Petition for Writ of Certiorari — NKC Hospitals, Inc. v. Heckler

O4 =i + ) r4 j ] Office -Suvieme Court, US. |

FILED ~

No. . JAN 11 1985

ALEXANDER L. STEVag,

CLEPK

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1984

NKC, INC. . - : ° ° . . Petitioner

versus

MARGARET M. HECKLER, Secretary,

United States Department of

Health & Human Services~. - - - Respondent

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

CARSON P. PORTER

Counsel of Record

GAYLEE W. GILLIM

RICE, PORTER & SEILLER

2200 Meidinger Tower

Louisville. Kentucky 40202

(502) 584-7400

Attorneys for Petitioner

WESTERFIELD-BONTE CO., 619 W. KENTUCKY=P.O. BOX 3251, LOUISVILLE, KY.

QUESTIONS PRESENTED

1. Whether the Secretary of Health & Human Services

is entitled to due deference with respect to her 1977 in-

terpretation of a 1972 regulation applied retroactively to

the Petitioner?

2. Whether the Sixth Circuit erred in holding that the

District Court’s application of the incorrect regulation to

the Petitioner’s Transitional Care Unit was not reversible

error?

3. Whether the decision of the Seeretary of Health &

Human Services denying special care unit status to the

Petitioner’s Transitional Care Unit for purposes of Medi-

care reimbursement is supported by substantial evidence?

4. Whether the Secretary of Health & Human Services

abused her discretion and acted in an arbitrary and ¢ca-

pricious manner by failing to properly weigh the determina-

tion of the administrative agency as the trier of fact?

il

TABLE OF CONTENTS

PAGE

Dueriione TMG ... 6 6s5 ose eee i

eo PPP re or Fo eons 1

Pn Tr re ge FP ne 2

Statutes and Regulations Involved ................. 2

ebannes OF TA. COG oon ccd ineciseouseaunvedeeos 2-5

Reason for Granting the Writ ..................... 5-16

| I er iy 16-17

iil

TABLE OF AUTHORITIES

Cases: PAGE

American Ship Building Co. v. NLRB, 380 U.S. 300

I beeen ay Sapa teweee a4 oe ad wre ees 15

Bureau of Alcohol, Tobacco & Firearms v. Federal

Labor Relations Authority, 104 8S. Ct. 489 (1983) 15

Central Washington Health Services Association v.

Harris, 497 F. Supp. 1148 (E. D. WA. 1980) .. 11

Community Hospital of Indianapolis, Inc. v.

Schweiker, 717 F. 2d 372 (1983) .............. 14

Lexington County Hospital v. Schweiker, 740 F. 2d

ce ea lie es one eke eet 16

Psychiatric Institute of Washington, D.C., Ine. v.

Schweiker, 669 F. 2d 812 (D.C. Cir. 1981) ..... 16

St. James Hospital v. Heckler, 579 F. Supp. 757

es Ls oa RN ae SW wale eS 15

St. John’s Hickey Memorial Hospital, Inc. v. Cali-

fano, 559 F. 2d 803 (7th Cir. 1979) ........... 13

St. Luke’s Hospital of Bethlehem, Pennsylvania v.

Schweiker, 668 F. 2d 824 (3rd Cir. 1982)...... 12

Sun Towers, Inc. v. Schweiker, 694 F. 2d 1036 (5th

a. his ke eer ek eae be Cee eke 16

Universal Camera Corp. v. National Labor Rela-

tions Board, 340 U. S. 474 (1951) ............. 12

White Memorial Medical Center v. Schweiker, 640

ee OO SA. BORD iy sevice dec vesvenes 16

Statutes:

Ee ic gy vive bv 44 ocx eee asives 2

a 8 8S. er 2,3

a 2

Title XVIII, Section 1801 et seq. of the Social Se-

curity Act, 42 U.S.C. §1395 et seq. ............

ee che Vere vereseeanesewunes

GR ei a ee eee 3

bo bo

iv

Statutes: PAGE

en I OD gat mle Shae ee ores ee 3

ee ees NED 86s oo vidoe cea buaeesientesee es 3

ee ee os ov acoin eee eee 3

Oy es ORD ooo ko vk des ve ood een 4

inne bcs weet eee cle, 10

a ue pen oh be che ren ee 11

Regulations:

42 C.F.R. §405.452(d)(10) (1972) ..........2, pe So hs

&, 14, 16, 17

42 C.F.R. §405.452(d)(1980) .................... 2

Oe Ser I oo vee ee oe oe 3

ee ee SE oooh ove viv ec ae eee, 3

Miscellaneous:

42 Federal Register 13,262 (March 9, 1977) ...... 3

Provider Reimbursement Review Board Decision

No. 82-D24, CCH Medicare & Medicaid Guide,

We SE Srekiacc norte. 4

Provider Reimbursement Manual, Part I, §2202.7

GE wes ee uuee cas eer eae eee 6

Provider Reimbursement Manual, Part I, §2202.7

2 MeO ae Ren pe eas em Bae ral RENE: terns Near rar Tne 7

Proposed Rule, Department of Health, Education

and Welfare, Health Care Financing Adminis-

Couey, Se Ph BNEW ova ese dtr 9

SUPREME COURT OF THE UMTED STATES

October Term, 1984

No.

