ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DEFENDANT'S CROSS MOTION FOR SUMMARY JUDGMENT
This is an action for the recovery of Medicare reimbursements for plaintiff's 1971 and 1972 fiscal years. The case is before the court on the parties' cross motions for summary judgment. Plaintiff asks us to find it entitled to additional Medicare reimbursements of $19,204 for 1971 and $27,846 for 1972. Defendant asks us to find plaintiff entitled to no additional reimbursements. As explained in more detail infra, a Hearing Officer initially held plaintiff entitled to additional reimbursement.
Plaintiff is a nonprofit corporation organized under the laws of the State of Arizona, has a fiscal year ending June 30 of each calendar year, and operates the Walter O. Boswell Memorial Hospital. Plaintiff participates in the Medicare program as a "provider," in accordance with Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq. (1970). Pursuant to an agreement filed with the Secretary of Health, Education and Welfare ("HEW") under 42 U.S.C. § 1395cc, a provider agrees not to charge Medicare beneficiaries directly for services furnished to them, agreeing instead to be reimbursed from the Medicare fund for such services.
To the extent here relevant, 42 U.S.C. § 1395f(b) provides that the reimbursement will be equal to the "reasonable cost," as defined in 42 U.S.C. § 1395x(v), of providing such services. "The reasonable cost of any services shall be determined in accordance with regulations establishing * * * the items to be included, in determining such costs for various types or classes of institutions * * *." 42 U.S.C. § 1395x(v)(1). The regulations so authorized are now set out at 42 C.F.R. § 405.101 et seq. (1979).
Sometime prior to 1971, plaintiff chose Blue Cross Association of Illinois ("BCA") to act as its fiscal intermediary. BCA in turn had Blue Cross of Arizona, Inc. (The "Plan") assume, in the first instance, the obligation to service plaintiff. Under plaintiff's agreement with HEW and also pursuant to 42 U.S.C. § 1395h, BCA and the Plan were required to determine the amount of Medicare reimbursement due, and make actual payment to, plaintiff. This in turn required the Plan and BCA to determine plaintiff's reasonable cost of providing services to Medicare beneficiaries.
Plaintiff's hospital was constructed in the late 1960's. Although there is disagreement as to the motive for doing so, it is undisputed that the general contractor, Del E. Webb Corporation ("Webb"), agreed to forego its usual overhead and profit markup on this construction project. When the hospital facility was completed, it was appraised by a nationally recognized appraisal company. The appraisal indicated the hospital had a date-of-completion fair market value of $5,329,451. The actual cost to plaintiff of constructing the facility was $576,114 less than such fair market value.
Plaintiff took the position that Webb, the subcontractors, and the architect who worked on the hospital facility all made donations of services to plaintiff to aid in plaintiff's acquisition of its hospital. In plaintiff's view, Webb's donation was its not charging an overhead and profit markup; and the subcontractors and architect made their donations by agreeing to work for less than their normal rates of profit. Plaintiff also assumed the $576,114 difference between fair market value and cost was entirely attributable to, and equaled the total amount of, these various donations. Operating under the assumption that in determining the appropriate allowance for depreciation donations could be added to basis, plaintiff increased its basis in the facility by this amount. This in turn increased the allowance for depreciation
The Plan determined that none of the $576,114 could be included in plaintiff's basis for its hospital facility. It, therefore, reduced plaintiff's Medicare reimbursement by $19,204 and $27,846 for fiscal 1971 and 1972, respectively. Plaintiff appealed this decision to BCA and a hearing was conducted by BCA's Chief Hearing Officer. Plaintiff was the only party to offer evidence and testimony at the hearing.
In determining plaintiff's basis in its hospital facility for purposes of determining the appropriate allowance for depreciation, the Hearing Officer looked to the Provider Reimbursement Manual (the "Manual").
The Hearing Officer viewed the first sentence of the second paragraph of section 134.6 as stating that where a provider constructs an asset and in fact receives a donation of material, labor, or services in conjunction with such construction, the donation is recognizable for Medicare purposes and the asset's basis includes both the fair market value of such donation as well as the cost actually incurred by the provider. The Hearing Officer then interpreted the first paragraph of Manual section 134.6 as authorizing the use of an appraisal to determine the fair market value of the donated material, labor, or services.
Finally, he derived tangential support from Manual section 806 for his reading of Manual section 134.6.
Turning to the facts of this controversy, the Hearing Officer found plaintiff had acquired its hospital facilities through its construction of them, making this Manual section 134.6 exception available. He then found that of Webb, the subcontractors,
Plaintiff subsequently established by appraisal that the fair market value of Webb's donation was $550,055.64. The Hearing Officer then allowed plaintiff to increase its basis in the hospital by this amount. Since the Hearing Officer was acting on behalf of BCA, the Hearing Officer's action constituted a hearing decision rendered by BCA itself.
