United States Court of Appeals, Eleventh Circuit

808 F.
2d 1405
16 Soc.Sec.Rep.Ser. 127, Medicare&Medicaid Gu 35,999

NORTH BROWARD HOSPITAL DISTRICT, PlaintiffAppellee,
v.
Otis R. BOWEN, Secretary of the United States Department of
Health and Human Services, Defendant-Appellant.
No. 85-6039.
United States Court of Appeals,

Eleventh Circuit.
Jan. 12, 1987.
Rehearing and Rehearing En Banc Denied Feb. 25, 1987.
Leon B. Kellner, U.S. Atty., Susan H. Aprill, Asst. U.S. Atty., Miami,
Fla., Susanne M. Lee, U.S. Dept. of Health & Human Services,
Washington, D.C., for defendant-appellant.
Edward T. O'Donnell, Jennifer L. Scott, Michael W. Ford, Miami, Fla.,
for plaintiff-appellee.
Appeal from the United States District Court for the Southern District of
Florida.
Before JOHNSON and ANDERSON, Circuit Judges, and GARZA* ,
Senior Circuit Judge.
GARZA, Senior Circuit Judge:
This case presents a difficult statutory construction question as to whether a

Medicare provider may claim certain costs in a proceeding before the Provider
Reimbursement Review Board when the provider failed to claim such costs or
otherwise contest them in its annual Medicare cost reports. The Provider
Reimbursement Review Board held that it had no jurisdiction to consider
reimbursement claims not expressly claimed by the providers in the cost report
to the fiscal intermediary. The district court remanded the case to the Board,
directing the Board to consider costs not expressly claimed within the cost
report. We vacate the district court's order of remand and uphold the Board's
decision that it had no jurisdiction to consider the claims of the provider in this
case.
2
* In 1965, Congress enacted Title XVIII of the Social Security Act, known
today as the "Medicare" program, 42 U.S.C. Sec. 1395 et seq. This legislation
authorizes federal reimbursement for medical care provided to the aged and
certain disabled individuals. Part A, under which this case arises, provides
hospital insurance benefits to the elderly. If the health care provider agrees not
to bill certain patients for medical services, the Act mandates that the provider
be reimbursed for its "reasonable costs" of providing medical services to
medicare beneficiaries. 42 U.S.C. Secs. 1395f, 1395cc. Annual cost reports are
submitted to a "fiscal intermediary" for review; the fiscal intermediary acts as
an agent of the Secretary of Health and Human Services (HHS) and is
responsible for reviewing claims for reimbursement and administering
payments due under the program. 42 U.S.C. Sec. 1395h. The intermediary
audits the annual cost report of the provider and issues a Notice of Program
Reimbursement (NPR) to the provider with an explanation of any audit
adjustments or disallowed costs. If the provider is dissatisfied with the final
determination of the intermediary, it may appeal to the Provider
Reimbursement Review Board ("PRRB" or "Board"). A provider may "obtain a
hearing with respect to such cost report" before a PRRB if the provider
3 dissatisfied with the final determination of the organization serving as its fiscal
is
intermediary ... as to the amount of total program reimbursement due the provider
for the items and services furnished to individuals for which payment may be made
under this sub-chapter for the period covered by such report."
4
42 U.S.C. Sec. 1395oo(a)(1)(A)(i). Once the matter is before the PRRB, the
Board has
5 power to affirm, modify, or reverse a final determination of the fiscal

the
intermediary with respect to a cost report and to make any other revisions on matters
covered by such cost report (including revisions adverse to the provider of services)
even though such matters were not considered by the intermediary in making such
final determination.
6
42 U.S.C. Sec. 1395oo(d). The statute authorizes a provider to seek review of a