NKC, Inc. : - - - - Petitioner

Vv.

Marcaret M. Heckter, Secretary,

United States Department of

Health & Human Services - - Respondent

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

NKC, Ine.’ respectfully prays that a Writ of Certi-

orari be issued to review the judgment of the United

States Court of Appeals for the Sixth Circuit entered

in this proceeding on November 15, 1984.

OPINIONS BELOW

The opinion of the Court of Appeals, not yet re-

ported, appears in the Appendix hereto. The opinion

of the district court is unreported and is also repro-

duced in the Appendix. The decision of the Deputy

Administrator, Health Care Financing Administra-

tion, and the Provider Reimbursement Review Board

are unreported and appear in the Appendix.

1Disclosure of corporate affiliations and financial interest filed

with the United States Court of Appeals for the Sixth Circuit as

of November 28, 1983. Since that date, there has been a name

change and NKC, Ine. is now known as NKC Hospitals, Ine.

JURISDICTION

The judgment of the Court of Appeals for the

Sixth Circuit was entered on November 15, 1984. This

petition for certiorari was filed within sixty (60) days

of that date. The jurisdiction of this Court is invoked

under 28 U.S.C. §1254(1).

STATUTES AND REGULATIONS INVOLVED

Medicare Act, 42 U.S.C. §§13895x(v)(1)(A) and

1395hh, 42 C.F.R. §405.452(d)(10) (1972) and 42

C.F.R. §405.452(d) (1980). The text of these provi-

sions is set forth in the Appendix.

STATEMENT OF THE CASE

This action arises under Part A of the Health In-

surance for the Aged & Disabled Act established in

Title X VIII, Section 1801 ct seq. of the Social Security

Act, 42 U.S.C. §1395 et seqg., as amended (the ‘‘ Medi-

eare Act’’?). The Medicare Act establishes a program

of health insurance under which a person who qualifies

as a beneficiary is entitled to have payment for hospital

services made on his/her behalf by the Medicare pro-

gram.

A participating hospital (i.e., a ‘‘provider’’ of ser-

vices) receives Medicare reimbursement at least once

each month for health care services rendered to pro-

gram beneficiaries, usually through private insurance

companies denominated ‘‘fiscal intermediaries’’ acting

under contract with the Secretary of Health & Human

Services (the ‘‘Seeretary’’). 42 U.S.C. §§1895g and

3

1395h. At the end of the twelve month cost reporting

period, a provider must file a cost report with its Medi-

care fiscal intermediary. 42 C.F.R. §§405.406 and

453(f).

If a provider disputes its fiscal intermediary’s

final determination of the amount of Medicare reim-

bursement due during the reporting period, such as

was the case with the Petitioner, NKC, Ine. (the ‘‘ Pro-

vider’’), it may obtain a hearing before the Provider

Reimbursement Review Board (the ‘‘Board’’ or

‘*‘PRRB’’) if the amount in controversy is at least

$10,000. The Board, an administrative tribunal estab-

lished by 42 U.S.C. §139500, has the power to affirm,

modify, or reverse the final determination of the fiscal

intermediary with respect to a provider’s cost report.

42 U.S.C. §189500(d). The Secretary has delegated to

the Administrator, Health Care Financing Administra-

tion, authority to conduct ‘‘own motion” review of

decisions made by the Board. 42 Federal Register,

13,262 (March 9, 1977).

The Medicare Act requires that the amount of re-

imbursement paid to a provider for services be based

either on the ‘‘reasonable cost of such services’’ or on

its customary charges for the services rendered, which-

ever is less. 42 U.S.C. §1395f(by. The reasonable

cost of services is defined by the Medicare Act as ‘‘the

cost actually incurred, excluding therefrom any part of

ineurred cost found to be unnecessary in the efficient

delivery of needed health services.’’ 42 U.S.C. §1395x

(v)(1)(A). The Secretary is authorized to promul-

gate regulations establishing the ‘‘method or methods’”’

+

for ascertaining what costs are unnecessary in accord-

ance with the statutory mandate. Id.

The fiscal intermediary herein, Blue Cross and Blue

Shield of Kentucky, Inc. (‘‘Blue Cross’’) notified the

Provider that various costs claimed for the cost re-

porting periods ending December 31, 1977 and 1978

had been disallowed. Thereafter, pursuant to the

Medicare Act and its implementing regulations, the

Provider filed an appeal with the Board to contest the

costs disallowed by Blue Cross with respect to its

special care unit, known as the Transitional Care Unit

(“TOCU’’).

The case was presented to the Board and a full

evidentiary hearing conducted on April 16, 1981. On

December 10, 1981 the Board issued an unanimous de-

cision in favor of the Provider (Decision No. 82-D24).

In its decision, the Board determined that the TCU in

question qualified as a special care unit in accordance

with the provisions set forth at 42 C.F.R. §405.452(d)

(10) (1972).

By a decision bearing the date of February 4, 1982,

the Deputy Administrator, Health Care Financing

Administration, reversed the decision of the Board.

