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Shalala v. Guernsey Memorial Hospital

Facts

Respondent Guernsey Memorial Hospital issued bonds in 1972 and 1982 to fund capital improvements and refinanced its bonded debt in 1985, resulting in an accounting loss of $672,581. The Hospital claimed entitlement to Medicare reimbursement for approximately $314,000 of this loss, while the Secretary argued that the loss should be amortized over the life of the old bonds. The fiscal intermediary supported the Secretary's position, leading to a series of legal challenges culminating in the Court of Appeals ruling in favor of the Hospital.

In 1985, the Hospital refinanced its bonded debt by issuing new bonds. Although the refinancing will result in an estimated $ 12 million saving in debt service costs, the transaction did result in an accounting loss, sometimes referred to as an advance refunding or defeasance loss, of $ 672,581. The Hospital determined that it was entitled to Medicare reimbursement for about $ 314,000 of the loss.

Issue

Whether the Medicare regulations require reimbursement according to generally accepted accounting principles (GAAP) and whether the reimbursement guideline relied upon by the Secretary is invalid due to failure to comply with the notice-and-comment provisions of the Administrative Procedure Act.

The particular dispute concerns whether the Medicare regulations require reimbursement according to generally accepted accounting principles (GAAP), and whether the reimbursement guideline the Secretary relied upon is invalid because she did not follow the notice-and-comment provisions of the Administrative Procedure Act (APA) in issuing it.

Rule

The Secretary's regulations do not require reimbursement according to GAAP, and the guideline under the Medicare Provider Reimbursement Manual is a valid interpretive rule.

We hold that the Secretary's regulations do not require reimbursement according to GAAP and that her guideline is a valid interpretive rule.

Analysis

The Court determined that the Secretary's interpretation of her regulations was reasonable and did not bind her to reimburse according to GAAP. The regulations were found to focus on recordkeeping requirements rather than reimbursement determinations. The Secretary's guideline for amortization of losses was deemed appropriate to ensure that Medicare only reimbursed its fair share of costs.

The Secretary's position that 413.20(a) does not bind her to reimburse according to GAAP is supported by the regulation's text and the overall structure of the regulations. It is a reasonable regulatory interpretation, and we must defer to it.

Conclusion

The Supreme Court reversed the judgment of the Court of Appeals, concluding that the Hospital was not entitled to full reimbursement for its accounting loss in the year of refinancing.

We granted certiorari, 511 U.S. 1016 (1994) , and now reverse.

Who won?

The Secretary of Health and Human Services prevailed in the case because the Supreme Court upheld her interpretation of the regulations, which did not mandate reimbursement according to GAAP.

The Secretary's position was sustained, see Guernsey Memorial Hospital v. Sullivan , 796 F. Supp. 283 [***114] (SD Ohio 1992) , but the Court of Appeals reversed, see Guernsey Memorial Hospital v. Secretary of Health and Human Services , 996 F.2d 830 (CA6 1993).

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