Opinion
No. 98 C 1127.
March 9, 2000.
MEMORANDUM AND ORDER
Pursuant to 42 U.S.C. § 1395oo(f), plaintiff Little Company of Mary Hospital and Health Care Centers (the "Hospital") seeks judicial review of a final decision rendered by the Secretary of Health and Human Services (the "Secretary") denying reimbursement under Medicare for interest incurred in connection with a loan to purchase a linear accelerator from the cost year ending in June of 1989. There are two issues before the court: (1) whether the Hospital's loan was "necessary" under 42 C.F.R. § 413.153, which governs allowable interest expense; and (2) whether the Secretary properly calculated the amount of interest that was an allowable offset (i.e., whether the Secretary properly rejected the Hospital's claim that its net investment income could be offset against all of its interest expense as opposed to only its allowable interest expense). The parties cross-motions for summary judgment are before this court. For the following reasons, the Hospital's motion for summary judgment is denied and the Secretary's motion for summary judgment is granted.
A "linear accelerator" is a device in which charged particles are accelerated in a straight line by successive impulses from a series of electric fields. Merriam Webster's Collegiate Dictionary 677 (10th ed. 1993).
The complaint also includes an additional issue concerning the Hospital's neonatal facility. The court, however, granted the Hospital's oral motion to dismiss the neonatal claim in light of Little Company of Mary Hospital and Health Care Centers v. Shalala, 165 F.3d 1162 (7th Cir. 1999).
I. Background
The essential facts are undisputed and are drawn from the administrative record.
A. Parties
Little Company of Mary Hospital and Health Care Centers is an Illinois not-for-profit corporation located in Evergreen Park, Illinois. The hospital provides acute care services and, for the time period at issue in this case, was a "provider of services" under Medicare. (A.R. at 29). The Secretary administers the Medicare Act and produces the Provider Reimbursement Manual ("PRM") to help interpret the regulations accompanying that Act. See Memorial Hospital of Carbondale v. Heckler, 760 F.2d 771, 772 (7th Cir. 1985).
The Secretary also contracts with private entities known as "fiscal intermediaries." The fiscal intermediaries perform functions implementing reimbursement, including determining the amount of payments owed to a provider based on a cost report filed by the Hospital and determining the amount of reimbursement for interest accrued over a given fiscal year. See 42 U.S.C. § 1395(g), (h). In this case, Blue Cross Blue Shield Association/Blue Cross Blue Shield of Illinois was the fiscal intermediary responsible for making the reimbursement decisions concerning the Hospital. (A.R. at 29).
B. The Medicare Act's Reimbursement Procedures
The Medicare program pays for covered medical care furnished to eligible elderly persons and has two parts: Part A (which is at issue in this case) and Part B (which is not). See 42 U.S.C. § 1395, et seq. Part A allows Providers of medical services to be reimbursed for "reasonable" and "necessary and proper" patient care costs. 42 C.F.R. § 413.9. "Reasonable costs are the costs actually incurred, excluding therefrom any part of incurred cost found to be unnecessary in the efficient delivery of needed health services." 42 U.S.C. § 1395x(v)(1)(A); 42 C.F.R. § 413.9(b)(1)(a). "Reasonable costs include all necessary and proper costs incurred in furnishing services . . . It includes both direct and indirect costs and normal standby costs. However, if the Hospital's operating costs include amounts not related to patient care, specifically not reimbursed under the program, . . . such amounts will not be allowable." 42 C.F.R. § 413.9(a), (b)(1)(a) (c)(3). In turn, "necessary and proper costs are costs that are appropriate and helpful in developing and maintaining the operation of patient care facilities and activities." 42 C.F.R. § 413.9(b)(2).
Unless otherwise noted, all citations to regulations refer to the October 1, 1998, edition of the Code of Federal Regulations in effect through the end of the cost year in June of 1989.