The Provider then timely filed an action for judicial

review in the United States District Court for the

Western District of Kentucky. The jurisdiction of the

District Court was invoked under 42 U.S.C. §139500

(f)(1). The District Court granted the Secretary’s

motion for judgment on the pleadings, holding, how-

ever, that ‘‘[I]f this Court were writing on a clean

slate, we would have no hesitancy in finding that plain-

~

Jv

tiff’s TCU meets the criteria of the regulation.’’ The

lower court cited the amended regulation promulgated

in 1980 in the body of its opinion, stating that

‘‘T Plaintiff asserts that the TCU meets the criteria

set forth in the regulation quoted above.’’ There is

no dispute that the 1980 regulation was inapplicable to

cost report vears ending in 1977 and 1978. Thus, the

wrong regulation was applied by the District Court.

The Court concluded by stating that it could not find

the Secretary’s interpretation of the regulation to be

unreasonable.

The Provider appealed to the United States Court

of Appeals for the Sixth Cireuit, which affirmed the

decision of the District Court.

REASON FOR GRANTING THE WRIT

There Is a Conflict Among the Courts of Appeals With

Respect to the Interpretation of 42 C.F.R. §405.452(d)

(10) and the Degree of Deference To Be Accorded the

Regulatory Interpretation.

The regulation involved in the instant case, 20

C.F.R. §405.452(d)(10), later redesignated as 42

C.F.R. §405.452(d) (10), was passed in 1972. Pursuant

to the following criteria listed therein, Blue Cross

classified the Provider’s TCU as a special care unit for

six years and reimbursed it with the higher payments

reflective of the increased costs attributable to the

operation of special care units:

Intensive care units, coronary care units, and

other special care inpatient hospital units.

To be considered an intensive care unit, coronary

care unit, or other special care inpatient unit, the

6

unit must be a hospital, must be one in which the

care required is extraordinary and on a concen-

trated and continuous basis and must be physically

identifiable as separate from the general patient

areas. There shall be specific written policies for

each of such designated units which include, but

are not limited to burn, coronary care, pulmonary

care, trauma, and intensive care units but exclude

post-operative recovery rooms, post-anesthesia re-

cover’ rooms, or maternity labor rooms.

The Provider Reimbursement Manual, a_ policy

guide published by the Health Care Financing Ad-

ministration, contained the following interpretation of

the subject regulation as enacted by the Secretary:

Special Care Units (Provider Reimbursement

Manual, Part 1, §2202.7) (1972).

To be considered a special care inpatient hospital

unit, the unit must be in a hospital, must be one in

which the care rendered is extraordinary and on a

concentrated and continuous basis and must be

physically identifiable as separate from general

eare areas, There shall be specific written policies

for each of such designated units which include,

but are not limited to, burn, coronary care, pui-

monary care, trauma, and intensive care units, but

exclude post-operative recovery rooms, post-anes-

thesia recovery rooms or maternity labor rooms.

Segregation of patients to specific areas by type

of illness or age, such as psychiatric, neuropsy-

chiatric, geriatric, pediatric, mental health, reha-

bilitation, ete., does not qualify as special care in-

patient hospital units for purposes of apportion-

ment unless the above requirements are met.

7

The Secretary, in 1977, reinterpreted 42 C.F.R.

§405.452(d) (10) to provide as follows:

Special Care Units (Provider Reimbursement

Manual, Part 1, §2202.7) (1977).

A. Requirements to Qualify as an SCU.—To be

considered a special care hospital unit, the follow-

ing requirements must be met:

1. The unit must be in a hospital.

2. The unit must be one in which the nursing

care required is extraordinary and on a concen-

trated and continuous basis. Haztraordinary care

incorporates extensive life-saving nursing services

of the type generally associated with nursing ser-

vices provided in burn, coronary care, pulmonary

care, trauma cnd intensive care units. For this

reason, special life-saving equipment should be

routinely available in the umt.

3. The unit must be physically identifiable as

separate from general care areas and the unit’s

nursing personnel must not be integrated with the

general care nursing personnel.

4. There shall be specific written policies for each

of such designated units which include, but are not

limited to, burn, coronary care, pulmonary care,

trauma, and intensive care units, but exclude post-

operative recovery rooms, or maternity labor

rooms. The unit’s staff must be specially trained

to serve in such areas. Segregation of patients to

specific areas by type of illness or age, such as psy-

chiatric, neuropsychiatric, geriatric, pediatric,

mental health, rehabilitation, etc., does not qualify

as special care inpatient hospital units for purposes

8

of apportionment unless the above requirements

are met.

* * *

B. Subintensive Units. — Some hospitals have

units which provide more intensive care than that

provided in the general care areas yet not suffict-

ently intensive to permit the unit to meet the re-

quirements to qualify as a special care unit under

the definition provided in paragraph A above.

These units are typically designated as subinten-

sive, subacute, progressive, or intermediate care

units, etc. Such subintensive units are not special

care units for purposes of Medicare reimburse-

ment.

There may, however, be cases where a unit is not

easily identified as a subintensive or special care

unit without further study. In such eases, a re-

view of the written policies of the various units

will indicate whether a unit is or is not providing

eare as defined in paragraph A. If the inter-

mediary determines that such a unit meets the

requirements of paragraph A above, then the unit

will qualify as a special care unit.

For example, one indication of whether the unit

in question meets the requirements specified in

§2202.7A.2. is the extent of nursing services pro-

vided in the unit. If the hours of nursing service

per patient day are less than the hours of nursing

services provided in an established special care

unit, such as an ICU or CCU in that hospital or

in other area hospitals if the hospital has no estab-

lished special care unit, then the unit in question

would generally not qualify as a special care unit.