PRRB decision by the Secretary, and if the Secretary's decision is also adverse,
the provider may seek judicial review of the Secretary's final decision. 42
U.S.C. Sec. 1395oo(f)(1).
II
7
The North Broward Hospital District (North Broward) exists in a special tax
district created by an act of the Florida legislature. North Broward operates
three public hospitals in Broward County; these hospitals are providers under
the Medicare program. As such, the hospitals receive interim payments at least
monthly from the Medicare program based on the estimated cost of healthcovered services provided to Medicare beneficiaries.1 Final settlement is made
retroactively based upon annual cost reports which North Broward submits to a
claim intermediary for reimbursement of actual expenditures.
During fiscal year 1977, North Broward incurred costs consisting of charges by
the Broward County tax assessor and Broward County tax collector for revenue
necessary to operate the three hospitals. The hospitals initially included these
costs in their individual cost reports but later "self-disallowed"2 them. Since
North Broward's cost report did not request reimbursement for its tax payments,
the fiscal intermediary did not include the tax collection costs in its NPR, and
there were no payments made to North Broward for the tax collection expenses.
North Broward appealed the intermediary's determination of reimburseable

costs to the PRRB and, for the first time, raised a claim for reimbursement of
the tax collection expenses while on appeal before the PRRB. The Board
initially accepted jurisdiction of North Broward's appeal, but on June 28, 1984,
the Board informed North Broward that it could not accept jurisdiction over the
assessment and collection expenses because they were not claimed as costs in
the provider's original cost reports. On internal agency appeal, the acting
deputy administrator of the Health Care Financing Administration affirmed the
decision denying jurisdiction on August 23, 1984; this constituted the final
decision of the Secretary of Health and Human Services. North Broward
appealed the Secretary's decision by filing suit in U.S. District Court. Judge
Alcee Hastings determined that the tax collection costs were "self-disallowed"
in a good faith attempt to obey the law. He dismissed the case without prejudice
and remanded it to the PRRB, holding that the PRRB did have jurisdiction to
hear issues concerning self-disallowed costs not expressly claimed in an initial
cost report. The Secretary appeals that decision.3
III
10
Crucial to the resolution of this issue is our interpretation of the Medicare

statute. Our standard of review turns on whether the Secretary's interpretation
of the law is reasonable or arbitrary and capricious; courts grant the agency
charged with the administration of a statute substantial deference in its
interpretation. Blum v. Bacon, 457 U.S. 132, 102 S.Ct. 2355, 72 L.Ed.2d 728
(1982); Memorial Hospital v. Heckler, 706 F.2d 1130, 1134 (11th Cir.1983)
cert. denied, 465 U.S. 1023, 104 S.Ct. 1275, 79 L.Ed.2d 680 (1984); Lloyd
Noland Hospital and Clinic v. Heckler, 762 F.2d 1561 (11th Cir.1985) (the
court "will not substitute its judgment for that of the agency"). Absent a clear
error of judgment, the agency's construction should be upheld.
11
Four United States Circuit Courts have previously considered the Secretary's
interpretation of 42 U.S.C. Sec. 1395oo. The District of Columbia Circuit filed
two opinions holding that a provider must raise a claim in its original cost
report or lose its right to claim the cost on appeal. Athens Community Hospital
v. Schweiker, 686 F.2d 989 (D.C.Cir.1982) (Athens I ); modified on reh'g,
Athens Community Hospital v. Schweiker, 743 F.2d 1 (D.C.Cir.1984) (Athens
II ). The Fourth Circuit has also adopted the Secretary's position and the
rationale of Athens II. See Community Hospital of Roanoke Valley v. Health &
Human Services, 770 F.2d 1257 (4th Cir.1985). The Sixth Circuit's decision in
Saline Community Hospital v. Secretary of Health & Human Services, 744 F.2d
517 (6th Cir.1984), affirmed this reading of the statute. The Seventh Circuit has
found contrary to the Secretary, St. Mary of Nazareth Hospital v. Dept. of
Health & Human Services, 698 F.2d 1337 (7th Cir.1983), as have some district
courts.4 After a close reading of the Medicare statute and considered review of
the previous decisions on this issue, we are persuaded that the Secretary's
interpretation is reasonable and should be upheld.
12
The conflict over the interpretation of the Medicare statute concerns whether or
not a provider must expressly claim or specifically contest an item of
reimbursement with the fiscal intermediary before such cost(s) may be claimed
on appeal to the PRRB. Under the Medicare statute, the PRRB has the power
only to review "matters covered by such cost report." 42 U.S.C. Sec.
1395oo(d). However, Sec. 1395oo(d) also provides that the Board shall base its
decision upon "the record made at such hearing, which shall include the
evidence considered by the intermediary and such other evidence as may be
obtained or received by the Board ... even though such matters were not
considered by the intermediary in making such final determination." Id.
13
The language of the statute is ambiguous as to whether the PRRB can consider
reimbursement claims not disclosed in the cost report. While there are various
methods of interpreting the statutory grant of Sec. 1395oo(d) 5 , the D.C. Circuit
reasoned that "there is only one way of reading the statute that does give effect
to both charges of Section 1395oo(d)."6 Athens II, 743 F.2d at 9; accord,
Community Hospital of Roanoke Valley, 770 F.2d at 1262. A cost report lists
both reimburseable and non-reimburseable costs; there is clearly a difference
between simply listing a cost on a provider's cost report and claiming