For each fiscal year, providers compile the costs incurred and present them to the fiscal intermediary for reimbursement. 42 U.S.C. § 1395(g) (h). The fiscal intermediary determines what costs will be allowed and presents a Notice of Program Reimbursement ("NPR") to the Provider. 42 U.S.C. § 1395(g) (h); 42 C.F.R. § 405.1803(a)(2). If a provider disagrees with the determination made by the fiscal intermediary, it may appeal and ask for a review of the decision by the Provider Reimbursement Review Board ("Review Board"). 42 U.S.C. § 1395oo(a), 42 C.F.R. § 405.1803, 42 C.F.R. § 405.1835. The Review Board can reverse, affirm, or modify the decision of the intermediary. 42 U.S.C. § 1395oo(d). if the provider is still dissatisfied with the determination, it may appeal to the Secretary, which has delegated its authority to review cases to the Administrator of the Health Care Financing Administration ("Administrator"). 42 C.F.R. § 405.1875. The Administrator may reverse, affirm, or modify the decision of the Review Board. 42 U.S.C. § 1395oo(f)(1), 42 C.F.R. § 405.1875. If the Administrator does not disturb the Board's decision, that decision becomes final, 42 U.S.C. § 1395oo(f)(1), and the provider may seek judicial review, 42 U.S.C. § 1395oo(f)(1).
In this case, Dr. Shirazi proposed a plan to purchase a linear accelerator for the Radiation Oncology Department. (A.R. at 666, 761). The Hospital board approved the plan and began the process for financing through the Illinois Health Facilities Authority ("Authority"). (A.R. at 666-67). The Hospital filed a Certificate of Need with the Authority in September of 1985 and was approved in December of 1985. (A.R. at 666-67).
The Hospital funded the project with its operating funds and planned to reimburse itself with the loan proceeds when they became available. (A.R. at 668-69). The completion date on the project was September 10, 1990, but the Hospital paid for the project in frill before the loan proceeds became available and before the project's completion date. (A.R. at 666, 668). The funds were provided by the Authority via tax exempt bonds and placed into the Hospital's funded depreciation account. (A.R. at 669.) The funds were then transferred to the operating fund, which paid for the linear accelerator. (A.R. at 666, 669.)
1. Decision of the Fiscal Intermediary
On September 30, 1991, the fiscal intermediary issued a notice of program reimbursement. (A.R. at 1538, et seq.). The fiscal intermediary disallowed interest expenses that it did not deem necessary and reasonable. (A.R. at 40). Specifically, citing to 42 C.F.R. § 413.153(b)(2), which states that necessary interest expense must be reduced by investment income, the Intermediary refused to include deductions neither related to patient care nor considered necessary expenses. (A.R. at 40). In addition, the Intermediary reasoned that the Hospital's operating fund had sufficient funds to purchase the linear accelerator before disbursement of the loan proceeds. (A.R. at 33, 40). Therefore, the Intermediary decided the Hospital did not need to collect any reimbursement from Medicare under those circumstances. (A.R. at 33).
2. Decision of the Provider Reimbursement Review Board
The Hospital appealed the Intermediary's decision to the Provider Reimbursement Review Board ("Review Board.") (A.R. at 28-47). On October 21, 1997, the PRRB upheld the Intermediary's determination that the borrowing used to replace the funds used to purchase the linear accelerator was unnecessary and reversed the Intermediary's decision to offset investment income against only allowable interest expense. (A.R. 28-47). Specifically, with respect to the borrowing issue, the Review Board agreed with the Intermediary's finding that the Hospital did not establish that there was a financial need for the capital related loan. 42 C.F.R. § 413.153; (A.R. at 42-43). It then held that, since the Hospital purchased and financed the linear accelerator before the loan proceeds were available, the loan was not necessary. (A.R. at 42-43.)
With respect to the interest offset issue, the Review Board concluded that the Intermediary's calculations relating to the amount of interest that could be used as an offset was inaccurate because it did not include capital related interest expense, non-capital related interest expense, and non-allowable interest expense, citing to 42 C.F.R. § 413.153. (A.R. at 45.)