Hospitals should maintain such records as are

9

needed to establish the nursing time in such units.

... (Emphasis supplied). ,

Finally, on May 16, 1979, the Department of Health,

Education and Welfare (now Health & Human Ser-

vices) published its proposed rule for revising once

again the definition of special care units. The follow-

ing comments were made therein:

This rule refines the definition of hospital special

care units and clarifies the requirements for their

reimbursement under the Medicare program. The

present special care unit reimbursement regulation

has been erroneously interpreted by some hospitals

to apply to units that furnish a level of care that

is less than that furnished for intensive care.

Under the present regulation, units have been

designated as special care units, when they are, in

fact, intermediate or subintensive care units that

render a less intensive level of care. The purpose

of this amendment is to clarify the intent of the

regulation that the ‘‘special care unit’’ applies

only to those units rendering a level of care that is

comparable to intensive care.

* * *

Several recent Provider Reimbursement Review

Board and Federal court decisions have addressed

the issue of whether intermediate or subintensive

care units are special care units and have come to

varying conclusions. These decisions show an ex-

isting lack of uniformity as to what constitutes a

special care unit. In addition, since the regulation

was issued, substantial changes have occurred in

hospital organization, administration, and finan-

cial practices. Increasingly, the inpatient hospital

10

special care unit concept has become an acceptable

part of medical care practice. We perceive a

definite need to further refine and clear away am-

biguity as to what a special care unit is to Medicare

reimbursement purposes. Thus, we propose to

amend the regulation. (Emphasis supplied).

The amended version of 42 C.F'.R. §405.452(d) (10)

appeared on August 18, 1980.

In the instant case, the Provider Reimbursement

Review Board, after hearing and evaluating all the

testimony and documentary evidence, had no difficulty

in finding that the Provider’s TCU qualified as a

special care unit pursuaut to the criteria enumerated

in 42 C.F.R. §405.452(d) (19) (1972), adding that it met

‘‘hoth an objective and subjective test’’ in measuring

up to the standards set forth in the regulation. The

decision of the Secretary in reversing the PRRB de-

cision, however, contrasted the TCU with the Pro-

vider’s ‘‘recognized”’ special care units? and concluded

that it was neither equal nor comparable to them and

as such did not qualify for increased reimbursement.

In so ruling, the Secretary went beyond the plain

meaning of the requirements of the published regu-

lation.

Judicial review of the Secretary’s determination is

governed by the Administrative Procedure Act, 5

U.S.C. §701 et seq. Where, as here, the court’s review

2The Provider operates an Intensive Care Unit, Coronary Care

Unit, Burn Unit, and Neonatal Unit in addition to its Transitional

Care Unit. All have been consistently treated by Blue Cross as

special care units with the exception of the TCU, which Blue Cross

also treated as a special care unit from 1971 through 1976.

11

was based upon the record of a hearing before an ad-

ministrative agency, this statute provides that the

Court need only find that the Secretary’s ruling was

not supported by ‘‘substantial evidence.’’ The Court

must ‘‘review the whole record or those parts of it

cited by a party.”” 5 U.S.C. §706.

In the instant ease the Board decision was reviewed

by a Deputy Administrator of the Health Care Fi-

nancing Administration (‘‘HCFA’’) who was dele-

gated such review authority by the Secretary. The

District Court held, and the Court of Appeals affirmed,

that it was within the discretion of the Secretary to

compare the TCU with two of the Provider’s four

acknowledged special care units and determine that the

level of care provided by the TCU was not as ‘“‘high’’

as that of the other two. This degree of deference

granted by the Sixth Circuit to the Secretary’s inter-

pretation of her own regulation is improper and un-

warranted. As stated in Central Washington Health

Services Association v. Harris, 497 F. Supp. 1148, 1152

(E. D. WA. 1980) in the following words:

While the ‘‘substantial evidence’’ standard of re-

view does not allow a reviewing court to substitute

its judgment for that of the agency, the review

under this standard is not to be a superficial or

cursory review. The court’s inquiry must be

searching and careful, subjecting the agency’s de-

cision to close judicial scrutiny. Likewise, the

reviewing court is not confined to those portions

of the record, if any, which the agency cites in

support of its conclusions. The court is charged

12

to review the record as a whole. (Emphasis sup-

plied).

Further, the Court in Central Washington followed

the ruling of this Court in Universal Camera Corp. v.

National Labor Relations Board, 340 U.S. 474 (1951)

in acknowledging that while the substantial evidence

standard is not modified in any way when the agency

(Administrator) and the examiner (Provider Reim-

bursement Review Board) disagree, the conclusion

reached by the agency should be scrutinized when it is

contrary to that of an ‘‘impartial, experienced exam-

iner’’ (Board) who has ‘‘observed the witnesses and

lived with the ease.’’ Id.

The question of substantial evidence review was

also ruled upon by the Third Cireuit when, on June 17,

1982 it affirmed without opinion a district court deci-

sion adverse to the Secretary. In Saint Luke’s Hos-

pital of Bethlehem, Pennsylvania v. Schweiker, (EK. D.