reimbursement for a particular cost incurred. The fiscal intermediary only
audits costs expressly claimed for reimbursement. It would be anomalous for a
provider to be "dissatisfied" with the decision of the fiscal intermediary because
the provider itself failed to disclose costs for which it desired reimbursement.
The only plausible construction of Sec. 1395oo(d) requires that an expense be
overtly disclosed and contested before the fiscal intermediary in order to be "a
matter covered by such report" and appealable before the PRRB; the Board
may consider "revisions" on the reimbursement of costs "even though such
matters were not considered by the intermediary in making such a final
determination" so long as such revisions "[are] necessary to accommodate other
PRRB revisions of matters that were [expressly] claimed by the provider,
decided adversely by the intermediary, and then contested by the provider to
the PRRB." Athens II, 743 F.2d at 9. A broader reading of PRRB jurisdiction,
allowing any claim to be raised for the first time on appeal to the Board,
"would effectively nullify the language in the statute that limits the PRRB's
authority to affirm, reverse or modify reimbursements to 'matters covered by a
cost report' " and wreak havoc with the multi-tiered administrative appeals
scheme. Athens II, 743 F.2d at 6. The district court's reading would result in the
elimination of the administrative review process clearly provided for in the
Medicare statute and regulations.
14
We believe that the scope of jurisdiction conferred by Sec. 1395oo(d) is limited

to matters put into dispute by the provider at the time the cost report is filed.
This reading of the statute is more consistent with the language of Sec.
1395oo(d) and with the overall approach contemplated by Congress. See 42
U.S.C. Sec. 1395oo. Therefore, we hold that a provider, to retain the right to
appeal the decision on whether a cost is reimburseable, must either expressly
request reimbursement for a cost item in its initial cost report or specifically
contest the non-allowability of the item with its intermediary in or with the cost
report.7
15
The decision of the district court is hereby VACATED and the appeal
DISMISSED.
16
ANDERSON, Circuit Judge, concurring.
17
In my opinion, the most reasonable interpretation of the statute is contrary to