3. Decision of the Health Care Financing Administration
The Administrator notified the parties that she had received comments from the Health Care Financing Administration requesting a review of the Review Board's decision. (A.R. at 13-14.) The parties were given an opportunity to provide comments before the Administrator made her final decision, but the Hospital elected not to submit comments. (A.R. at 13-14, 15, 20-21). On December 22, 1997, the Administrator issued the final decision of the Secretary summarily affirming the PRRB's decision on the necessity of borrowing issue and reversing it on the offset of investment income issue. (A.R. 2-12).
With respect to the necessity of borrowing issue, the Administrator agreed with the Intermediary and affirmed the Review Board's decision. (A.R. at 2). Specifically, it held that reimbursable interest is "necessary" when: (1) "it is incurred on a loan made to satisfy a financial need of the Provider. Loans that result in excess funds or investments are not considered necessary;" (2) it is "incurred on a loan made for a purpose reasonably related to patient care;" and (3) "it is reduced by investment income." 42 C.F.R. § 413.153(b)(2). It then found that the Hospital had failed to satisfy this test. Thus, it concluded that the loan was unnecessary and unreimbursable. (A.R. at 2).
With respect to the offset of investment income issue, the Administrator provided the following reasons for its decision. First, the Review Board disregarded the language of 42 C.F.R. § 413.153(b)(2)(iii) which states that the "necessary interest is reduced by investment income . . ." and included all forms of interest without deducting for any investment income or income not related to Medicare patients. (A.R. at 10). Second, contrary to the Review Board's decision, 42 C.F.R. § 413.130(g)(2) does not provide for a pro rata distribution for necessary and unnecessary interest expense. (A.R. at 10). Finally, the "Board's method of offsetting the investment income earned by the provider by various types of interest expense incurred based on the ratio each category of interest bears to the total interest expense" was improper and ended up giving the Hospital excess funds. (A.R. at 10-11.)
II. DISCUSSION
As noted above, there are two issues before the court: whether the Administrator correctly reversed the Review Board's decision with respect to the calculated interest expense and whether the Administrator correctly affirmed the Review Board decision that the Hospital's loan was unnecessary. For the following reasons, the decision of the Secretary is affirmed.
A. Standard for a Motion for Summary Judgment
Summary judgment is proper when the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of any material fact." Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The party opposing the summary judgment motion "may not rest upon the mere allegations or denials of the adverse party's pleading"; rather, it must respond with "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). "The evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor." Valenti v. Qualex, Inc., 970 F.2d 363, 365 (7th Cir. 1992), citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). A court should grant a motion for summary judgment only when the record shows that a reasonable jury could not find for the nonmoving party. Valenti v. Qualex, Inc., 970 F.2d at 365; Anderson v. Liberty Lobby, Inc., 477 U.S. at 248.
B. Standard of Review
The court's review is governed by 42 U.S.C. § 1395oo(f)(1), which provides for judicial review of any agency decision in accordance with the Administrative Procedures Act ("APA"), 5 U.S.C. § 706(2)(A) (E); see also Board of Trustees of Knox County v. Shalala, 135 F.3d 493, 499 (7th Cir. 1998). A decision by the Secretary can be set aside only if it is "arbitrary, capricious, an abuse of discretion, unsupported by substantial evidence, or otherwise not in accordance with the law." 5 U.S.C. § 706(2)(A), (F); Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc. 467 U.S. 837, 844 (1984).
Thus, this court must "accord deference to the interpretation of the agency charged with the administration of the statute." Bedford Medical Center v. Heckler, 766 F.2d 321, 323 (7th Cir. 1985). The Supreme Court has clarified this standard, explaining that:
[w]e must give substantial deference to an agency's interpretation of its own regulations. Our task is not to decide which among several competing interpretations best serves the regulatory purpose. Rather, the agency's interpretation must be given controlling weight unless it is plainly erroneous or inconsistent with the regulation. In other words, we must defer to the Secretary's interpretation unless an alternative reading is compelled by the regulation's plain language or by other indications of the Secretary's intent at the time of the regulation's promulgation. This broad deference is all the more warranted when, as here, the regulation concerns a complex and highly technical regulatory program, in which the identification and classification of relevant criteria necessarily require significant expertise and entail the exercise of judgment grounded in policy concerns.Thomas Jefferson University v. Shalala, 512 U.S. 504, 512 (1994) (internal citations and quotation marks omitted). Deference, however, is not synonymous with a rubber-stamp: the court instead must, within the boundaries of the standard of review, conduct a "thorough, probing, in-depth review." Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415 (1971).