PA. 1981), CCH Medicare and Medicaid Guide,

131,501, 668 F. 2d 824 (3d. Cir. 1982), the Board held

in favor of the hospital, finding that its Concentrated

Care Unit qualified for Medicare reimbursement as a

special care unit. The Secretary reversed the Board’s

decision and the hospital appealed to district court.

The U.S. District Court for the Eastern District of

Pennsylvania granted recognition of the provider’s

Concentrated Care Unit as a special care unit pursuant

to 42 C.F.R. §405.452 (d) (10).

In its decision, the court commented on the degree

of deference to be afforded the Secretary’s determina-

tion as follows:

13

Certainly, the fact that the Administrator reversed

a decision within the agency is sufficient to re-

quire close scrutiny by this court. This is espe-

cially so since the PRRB, a five member board,

has members which are required by statute to be

‘‘knowledgeable”’ in the field of cost reimburse-

ment, and at least one PRRB member is required

to be a certified public accountant. 42 U.S.C.

§139500(h). As stated in St. John’s Hickey Me-

morial Hospital v. Califano, 559 F. 2d 803 (7th Cir.

1979), it is not appropriate for the courts to afford

the Secretary’s position extreme deference.

Paragraph 31,501 at p. 9465 (Emphasis supplied).

In St. John’s Hickey Memorial Hospital, Ine. v.

Califano, 559 F. 2d 803, 813 (7th Cir. 1979) referred to

above, the PRRB found for the provider and was re-

versed by the Health Care Financing Administration.

The Secretary insisted that the interpretation of the

statute by the agency directed to administer it was en-

titled to great deference. However, the Seventh Circuit

disagreed in the following words:

. a review of the cases reveals that the degree of

deference to be accorded agency action varies with

the circumstances, and a careful consideration of

the Medicare statute and the manner in which it

has been administered reveals that such deference

would be particularly inappropriate in this case

where we are not setting aside any regulation but

only disagreeing with an unofficial interpretation

of it.

* * *

... the statute specifically creates the right to

judicial review of the Secretary’s adverse ruling

14

on what costs are reimbursable, thus reserving to

the courts the final authority to interpret this

aspect of the statute (42 U.S.C. §139500(f) ).

The Court of Appeals continued in a footnote as

follows:

This special provision for judicial review is not

surprising in light of the statutory scheme. Here

the plaintiff is not the beneficiary of the govern-

ment program, but a necessary participant in

carrying out the program. The Secretary is obli-

gated by statute to reimburse all reasonable costs

of such providers. Jt would be inappropriate to

allow his subordinates to be the final arbiter of

what is reasonable, particularly when they have

overruled the decision of the Provider Reimburse-

ment Review Board which was set up to mediate

disputes between providers and intermediaries act-

ing for the agency. (Emphasis supplied).

The Seventh Circuit reiterated its position in Com-

munity Hospital of Indianapolis, Inc. v. Schweiker, 717

¥’, 2d 372, 375-376 (1983) in the following words:

The Secretary argues that the [Provider Reim-

bursement ] manual definition of a special care unit

is entitled to great deference because the Health

Care Financing Administration is likely to know

more about the underlying intent of 42 C.F.R.

§405.452(d) (10) than the courts. Under the cir-

cumstances of this case, however, such deference

is not warranted. As the Supreme Court noted in

Bowles v. Seminole Rock & Sand Co., 325 U.S. 410

(1945), ‘‘a court must .. . look to the administra-

tive construction of the regulation if the meaning

15

of the words used is in doubt.”’ Fd. at 414. The

plain meaning of the words used in 42 €.F.R.

§405.452(d)(10) allows ... no such doubt here.

The regulation itself in no way suggests that spe-

cial care unit status is to be limited to patient care

areas where extensive lifesaving services are

available,

* * *

Thus, we reject the Secretary’s argument that we

must defer to the Provider Reimbursement Man-

ual Revision as the dispositive indicator of the

regulation’s intent. (Emphasis supplied).

The same approach to judicial review of administra-

tive action is found in St. James Hospital v. Heekler,

579 F. Supp. 757 (N. D. Ill. 1984). Citing Bureau of

Alcohol, Tobacco & Firearms v. Federal Labor Rela-

tions Authority, 104 8. Ct 489, 444 (1983) and Ameri-

can Ship Building Co. v. NLRB, 380 U. 8. 300, 318

(1965), the court stated that ‘‘. . . the judicial deference

usually afforded to an agency’s determination of how

best to achieve statutory policies enacted by Congress

‘cannot be allowed to slip into judicial inertia.’’’ It

continued as follows:

Courts ‘‘are not obliged to stand aside and rubber-

stamp their affirmance of administrative decisions

that they deem inconsistent with a statutory man-

date or that frustrate the congressional policy un-

derlying a statute.’”’ NDIRB v. Brown, 380 U. 8.

278, 291 (1965). Moreover, ‘‘[i]f Congress estab-

lished a presumption from which judicial review

should start, that presumption ... [is] against

changes in current policy that are not justified by

the rulemaking record.’’ Motor Vehicle Manufac-

16

turers Association of the United States, Ine. v.

State Farm Mutual Automobile Insurance Co.,

103 8. Ct. 2856, 2866, 77 L. Ed. 2d 443 (1983)

(Emphasis in original).

