OCTOBER TERM, 1994
certiorari to the united states court of appeals for the sixth circuit
No. 93-1251. Argued October 31, 1994—Decided March 6, 1995
After the refinancing of its bonded debt resulted in a "defeasance" loss for accounting purposes, respondent health care provider (hereinafter Hospital) determined that it was entitled to Medicare reimbursement for part of that loss. Although the Hospital contended that it should receive its full reimbursement in the year of the refinancing, the fiscal intermediary agreed with petitioner Secretary of Health and Human Services that the loss had to be amortized over the life of the Hospital's old bonds in accord with an informal Medicare reimbursement guideline, PRM § 233. The District Court ultimately sustained the Secretary's position, but the Court of Appeals reversed. Interpreting the Secretary's Medicare regulations, 42 CFR pt. 413, to require reimbursement according to generally accepted accounting principles (GAAP), the latter court concluded that, because PRM § 233 departed from GAAP, it effected a substantive change in the regulations and was void by reason of the Secretary's failure to issue it in accordance with the notice-and-comment provisions of the Administrative Procedure Act (APA).
Held: 1. The Secretary is not required to adhere to GAAP in making provider reimbursement determinations. Pp. 91-97. (a) The Medicare regulations do not require reimbursement according to GAAP. The Secretary's position that 42 CFR § 413.20(a)—which specifies, inter alia, that "[t]he principles of cost reimbursement require that providers maintain sufficient financial records . . . for proper determination of costs," and that "[s]tandardized definitions, accounting, statistics, and reporting practices that are widely accepted in the hospital and related fields are followed"—ensures the existence of adequate provider records but does not dictate the Secretary's own reimbursement determinations is supported by the regulation's text and the overall structure of the regulations and is therefore entitled to deference as a reasonable regulatory interpretation. Moreover, § 413.24—which requires that a provider's cost data be based on the accrual basis of accounting—does not mandate reimbursement according to GAAP, since GAAP is not the only form of accrual accounting. In fact, PRM § 233 reflects a different accrual method. Pp. 92-95.
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