The Hospital nevertheless invites this court not to give any deference to the Secretary's decision because the PRRB, not the Secretary, was the trier of fact. (Pl.'s Brief at 9). The court declines the invitation, as the Seventh Circuit has held that focusing on inconsistencies in the Review Board and the Administrator's interpretations of Medicare reimbursement regulations "detracts substantially from the deference normally due an agency's interpretation of its own statutes and regulations." Northwest Hospital, Inc. v. Hospital Service Corp., 687 F.2d 985, 991 (7th Cir. 1981).
Hence, "[u]nless an alternative reading is compelled by the regulation's plain language . . . we must defer to the Secretary's interpretation." Thomas Jefferson Univ., 512 U.S. at 512; see also Loyola Univ. of Chicago v. Bowen, 905 F.2d at 1071; cf. St. Francis Hosp. Ctr., 714 F.2d at 874 (the findings of the Administrator and the Review Board must be given equal deference and no one decision should be considered of greater weight or significance). In any event, however, the court also notes that the PRRB's decision on the investment income issue, which is vigorously championed by the Hospital, is based on a conclusion of law, as opposed to a factual finding, and hence is not properly the subject of deference in the first instance.
C. Denial of the Hospital's Claim for Reimbursement
1. Was the Loan Necessary?
The court agrees with the Secretary that Medicare reimburses only for necessary interest expense, and that this term does not include interest incurred in connection with a loan taken out to purchase an item which the Hospital has already bought with other funds. First, as the PRM explains, ". . . investment income resulting from investment of funds not generated from patient care activities is not subject to offset." PRM-I, Ch. 2 (CCH) ¶¶ 4903 4920. This means that, if funds invested in non-patient care activities are borrowed, the interest expense is not allowable and the investment income is not subject to offset. Id. Accordingly, the Hospital's contention that it can offset its net income against all types of investment income directly conflicts with the PRM.
This conclusion is further supported by § 202.2 of the Provider Reimbursement Manual, which explains that:
When borrowed funds create excess working capital, interest expense on such borrowed funds is not an allowable costs. Borrowing for a purpose for which funded depreciation account funds should be used makes the borrowing unnecessary to the extent that funded depreciation account funds are available at the time of borrowing.
PRM-I, § 202.2 A. "Financial Need," CCH Medicare and Medicaid Guide, ¶ 4920, at 1708.
Section 202.2 of the PRM was rewritten in 1996, after the decisions at issue in this case. However, the 1996 revision clarified rather than fundamentally altered the existing interpretation. See PRM-I, § 202.2, CCH Medicare and Medicaid Guide, ¶ 4920, note .01 at 1713. In such a situation, the Seventh Circuit has authorized courts to look to the PRM even if to so would apply the PRM retroactively. Pope v. Shalala, 998 F.2d 473, 482-86 (7th Cir. 1993), overruled on other grounds by Johnson v. Apfel, 189 F.3d 561 (7th Cir. 1999).
Second, the Hospital has failed to establish that the interest expense is related to care for Medicare patients, as the loan at issue was not, in fact, used to actually purchase the linear accelerator. Hence, the borrowing is "unnecessary" under Medicare as available funds obviated the need for the loan. See Northwest Hospital, Inc. v. Provider Services Corp, 687 F.2d 985 (7th Cir. 1982) (the Secretary did not abuse her discretion in determining that borrowing was "unnecessary where provider borrowed to fund construction although it had sufficient money in a funded depreciation fund to cover the project); Portland Adventist Medical Center v. Heckler, 561 F. Supp. 1092 (D.D.C. 1983) (provider who advanced interest free funds to a subsidiary to build a new facility and obtained bonds to build a second facility could not receive reimbursement for the interest incurred in connection with the bond because the amount borrowed could have been reduced by the funds lent to the subsidiary).