In contrast to the rationale of the Third and Sev-

enth Circuits, the D.C., Fourth, Fifth, and Ninth Cir-

cuits have based their decisions upon due deference to

the agency interpretation of its own regulations. See

White Memorial Medical Center v. Schweiker, 640

F. 2d 1126, 1129 (9th Cir. 1981) ; Psychiatric Institute

of Washington, D.C., Inc. v. Schweiker, 669 F. 2d 812,

813-814 (D. C. Cir. 1981); Sun Towers, Ine. Vv.

Schweiker, 694 F. 2d 1036, 1038 (5th Cir. 1983) ; Lez-

ington County Hospital v. Schweiker, 740 F. 2d 287

(4th Cir. 1984).

The regulation before the Court affects not only the

Petitioner herein, but all the aged and disabled bene-

ficiaries of the Medicare program for whom special

care units provide a level of hospital care that cannot

be equated merely with dollars and cents, but with lives.

Recognition of the Provider’s TCU as a special care

unit pursuant to 42 C.F.R. §405.452(d)(10) is con-

sistent with the statutory principle of payment for the

reasonable and necessary costs of services provided to

Medicare beneficiaries, and the goals of the Medicare

Act.

CONCLUSION

The Petitioner herein, NKC, Inc., respectfully sub-

mits to the Court that its Transitional Care Unit met

the requirements of extraordinary, concentrated and

17

continuous care pursuant to the regulation in effect

during the cost reporting periods in dispute. Both the

Third and Seventh Circuit Courts of Appeals have de-

cided in favor of the interpretation of 42 C.F.R.

§405.452 (d) (10) (1972) urged by the Petitioner.

From 1971 through 1976 the Transitional Care Unit

in issue was reimbursed under the Medicare program

as a special care unit. Yet in 1977 and 1978 this same

unit was denied the recognition afforded by Blue Cross

for the previous six cost report years.

The unanimous determination of the Provider Re-

imbursement Review Board that the TCU qualified as

a special care unit was reversed by the Secretary in an

arbitrary and capricious manner. The District Court

upheld the Secretary in an opinion based upon a regu-

lation in effect for cost report years subsequent to those

in issue. The Sixth Circuit compounded the error of

the lower court by holding that the Secretary’s inter-

pretation of the regulation retroactively applied to the

Petitioner was not unreasonable.

The Petitioner respectfully requests that the Court

address the issues set forth above and grant the Peti-

tion for Writ of Certiorari.

Respectfully submitted,

CARSON P. Porter

Counsel of Record

GAYLEE W. GILLIM

Rick, Porter & SEMLER

2200 Meidinger Tower

Louisville, Kentucky 40202

(502) 584-7400

Attorneys for Petitioner

APPENDIX

la

RECCMMENDED FOR FULL TEXT PUBLICATION

See, Sixth Circuit Rule 24

No. 83-5864

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

NKC, Inc. - - . - - Plaintiff-Appellant,

v.

SECRETARY OF HEALTH AND HUMAN

SERVICES -~ - “ - Defendant-A ppellee.

On Appeal From the United States District Court

for the Western District of Kentucky

Decided and Filed November 15, 1984

Before: Epwarps and Kerrn, Cireuit Judges; and

Brown, Senior Circuit Judge.

Epwarps, Cireuit Judge. NKC, Inc., plaintiff-appellant,

in this appeal operates the Norton-Children’s Hospital,

Inc., a 492 bed hospital in Louisville, Kentucky. As a part

of its hospital operation, Norton’s operates a unit which it

terms its Transitional Care Unit. Norton’s also operates in

the same hospital an Intensive Care Unit, a Coronary Care

Unit, a Burns Unit and a Neo-Natal Unit. From 1971 to

1976 all of these previously named units were treated by

Blue Cross as “special care units” for purposes of reim-

bursement under the Medicare Program. However, for the

years 1977 and 1978, reimbursement at the special care unit

rate was continued as to each of these units except for the

Transitional Care Unit. As to it (TCU), Blue Cross denied

payment at the special care unit rate and NKC, Ine. ap-

pealed.

2a

After a hearing before the Department of Health and

Human Services Appeal Board, the Board issued a unani-

mous decision in favor of granting TCU special care unit

treatment.

Nonetheless, this decision was reversed by the Deputy

Administrator of Health Care Financing Administration,

where upon NKC, Ine. filed for judicial review before the

United States District Court for the Western District of

Kentucky pursuant to 42 U.S.C. § 1389500(f). The District

Judge denied NKC’s motion for summary judgment and

granted the Secretary’s motion for judgment on the plead-

ings whereupon this appeal was filed before this court.

This court has now received full briefing and has heard

full oral argument from the parties. It appears that de-

cision of this case hinges upon answers to two questions:

1. Is the Secretary’s interpretation of § 405.452(d)

(10), as requiring the same level of care as Intensive

Care Units and Cardiac Care Units rather than simply

greater care than in routine care units, rational and in

accordance with the Medicare Act?

2. Is the determaination of the Secretary in denying

special care unit status to the TCU supported by sub-

stantial evidence?

On full consideration of this record, including briefs and

oral arguments, we answer both of these questions in the

affirmative. We note at the outset that 42 C.F.R. ¢ 405.452

(d)(10) reads as follows:

Intensive Care Units, Coronary Units and Other Spe-

cial Care Inpatient Hospital Units.