After this basis increase was allowed, HEW's Social Security Administration's Bureau of Health Insurance ("BHI") ordered the Hearing Officer to reopen and revise his decision. BHI relied upon 42 C.F.R. § 405.1885(b) as authority for its taking such action.
As a result of being ordered to reopen and revise his decision, the Hearing Officer did so and decided none of the $550,055.64 could be added to the basis of the hospital. He also reinstated the Plan's original decision restricting plaintiff's basis for determining allowable depreciation to plaintiff's actual cost of constructing the hospital facility.
The parties have stipulated that increasing the basis by $550,055.64 above plaintiff's actual cost of constructing the hospital would increase the allowance for depreciation by $18,335.35 for fiscal 1971 and $26,586.53 for fiscal 1972. This would in turn increase plaintiff's reasonable cost and, hence, also its Medicare reimbursements by these same amounts in these two years.
Since plaintiff limited its requested relief to fiscal 1971 and 1972, there is no question that we have subject matter jurisdiction under 28 U.S.C. § 1491 (1976).
The Hearing Officer rendered two separate decisions. In the first decision, he held
Sacred Heart Hospital involved the identical situation. In that case, a BCA Hearing Officer rendered one decision and was then ordered by BHI to reopen and revise this decision. As a result, a second decision was then rendered. BHI's action was there also taken pursuant to 42 C.F.R. § 405.1885(b). Focusing on limited authority conferred on BHI by this regulation, this court held the ordering of reopening and revision, and hence also the second decision, could stand only if the Hearing Officer's original decision was inconsistent with the applicable law, regulations, or general instructions issued by the Health Care Financing Administration. If there was not such inconsistency, then BHI in fact had no authority to order reopening and revision, and the Hearing Officer in turn had no authority to set aside the first decision and enter a subsequent decision in its place. As such, the second decision would not be in compliance with the authority conferred by 42 C.F.R. § 405.1885(b). In this event, the second decision must be set aside by this court and the Hearing Officer's original decision treated as his final decision.
Relying in our case on Sacred Heart Hospital, the Hearing Officer's second decision will stand only if his first decision is inconsistent with the law, regulations, or general instructions. If it is not inconsistent, then we will set aside the second decision and give finality to the first.
BHI asserted that for the following reasons the first decision was inconsistent with the law, regulations, or general instructions:
Our task is, therefore, to determine whether any or all of these above-listed assertions are correct and if so, renders the first decision inconsistent with the law, regulations, or general instructions. We address these points in the same order as presented above.
BHI's first objection has no merit and creates no "inconsistency" in the first decision. The first sentence of the second paragraph of Manual section 134.6 clearly indicates that where a provider itself constructs an asset, it can acquire such asset partially by purchase and partially through receipt of donations of material, labor, or services. We also recognize that section 104.15 literally provides that "[a]n asset is considered donated [only] when the provider acquires the asset without making any payment for it in the form of cash, property, or services." If we were to read both Manual sections literally, there would therefore be a conflict between the two where assets are constructed by the provider. Manual section 134.6 would allow such assets to be donated in part; Manual section 104.15 would not.
The best way to resolve this apparent conflict is to interpret section 134.6 as creating in the case of constructed assets an exception to the "no partial donation" rule of section 104.15. We find support for this in that section 134.6 is a specialized provision dealing only with constructed assets, whereas section 104.15 is a provision of general application, applying to all assets acquired by the provider. The general rule of interpretation is that general terms yield to more specific ones. See Abell v. United States, 207 Ct.Cl. 207, 224, 518 F.2d 1369, 1378 (1975), cert. denied, 429 U.S. 817, 97 S.Ct. 59, 50 L.Ed.2d 76 (1976); 1A Corbin, Contracts § 547 (1963 and Supp. 1971). In addition, reading this exception into section 104.15 will allow both sections to be read harmoniously with one another and will give a reasonable meaning to both. This should be our goal whenever we are compelled to resolve an apparent conflict between provisions contained in the same manual. See, e. g., Mason v. United States, 615 F.2d 1343 (Ct.Cl. 1980); Bishop Engineering Co. v. United States, 180 Ct.Cl. 411, 416 (1967).
We, therefore, hold the Hearing Officer correctly interpreted the Manual in ruling that section 134.6 created an exception to section 104.15. In addition, although not directly challenged by BHI, relying on Manual section 102 we also agree that whenever a provider receives a donation of material, labor, or services, the fair market value of such donation is included in the basis of the constructed asset for depreciation purposes.
Manual section 102 sets out the general principles to be followed in determining the provider's allowance for depreciation. This provision states in part as follows: "An appropriate allowance for depreciation on buildings and equipment is an allowable cost. The depreciation must be * * * based on the historical cost of the asset or fair market value at the time of donation * * * in the case of donated * * * assets * * *." [Emphasis supplied.]