Third, the record shows that the Hospital borrowed because it was in its financial interest to do so, not because it needed to do so to purchase the linear accelerator. "Whatever [their] appeal as . . . general business proposition[s]," however, considerations such as minimizing the interest rate and obtaining tax advantages are not grounded in the Medicare statute or its accompanying regulations. Sentara-Hampton General Hospital v. Sullivan, 980 F.2d 749, 755 (D.C. Cir. 1992). Thus, courts have rejected a claim that a good business decision regarding funding for capital improvements justified borrowing and concluded that this rationale did not make a loan "necessary" under Medicare. Id.
Here, the Hospital focuses on the timing of the loan and contends that it was denied reimbursement because the loan proceeds were disbursed after it used its operating funds to pay for the linear accelerator. The Hospital also contends that funding improvements such as a linear accelerator before loan proceeds are available is a common practice in the medical field, citing the affidavit of Paul C. Marengo, an attorney with experience in hospital finance. (A.R. at 656-58.) The Hospital also challenges the decisions of the Review Board and the Administrator to the effect that the loan was unnecessary. (See A.R. at 2-12, 26-47). The Secretary, on the other hand, focuses on the fact that other funds were available, making the loan excess funds. See 42 C.F.R. § 413.153(b)(2)(i).
The Hospital asserts that it paid for the linear accelerator from its operating funds because of its other financial difficulties and its inability to obtain temporary financing. (A.R at 30). As discussed in this section, however, these facts, even if true, do not necessarily mean that the loan was necessary and proper under to 42 C.F.R. § 413.153. The Hospital also propounds five specific potential reasons for the loan: (1) the IRS dislikes early issuance of bonds and prefers to wait until the project is completed to avoid over-issuance of funds, which forces temporary use of internal or working capital until those funds are disbursed (R. at 656); (2) it wanted to improve its credit standing by using internal funds and delaying the issuance of bonds (R at 656); (3) it wanted to avoid high interest rates (R. at 657); (4) it wanted to avoid long-term borrowing costs by using internal funds (R. at 657); and (5) it wanted to expedite matters, as the funding process can be very time consuming (R. at 657).
Regardless of these rationales, however, it is clear that the Hospital was not using its operating fund as a temporary fund, but rather paid for the linear accelerator in full and then asked Medicare to reimburse the interest expense. "Loans that result in excess funds or investments are not considered necessary." 42 C.F.R. § 413.153(b)(2)(i). The "Provider is free to exercise a business judgment to borrow," but Medicare is not obligated to reimburse it for expenses potentially incurred in connection with non-Medicare patients. Northwest Hospital, Inc. v. Provider Services Corp., 500 F. Supp. 1294 (N.D.Ill. 1980) (when other funds are available, a loan is unnecessary and is not subject to reimbursement under the Medicare Act), aff'd by 687 F.2d 985 (7th Cir. 1982); see also Portland Adventist Med. Ctr v. Heckler, 561 F. Supp. 1092, 1097-98 (D.C.C. 1983); Sentara-Hampton Gen. Hosp. v. Sullivan, 980 F.2d 749, 755-56 (D.C. Cir. 1992).
Finally, contrary to the implication in the Provider's filings, the applicable standard of review does not require the court to determine the best interpretation of the statute and regulations at issue, as the court is "not empowered to overrule the Secretary's interpretation merely because it does not coincide with [the court's] notion of `reasonable cost,' or because [the court] might have interpreted the statute in a different manner." Northwest Hospital, Inc. v. Provider Services Corp., 687 F.2d at 990. Thus, the court must accept the Secretary's interpretation, even if another interpretation seems better, if the Secretary's interpretation "is within the range of reasonable meanings that the words of the regulation admit." Marymount Provider, Inc. v. Shalala, 19 F.3d 658, 661 (D.C. Cir. 1994). The court does not mean to suggest that another interpretation seems better — in fact, the court declines to reach this point. Suffice it to say, however, that the Secretary's decision rests upon a permissible construction of the statute and regulations and is supported by substantial evidence in the administrative record. Accordingly, the court finds that the Secretary's decision regarding the necessary interest expense issue was not arbitrary, capricious, or an abuse of discretion.