To be considered an intensive care unit, coronary care

unit, or other special care inpatient hospital unit, the

unit must be in a hospital, must be one in which the

care required is extraordinary and on a concentrated

and continuous basis and must be physically identifiable

3a

as separate from general patient care areas. There

shall be specific written policies for each of such desig-

nated units which inelude, but are not limited to burn,

coronary care, pulmonary care, trauma, and intensive

care units but exclude post-anesthesia recovery rooms,

or maternity labor rooms.

We deduce that beginning in 1977 the interpretation of

this regulation was changed to require that a unit must

provide the same level of care as that provided by intensive

care and cardiac care units in order that it be treated as a

special care unit. This interpretation has provoked contro-

versy in a number of cases in the courts of appeal. In the

following cases, courts of appeal have followed the Secre-

tary’s interpretation. Sun Towers, Inc. v. Schweiker, 694

F. 2d 1036 (5th Cir. 1983) (compared the unit in question

to the highest level of care provided by the institution—the

unit provided less care and therefore should not be con-

sidered a special care unit); White Medical Center v.

Schweiker, 640 F. 2d 1126 (9th Cir. 1981) (used same ap-

proach as used in Sun Towers); Psychiatric Institute of

Washington, D.C., Inc. v. Schweiker, 669 F. 2d 812 (D.C.

Cir. 1981) (compared unit to special care units in the same

institution—the unit provided care less concentrated and

less continuous and therefore should not be considered a

special care unit) ; Vilia View Community Hospital v. Heck-

ler, 728 F. 2d 539 (D.C. Cir. 1984) (followed Psychiatric

Institute and reversed district court in companion case cited

by appellant—Los Alamitos General Hospital, Inc. v. Don-

nelly, No. CA-79-0668 (D.D.C. Feb. 28, 1983)); Lexington

County Hospital v. Schweiker, 740 F. 2d 287 (4th Cir. 1984)

(approved interpretation that unit must provide care equi-

valent to that provided in special care units).

In several instances, the Seerctary’s interpretation has

been rejected by courts of appeal. Community Hospital of

Indianapolis, Inc. v. Schweiker, 717 F. 2d 372 (7th Cir.

4a

1983) (rejected interpretation that unit must provide care

identical to that provided in recognized special care units

but required that the unit provide comparable care—court

held unit was closer to special care unit than to routine

care and therefore should be considered a special care

unit) ; St. Luke’s Hospital of Bethlehem, Pa. v. Schweiker,

668 F. 2d 824 (3d Cir. 1982) (affirmed without opinion

district court which held that the Secretary’s interpretation

that intensive care was required for a unit to be a special

care unit was unreasonable—regulation only required that

eare be extraordinary, continuous and concentrated).

It appears in our instant situation that the Transitional

Care Unit is staffed and equipped so as to provide care

definitely superior to routine hospital care. It likewise

appears clear to this court that this record would not allow

for a finding that the Transitional Care Unit operated at

the Norton-Children’s Hospital provided as high a level of

care as the Intensive Care Unit and Cardiac Care Units.

While we recognize that the District Judge in this case

made reference to the new, rather than the old, regulation,

we nonetheless feel that the District Judge’s decision was

correct. We hold that it is within the Secretary’s discretion

to compare the Transitional Care Unit with the Intensive

Care Unit and the Cardiac Care Unit and determine that

its level of care, while clearly above ordinary hospital care,

is not as high as the other two special care units.

The Administrative Procedures Act, 5 U.S.C. § 701

et seq. allows the District Court and this court to set aside

findings and conclusions of an agency which are “arbitrary,

capricious, an abuse of discretion or otherwise not in ac-

cordance with the law.”

We now find from our review of the record that the

Secretary did not abuse her discretion in this case and that

her decision was made with support of substantial evidence.

The judgment of the District Court is therefore affirmed.

5a

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

No. 83-5864

NKC, Inc., - - - - - Plaintiff-Appellant,

v.

SECRETARY OF HEALTH AND Human

Services, - - - - - Defendant-Appellee.

JUDGMENT — Filed November 15, 1984

Before: Epwarps, and Keirn, Circuit Judges; and Brown,

Senior Circuit Judge.

On AppeaL from the United States District Court for

the Western District of Kentucky.

Tuis Cause came on to be heard on the record from the

said District Court and was argued by counsel.

On ConsIDERATION WHEREOF, It is now here ordered and

adjudged by this court that the judgment of the said Dis-

trict Court in this case be and the same is hereby affirmed.

It is further ordered that Defendant-Appellee recover

from Plaintiff-Appellant the costs on appeal, as itemized

below, and that execution therefor issue out of the said

District Court, if necessary.

Entered by Order of the Court

John P. Hehman, Clerk

(s) John P. Hehman

Clerk

A True Copy.

Attest:

(s) Audrey Crockett, Deputy Clerk

6a

UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF KENTUCKY

AT LOUISVILLE

No. C 82-0200-L(B)

NKC, Inc. - - - - - - - Plaintiff

v.

Ricuarp S. ScuHwerker, Secretary of

Health and Human Services - - - Defendant

MEMORANDUM

This matter is before the Court on the motion of the

plaintiff for summary judgment and on the motion of the

defendant for judgment on the pleadings.