that urged by the Secretary. The language, "power ... to make any other
revisions on matters covered by such cost report ... even though such matters
were not considered by the intermediary," would seem rather clearly
inconsistent with that interpretation, and would seem to specifically address the
issue in this case. However, Judge Garza's opinion has persuaded me that the
Secretary's interpretation is not so strained as to be unreasonable, arbitrary or
capricious. Accordingly, deference to the agency's construction is due. I concur
in the judgment.
Honorable Reynaldo G. Garza, Senior U.S. Circuit Judge for the Fifth Circuit,
sitting by designation
The periodic interim payments are designed to assist the providers in avoiding
cash flow problems. 42 U.S.C. Sec. 1395g
"Self-disallowed" costs are expenses listed in an annual cost report but are not
costs for which a provider claims it is entitled to reimbursement. Since these
costs of health care are initially listed and then voluntarily subtracted by the
health care provider itself and not claimed for reimbursement, they are
commonly termed "self-disallowed" costs. North Broward offers no explanation
as to why these costs were self-disallowed
The initial question, of course, is whether this is an appealable order since there
was no adjudication on the merits. This Circuit has held that a remand order
from a district court to the PRRB is an appealable order. Medical Center
Hospital v. Bowen, No. 86-3026 (11th Cir. March 6, 1986)
See, e.g., Adams House Health Care v. Heckler, 604 F.Supp. 110
(N.D.Cal.1984) appeal docketed, No. 85-1512 (9th Cir. Jan. 7, 1985); Parkway
Memorial Center, et. al. v. Heckler, No. 83-1700-CIV (S.D.Fla. Sept. 19, 1984)
reconsideration denied (S.D.Fla. Dec. 18, 1984); Springdale Memorial Hospital
v. Heckler (W.D.Ark. April 14, 1986) (order that receipt of NPR not required
for appeal of prospective payments to the PRRB)
See the thorough analysis of possible interpretations in Athens II, 743 F.2d 1, 47
This conclusion is instructive. Athens II modified Athens I because the first

panel opinion focused too much on the "matters covered in such cost report"
language instead of attempting to harmonize and give meaning to both of the
potentially conflicting provisions of Sec. 1395oo(d). Neither clause, "matters
covered in such cost report" nor "even though such matters were not considered
by the intermediary in making such final determination," can be read without
reading the entire statutory section in context
This illustrates the problem with the decision in St. Mary of Nazareth v. Dept.
of Health & Human Services, 698 F.2d 1337 (7th Cir.1983), the only appellate
decision allowing reimbursement claims to be raised for the first time before
the PRRB. The Seventh Circuit's view of Sec. 1395oo(d) places predominant
weight on a single clause of the statute, the "even though ..." phrase, and fails
to properly consider the entire statutory section or the overall regulatory scheme
created by Congress. The reimbursement review procedure is modeled after the
civil litigation procedure, and the PRRB's review of the fiscal intermediary's
decision is limited in the same manner as an appellate court's review of a trial
decision: the claim had to be brought at the initial hearing to be recognized on
appeal. To the extent Sec. 1395oo(d) allows evidence of claims not considered
by the intermediary, we adopt the D.C. Circuit's conclusion that such evidence
is limited to the category of claims previously filed in the cost report. See
Athens II, 743 F.2d at 3, n. 2.
North Broward stated during oral argument that the self-disallowed tax
payments at issue here were listed as general administrative expenses. Appellee
has made no representation that such general expenses were costs claimed for
reimbursement. The actual cost report has not been made a part of this record.
7
Of course, the Medicare reimbursement scheme also provides other avenues of

appeal to request reimbursement. A thirty-day extention of the due date for a
cost report may be granted for good cause. 42 C.F.R. Sec. 405.453(f)(2)(ii).
The intermediary has the discretion to allow or require a provider to reopen
and, if appropriate, amend a previously filed cost report. 42 C.F.R. Secs.
405.453(f), 405.185. Moreover, the provider could always "self-disallow" costs
but append a letter to the cost report stating that such voluntary selfdisallowance was performed only to comply with regulations which the
provider wished to challenge. See Community Hospital of Roanoke Valley, 770
F.2d at 1263, n. 4

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808 F.

16 Soc.Sec.Rep.Ser. 127, Medicare&Medicaid Gu 35,999

United States Court of Appeals,

This case presents a difficult statutory construction question as to whether a

5 power to affirm, modify, or reverse a final determination of the fiscal

42 U.S.C. Sec. 1395oo(d). The statute authorizes a provider to seek review of a

North Broward appealed the intermediary's determination of reimburseable

Crucial to the resolution of this issue is our interpretation of the Medicare

between simply listing a cost on a provider's cost report and claiming

We believe that the scope of jurisdiction conferred by Sec. 1395oo(d) is limited

ANDERSON, Circuit Judge, concurring.

In my opinion, the most reasonable interpretation of the statute is contrary to

This conclusion is instructive. Athens II modified Athens I because the first

Of course, the Medicare reimbursement scheme also provides other avenues of

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