2. The Interest Offset
The Provider contends that the Secretary's decision to offset investment income only against "necessary" interest expense is arbitrary and capricious because it is inconsistent with 42 C.F.R. § 413.153, 42 C.F.R. § 413.130(g)(2), and HCFA Pub. 15-1, § 202. For the following reasons, however, the Court finds that the calculation accurately reflects the case law, the regulations, and the Provider Reimbursement Manual.
Generally speaking, interest expense is reimbursable under the Medicare Act. 42 C.F.R. § 413.153. To be reimbursable, however, the "interest expense" must be "necessary" — i.e., "[i]ncurred on a loan made to satisfy a financial need of the Hospital. Loans that result in excess funds or investments would not be considered necessary." 42 C.F.R. § 153(b)(2); see also The Provider Reimbursement Manual, PRM-I, Ch. 2, Interest Expense, April 13, 1999, Medicare and Medicaid Guide (CCH) at 1703; 42 C.F.R. § 413.9(b)(2) ("[n]ecessary . . . costs are costs that are appropriate and helpful in developing and maintaining the operation of patient care facilities and activities"). Moreover, 42 C.F.R. § 413.153(b)(2)(iii) requires that "necessary" interest expense be reduced by investment income through an offset. The Secretary interprets these provisions to mean, together, that investment income generated from funds that are related to Medicare patient care must be offset against interest expense that is an allowable cost under the program and hence is also related to Medicare patient care.
According to the Provider Reimbursement Manual, necessary and proper interest on both current and capital indebtedness is an allowable cost. PRM-I, § 202.2 (CCH) ¶ 4906. Interest must be "necessary and proper" — i.e., borrowed for a necessary financial need of the Hospital for a purpose related to patient care. PRM-I § 202.2 (CCH) ¶ 4920. For example, where providers are obtaining long-term loans and constructing facilities that have not been completed, interest must be capitalized as part of the cost as it does not become an allowable expense until the project is completed. PRM-I § 206 (CCH) ¶ 4955. The rationale is that, if the interest was paid up front, people would receive Medicare benefits even if they were not Medicare patients. Chicago College of Osteopathic Med. v. Heckler, No. 82 C 398, 1984 WL 48818 *5 (N.D.Ill. May 29, 1984). With these principles in mind, the court turns to the parties' arguments.
Current borrowing relates to short term loans that are usually for one year or less, while capital indebtedness refers to long-term loans. PRM-I § 202.2 (CCH) ¶ 4913.
a. The Parties' Positions
For the fiscal year at issue here, to determine the amount of reimbursement owed by Medicare, the Hospital calculated the amount of its net investment income by creating an offset of capital related interest expense, non-capital related interest expense, and non-allowable interest expense. The Intermediary corrected this calculation by permitting only "allowable interest expenses" to be offset against the net investment income. The Review Board reversed that decision and used the Hospital's calculations. However, the Administrator agreed with the Intermediary and thus reversed the Review Board's decision. The Administrator determined that only the "allowable interest expense" should be included because the inclusion of all types of interest expense would force Medicare to pay for services that were possibly given to non-Medicare patients, in contravention of the Medicare statute.
In support of its position, the Hospital points to 42 C.F.R. § 413.153, 42 C.F.R. § 413.130(g)(2) and HCFA Pub. 15-1, Section 202, and concludes that it may offset all of its interest expense. The Secretary disagrees with the Hospital's characterization of the provisions governing the interest offset issue. She also contends that the Review Board's allowance of investment income which is unrelated to patient care in the offset is incorrect. Finally, she suggests that Medicare should not be responsible for the Hospital's record-keeping system, which mixed Medicare patient funds with non-Medicare patient funds and thus left the Hospital with only one viable option: creating an income offset of all funds because it could not distinguish between Medicare and non-Medicare funds.
b. Calculating the Offset
42 C.F.R. § 413.153(b)(2) defines "necessary interest" as "interest that meets the following requirements: (i) it is incurred on a loan made to satisfy a financial need of the provider; (ii) it is incurred on a loan made for a purpose reasonably related to patient care; and (iii) it is reduced by investment income." PRM-I § 202.2 (CCH) ¶ 4920. This last requirement indicates how total income should be reduced. In conjunction with the third prong of § 413.153(b)(2), 42 C.F.R. § 413.130(g)(2) indicates that "(i) investment income offset is required under § 413.153(b)(2)(iii), only that portion of investment income that bears the same relationship to total investment income, as the portion of capital-related interest expense bears to total-interest expense, is offset against capital-related costs."
