "provider of services" under the Medicare program. See 42 U.S.C. §§ 1395x(e), 1395x(u). By agreement, the Hospital is reimbursed for services provided to Medicare patients through a fiscal intermediary. Under the Medicare program, two levels of reimbursement are available. The lower level of reimbursement applies when Medicare patients are treated in the Hospital's routine service areas.*fn1 A higher level of reimbursement is available when Medicare patients are hospitalized in "special care units."
In July of 1974, the Hospital opened the August F. Hook Physical Rehabilitation Center. This forty-eight bed inpatient unit provides health care for physically disabled individuals. The special needs of rehabilitation center patients make patient care in this hospital unit more costly than routine care; this cost differential results from the need for special equipment for physical rehabilitation as well as the need for a higher staff to patient ratio.
Initially the rehabilitation center was reimbursed by Medicare at the routine care level. After gaining some experience in the operation of the center, however, the Hospital sought to have the rehabilitation center classified as a special care unit for Medicare purposes. Thus, in January of 1976, the Hospital sought the approval of its fiscal intermediary to treat the rehabilitation center as a special care unit on its cost reports.
The fiscal intermediary responded favorably to the Hospital's request. On March 15, 1976, the intermediary authorized the Hospital to treat the rehabilitation unit as a special care unit on the Hospital's Medicare cost reports. This authorization was reiterated in November of 1976 and the intermediary accepted the Hospital's treatment of the rehabilitation center as a special care unit on the cost report submitted for the 1976 fiscal year.
The Hospital continued to report the rehabilitation center costs under the special care unit rubric for fiscal years ending September 18, 1977 and September 17, 1978. The instant controversy arose when the intermediary disallowed these classifications. The intermediary's about-face was in response to a letter issued by the Department of Health, Education and Welfare,*fn2 and a revision to that Department's Health Insurance Manual. The intermediary determined that the rehabilitation center did not qualify for special care unit status as that status was defined under the Medicare program.
The Hospital timely filed appeals from the Notices of Program Reimbursement denying special care unit treatment for the rehabilitation center for 1977 and 1978. These appeals were consolidated before the Provider Reimbursement Review Board (PRRB). See 42 U.S.C. § 1395oo. After a full adjudicative hearing, the PRRB ruled that the rehabilitation center qualified for treatment as a special care unit.*fn3
On November 13, 1980, the Deputy Administrator of the Health Care Financing Administration, acting on behalf of the Secretary, reversed the PRRB ruling. The Deputy Administrator's opinion letter incorporated by reference all of the facts as found by the PRRB. Nonetheless, the rehabilitation center was denied special care unit status because the center did not render services comparable to those provided to critically ill patients in recognized special care units.
The Hospital appealed the Secretary's decision to the District Court for the Southern District of Indiana. That court reversed the Secretary's decision, holding that it was not supported by substantial evidence. This appeal followed.
The Secretary offers four issues for our consideration: (1) whether the Secretary's interpretation of the special care unit definition, which requires care comparable to that provided to critically ill patients in recognized special care units, is reasonable; (2) whether the Secretary's determination that the rehabilitation center does not provide a level of care comparable to that provided to critically ill patients in recognized special care units is supported by substantial evidence; (3) whether the Secretary's determination that the rehabilitation center does not provide "extraordinary," "concentrated," and "continuous " care is supported by substantial evidence; and (4) whether the fiscal intermediary's earlier authorization of special care unit status estops the government from treating the rehabilitation center as a routine service area.
Under the Medicare statutory scheme, judicial review of the Secretary's decision is undertaken pursuant to the dictates of the Administrative Procedure Act. In this case, we are called upon to review the record of an administrative agency hearing required by statute. Thus, the appropriate standard of review is whether the findings and conclusions of the agency are supported by substantial evidence. 5 U.S.C. § 706(2)(E); see Camp v. Pitts, 411 U.S. 138, 36 L. Ed. 2d 106, 93 S. Ct. 1241 (1973); Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 28 L. Ed. 2d 136, 91 S. Ct. 814 (1971).
In this case, there are two aspects of the Secretary's decision that command our attention. The first is whether the Secretary applied the correct standard in determining what constituted a special care unit for fiscal years ending in September of 1977 and 1978. The second is whether substantial record evidence supported the Secretary's determination that the care ...