Vista Hill Foundation, Inc. v. Heckler

WIGGINS, Circuit Judge,

concurring in part and dissenting in part:

The question of interest to the parties in this case is whether the appellant hospital is entitled to reimbursement from the Medicare program for costs incurred by the *567 hospital in providing educational services to school-age patients undergoing treatment for various psychiatric disorders. A different question is before this court. We must decide whether the decision of the Provider Reimbursement Review Board (PRRB) was arbitrary, capricious or an abuse of discretion, or otherwise not in accordance with law. See Pacific Coast Medical Enterprises v. Harris, 633 F.2d 123, 130 (9th Cir.1980).

In making this decision, we are limited to a review of the adequacy of the reasons tendered by the PRRB for its actions. Cf. Moapa Paiute Ind. v. U.S. Dept. of Int., 747 F.2d 563, 566 (9th Cir.1984) (Secretary’s ruling upheld if reason given by agency is valid). I concur in the judgment of reversal because the reasons advanced by the PRRB for its action do not withstand proper scrutiny. I dissent from the conclusion of the court that reimbursement is required. Such conclusion rests upon reasons which were not considered by the PRRB.

The hospital’s claim for reimbursement was first considered by the fiscal intermediary, which denied the claim on the basis of explicit language found in the Health Insurance Manual. 1 The hospital appealed that determination to the PRRB, which also denied the claim, although for different reasons. The PRRB based its decision on alternative grounds. It concluded that the claim of the hospital was not for necessary and proper costs in rendering medical services because (1) “education is not an integral part of the therapy modality” for children suffering psychiatric disorders, and (2) provision for education is the responsibility of local school districts, and not the Medicare program. The decision of the PRRB became the decision of the Secretary when her designee, the Deputy Administrator of the Health Care Finance Administration, declined to review that decision. 42 U.S.C. § 1395oo (f)(1).

Appeal was taken by the hospital to the district court. In an unreported decision, that court affirmed the conclusions reached by the administrative agency, but for wholly different reasons. In the view of the district court, educational expenses for the exclusive benefit of non-Medicare patients were not “routine costs” and therefore not subject to apportionment among all patients.

Our review is of the final action of the PRRB and not the decision of the district court. Our standard of review requires us to conduct the same inquiry, de novo, which the district court should have conducted, but did not. At the outset of its opinion, this court properly recognizes its limited review authority. It applies the substantial evidence test to the agency’s first declared reason for denying reimbursement, namely, that education was not an integral part of the treatment modality for children suffering from mental disorders. The court correctly concludes that the record in this case does not contain substantial evidence supporting the agency’s factual determination. Likewise, the majority properly concludes that the second declared reason of the administrative agency was incorrect as a matter of law and cannot support its ultimate conclusion.

I join the majority in these two conclusions. The weight of the evidence clearly established that educational services are customarily provided as a part of the treatment regimen for children suffering from psychiatric disorders. With respect to the second ground for its decision, the legal error of the administrative agency in determining that education was the responsibility of state government stemmed from its fixation on education as an exclusive state function in which the Medicare program is uninvolved. It is true that states bear the primary burden of education, but in those rare cases in which education is an essential part of necessary medical treatment, the Medicare program may be responsible for reimbursement for educational expenses in a proper case.

*568 The court should have restricted itself to reversing and remanding this case to the PRRB for further proceedings on the basis that the reasons for its action are not supportable. It did not do so. Rather, the majority opinion goes to great lengths to advance its own view of the substantive issue in this case. For example, after finding that no substantial evidence supported the agency’s view that education was not treatment, the court gratuitously observes that “In order to participate in the Medicare program, Vista Hill is required to provide the educational services at issue.” At 561. 2

The most unfortunate example of the court violating its limited role in reviewing actions of administrative agencies is Part V of the court’s opinion, entitled “The Medicare Apportionment System.” The court concedes that it was the district court, not the administrative agency, that raised the issue of whether the cost of educational services were subject to apportionment at all. It believes that the district court’s opinion “merits some discussion,” citing Mercy Hospital and Medical Center v. Harris, 625 F.2d 905 (9th Cir.1980). There we chose to address new issues raised by the district court and not considered by the administrative agency because the district court’s opinion had been reported. Id. at p. 906, n. 2. There is no similar excuse in the instant case for exceeding the proper limits of judicial review.

Having justified “some discussion” of the substantive issue of whether costs incurred by non-Medicare patients for educational services should be borne in part by the Medicare system, the court proceeds to decide the substantive issue by stating that “[I]n view of the regulation she has chosen to adopt, the Secretary may not deny reimbursement for the educational services at issue in this case.” At 566.

It is not our function to decide whether reimbursement to the hospital is required. That issue is not implicated in this appeal and a discussion of my view with respect to that issue is no more appropriate in this dissent than it is in the majority opinion.

The court has exceeded the bounds of appellate review of administrative action. For almost forty years it has been understood that a reviewing court could affirm the decision of an administrative agency only upon the basis articulated by it for its decision. See Securities Comm’n v. Chenery Corp., 332 U.S. 194, 196 , 67 S.Ct. 1575, 1577 , 91 L.Ed. 1995 (1947). The reason for this salutory rule is rooted in Separation of Powers principles. Congress by law has delegated authority to agencies of its own creation. Congress has not vested the courts with the power to oversee the wisdom of administrators of such Executive Branch agencies; rather, Congress, under its authority to prescribe the jurisdiction of federal courts, has expressly withheld that authority. A court which purports to substitute its discretion for that of an administrator trenches upon the authority of the Executive Branch. When a judicial affirmance is based upon a ground not considered and adopted by an agency, the court improperly arrogates decisional authority to itself, for there can be no assurance that the agency would have reached the same conclusion for different reasons. See H. Friendly, The Limited Office of the Chenery Decision, 21 Ad.L. 1, 5 (1968).

Similarly, when a reviewing court reverses the decision of an administrative agency because of the factual or legal inadequacy of its reasons, it has exhausted its powers. It may not proceed to advise the agency as to what reasons or conclusions it must adopt upon remand. To do so is not a *569 judicial prerogative, for any gratuitous advice by a court to an agency to take particular action for reasons deemed persuasive to the court also trenches upon discretionary authority reserved to the Executive Branch. See Central DuPage Hosp. v. Heckler, 761 F.2d 354 , 359 (7th Cir.1985) (even where Secretary’s new theory is “post hoc rationalization”, she is entitled to remand to enable agency to consider it).

These rules of limited review are fundamental to administrative law. The majority, however, has chosen not to follow them and for that reason, I dissent.

. See Department of Health and Human Services, Health Care Financing Administration, Provider Reimbursement Manual, Part I, § 2104.5 (1983).

. The court is wrong in its dicta. Admittedly, a hospital providing psychiatric treatment to Medicare patients must be accredited by the Joint Commission for the Accreditation of Hospitals (JCAH) to qualify for reimbursement; and the JCAH requires, as a condition of accreditation, that educational services be provided to children receiving psychiatric care. Nevertheless, these admitted facts do not bear on, much less resolve, the issue here. To say that education is a necessary and proper service to be delivered to a child undergoing psychiatric treatment does not, in itself, bring that child within the Medicare Act so as to entitle the provider of that service to reimbursement from the Medicare program.