According to the Hospital, 42 C.F.R. § 413.153(b)(2) includes all interest expense, rather than only the interest expense related to the actual money that is borrowed. This contravenes the PRM, which provides:
Patient care funds should be available for the provider's patient care purposes, enabling it to avoid interest expense attributable to unnecessary borrowing. If funds generated by patient care activities are invested in nonpatient care related activities, the provider's allowable interest expense is reduced (offset) by the provider's investment income in order to determine the amount of interest expense that is necessary and thus allowable. The investment income is only offset against allowable interest expense. . . . Investment income resulting from investment of funds not generated from patient care activities is not subject to offset. In addition, if the funds invested in nonpatient care activities are borrowed, the interest expense is not allowable and the investment income is not subject to offset.
PRM-I, § 202.2 CCH Medicare and Medicaid Guide, vol. 2, ¶ 4920 C. ("Offset by Investment Income"), at 1710, 1711 (emphasis in original).
Moreover, the Secretary correctly points out that the PRRB's decision does not reflect that fact that only "necessary" interest may be offset against investment income. As noted above, "[r]easonable costs include all necessary and proper costs incurred in furnishing services. . . . However, if the Hospital's operating costs include amounts not related to patient care, specifically not reimbursed under the program, . . . such amounts will not be allowable." 42 C.F.R. § 413.9(a), (b)(1)(a), (c)(3). Hence, only interest that is "appropriate and helpful in developing and maintaining the operation of patient care facilities and activities" or "related to the care of Medicare beneficiaries" is "necessary." 42 C.F.R. § 413.9(b)(2) (c)(3).
The Hospital's claim that 42 C.F.R. § 413.130(g)(2) requires that investment income be prorated among capital related interest expense, operating interest expense, and non-allowable interest expense does not affect this conclusion. Section 413.130(g)(2) is entitled "Interest Expense" and provides that:
(1) A provider must include in its capital-related costs interest expense, as described in § 413.153, if such expense is incurred in — (i) Acquiring land or depreciable assets (either through purchase or lease) used for patient care; or (ii) Refinancing existing debt, if the original purpose of the refinanced debt was to acquire land or depreciable assets used for patient care.
(2) if investment income offset is required under § 413.153(b)(2)(iii), only that portion of investment income that bears the same relationship to total investment income, as the portion of capital-related interest expense bears to total interest expense, is offset against capital-related costs.
This section by its terms requires a pro rata offset only to the extent that the interest and investment income at issue is capital-related. Moreover, the Hospital's reading of this section is at odds with §§ 413.9(b) and 413.153(b)(2)(iii), discussed more fully above, which: (1) define allowable costs as those related to patient care; and (2) and provide that investment income may be offset only against necessary interest expense.
3. The Hospital's Due Process Claim
The Hospital also claims that its due process rights were violated because it was not afforded an opportunity to present its position to the Administrator before it rendered its decision. The record, however, indicates that the Hospital and its attorneys were notified of the hearing. (A.R. at 13-19). In addition, the parties consented to a hearing on the written record as it stood then. Because the Hospital's attorneys elected not to submit comments to the Administrator, they cannot be heard to complain at this stage in the proceedings that they were denied a full and fair hearing. Accordingly, the court rejects the Hospital's due process claim.
III. CONCLUSION
For the foregoing reasons, the Hospital's motion for summary judgment [9-I] is denied and the Secretary's cross-motion for summary judgment [12-1] is granted. The decision of the Secretary is affirmed. The clerk is directed to enter a Rule 58 judgment and terminate this case.