This emphasized portion of section 102 which provides that basis is equal to the historical cost in the case of an asset acquired by purchase or fair market value in the case of a donated asset merely reflects the general rule, as expressed in section 104.15, that a single asset can be acquired
BHI's second objection also is without merit. While we agree that section 134.2 allows the use of an appraisal only where the provider either has no historical cost records or incomplete historical cost records, it is important to note the limited scope of this provision. Historical cost is the amount incurred by a provider when it acquires an asset by purchase. Section 104.10.
The first paragraph of section 134.6 does, however, authorize the use of an appraisal for depreciation purposes "[w]here the Provider's records do not contain the fair market value of donated assets as of the date of donation * * * ." Here, assuming a donation of material, labor, or services had been made, in the absence of an appraisal plaintiff would not know how large a donation it had receive and its records could, therefore, not have contained therefore, not have contained the fair market value of such donation. Section 134.6 would thus allow plaintiff to use an appraisal to fix the fair market value of any donations it received in connection with the construction of its hospital facility. Since section 134.2 is no bar to plaintiff's use of an appraisal to ascertain the fair market value of donations, and section 134.6 specifically authorized such use of appraisals, we agree with the Hearing Officer's decision that plaintiff could use an appraisal to determine the fair market value of any donated material, labor, or services.
A hearing was held prior to rendering the first decision. It is undisputed that plaintiff was the only party to present evidence and testimony. Based upon this evidence and testimony presented to him, the Hearing Officer held Webb had in fact made a donation to plaintiff equal in amount to the fair market value of the waived overhead and profit markup. We can safely assume that at least some of the evidence presented by plaintiff was favorable to plaintiff's own position. In light of this, we find no merit in BHI's argument that there was nothing in the Hearing Officer's decision to support his finding that Webb made a donation.
Regarding BHI's fourth objection, whether the Hearing Officer ignored 42 C.F.R. § 405.415 is completely beside the point. This regulation section defines historical cost. As we have previously indicated, historical cost is the cost incurred in acquiring an asset by purchase. The Hearing Officer was dealing with the impact on
Finally, BHI apparently misconstrued the Hearing Officer's reliance on section 806. The Hearing Officer did not base his decision on this section. The Hearing Officer recognized section 806 would literally apply only if plaintiff had received actual payments from Webb; he only relied upon it as tangential support for the decision he had already reached. In addition, his decision, even without any reference to section 806, was correct under the Manual and applicable law and regulations. Mention of section 806 thus did not make the Hearing Officer's decision inconsistent with the law, regulations, or general instructions.
In sum, BHI's objections to the Hearing Officer's first decision in no way make this decision inconsistent with the law, regulations, or general instructions. Since these were the only objections made by BHI, and we have on our own found no objections, we hold this decision was consistent with the law, regulations, and general instructions. We, therefore, set aside the second decision and reinstate the first. Thus, plaintiff should have been allowed to include in basis the $550,055.64 donation received from Webb, increasing plaintiff's reasonable costs and also its Medicare reimbursements by $18,335.35 for 1971 and $26,586.53 for 1972.
For the foregoing reasons, plaintiff's motion for summary judgment is granted and defendant's motion for summary judgment is denied. Plaintiff's Medicare reimbursement is increased by $18,335.35 for its fiscal year 1971 and by $26,586.53 for its fiscal year 1972. Judgment is therefore entered for plaintiff in the amount of $44,921.88.
"Where the Provider's records do not contain the fair market value of donated assets as of the date of donation, an appraisal of such fair market value on the date of donation by the appraisal expert will be acceptable for depreciation and owner's equity capital purposes.
"Where material, labor, and services are donated in the construction of an asset, the asset value is the sum of the appraised cost of the material, labor, or services actually donated and the incurred cost of that part which was not donated. * * *"
"(b) A determination or a hearing decision rendered by the intermediary shall be reopened and revised by the intermediary if * * * such determination or decision is inconsistent with the applicable law, regulations, or general instructions issued by the Health Care Financing Administration in accordance with the Secretary's agreement with the intermediary."
As previously discussed, this court's scope of review includes examination of a Hearing Officer's decision to ensure compliance with regulations having the force and effect of law and setting the decision aside if not in compliance. Since 42 C.F.R. § 405.1885(b) was one of the regulations promulgated pursuant to the delegation of authority under 42 U.S.C. § 1395x(v)(1), it is a regulation having the force and effect of law. We, thus, have the jurisdiction to determine whether the second decision complied with this regulation. Since the second decision would comply only if the first decision was inconsistent with the applicable law, regulations, or general instructions, we of necessity also have the jurisdiction to examine the first decision to determine whether it was "inconsistent."
If the second decision is set aside for "non-compliance," the first decision has, in legal effect, not been superseded and is therefore enforced as the decision of the Hearing Officer.
"An appraisal for program purposes should be made only where the provider has no historical cost records or has incomplete records of the depreciable fixed assets. * * *"
"Historical cost is the cost incurred by the present owner in acquiring the asset and to prepare it for use. Generally such cost includes costs that would be capitalized under generally accepted accounting principles. For example, in addition to the purchase price, historical cost would include architectural fees, consulting fees, and related legal fees. * * "