Plaintiff, NKC, Inc., operates a short-term acuie care

hospital with about 500 beds. Within its hospital plaintiff

operates a coronary care unit (CCU), an intensive care unit

(ICU), a burn unit, a neonatal unit, and a transitional care

unit (TCU). It is the last unit that is the focal point of

this litigation.

This action arises under the Medicare Act, Title 42

U.S.C. Section 1395 et seq. Plaintiff is a “provider of

services” as that term is defined in 42 U.S.C. Section 1395x

(u). As a provider it is entitled to reimbursement for the

reasonable cost of furnishing medical care to Medicare

beneficiaries. To accomplish this reimbursement the Secre-

tary has promulgated regulations, 42 C.F.R. Section 405.401

to 405.488. Reimbursement is generally accomplished after

an audit by a fiscal intermediary—in this case Blue Cross-

Blue Shield—which may disallow certain costs. If a pro-

vider is dissatisfied with the final audit report and ex-

planation of audit adjustments, it may appeal to the

7a

Provider Reimbursement Review Board (PRRB) which

may affirm, modify or reverse the intermediary’s determina-

tion. The Secretary or his designee may affirm, modify or

reverse the decision of the PRRB. A provider which re-

ceives an adverse decision of the Secretary may bring an

action for judicial review in the appropriate United States

District Court.

Plaintiff made claim for reimbursement of costs of care

rendered in its TCU, adopting the position that the TCU

Was an intensive care type inpatient hospital unit as de-

fined in 42 C.F.R. Section 405.452(d) (10):

(10) Intensive care type impatient hospital unit.

To be considered an intensive care type inpatient hos-

pital unit, the unit must furnish services to critically

ill patients. (Examples of intensive care type units

include, but are not limited to, intensive care units,

trauma units, coronary care units, pulmonary care

units, and burn units. Excluded as intensive care

type units are postoperative recovery rooms, post-

anesthesia recovery rooms, maternity labor rooms, and

subintensive or intermediate care units.) The unit

must also meet the following conditions;

(i) The unit must be in a hospital;

(ii) The unit must be physically and identifiably

separate from general routine patient care areas, in-

cluding subintensive or intermediate care units, and

ancillary service areas. There cannot be a concurrent

sharing of nursing staff between an intensive care

type unit and units or areas furnishing different levels

or types of care. However, two or more intensive care

type units that concurrently share nursing staff can

be reimbursed as one combined intensive care type unit

if all other criteria are met. Float nurses (nurses

who work in different units on an as-needed basis) can

8a

be utilized in the intensive care type unit. If a float

nurse works in two different units during the same

eight hour shift, then the costs must be allocated te

the appropriate units depending upon the time spent

in those units. The hospital must maintain adequate

records to support the allocation. If such records are

not available, then the costs must be allocated to the

general routine services costs areas;

(iii) There must be specific written policies that

include criteria for admission to, and discharge from,

the unit.

(iv) Registered nursing care must be furnished on

a continuous 24-hours basis. At least one registered

nurse must be present in the unit at all times;

(v) A minimum nurse-patient ratio of one nurse

to two patients per treatment day must be maintained.

Included in the calculation of this nurse/patient ratio

are registered nurses, licensed vocational nurses, and

nursing assistants who provide patient care. Not in-

cluded are general support personnel such as ward

clerks, custodians and housekeeping personnel; and

(vi) The unit must be equipped, or have available

for immediate use, life-saving equipment necessary to

treat the critically ill patients for which it is designed.

This equipment may include, but is not limited to,

respiratory and cardiac monitoring equipment, respi-

rators, cardiac defibrillators, and wall or canister

oxygen and compressed air.

The intermediary disallowed the claim and plaintiff

appealed to the PRRB which reversed the intermediary

and approved the claim for payment. Thereafter, the

Secretary’s designee set aside the decision of the PRRB

and disallowed plaintiff’s claim. This action, seeking a

review of that decision, was then commenced in this Court.

9a

The administrative record contains almost 400 pages

of testimony introduced before the PRRB. The substance

of that testimony may fairly be said to establish that plain-

tiffs TCU affords more intensive monitoring of patients

than is available to the general hospital population.

On the other hand, it may also be fairly said that the

TCU does not afford the highly sophisticated and inten-

sive monitoring which is a part of the routine of the CCU

and the ICU.

Plaintiff asserts that the TCU meets the criteria set

forth in the regulation quoted above. The Secretary

equated the TCU with subintensive or intermediate care

units.

It is well settled that judicial review of the Secretary’s

determination is limited by the standards of the Adminis-

trative Procedures Act. Title 5 U.S.C. Section 701 et seq.

Section 706(2)(A) and (E) of the Act provides:

[The reviewing court shail] (2) hold unlawful and set

aside agency action, findings, and conclusions found

to be—

(A) arbitrary, capricious, an abuse of discretion,

or otherwise not in accordance with law;

* * * *

(E) unsupported by substantial evidence in a

case subject to sections 556 and 557 of this title or

otherwise reviewed on the record of an agency hear-

ing provided by statute... .

Plaintiff’s argument rests on its position that the Sec-

retary should compare its TCU with the routine care fa-

cility conducted by plaintiff. While this argument has

some appeal, the Court concludes that the Secretary is

vested with discretion to compare the TCU with the ICU

and the CCU. Substantial evidence to support the Secre-

10a

tary’s conclusion may be found in the testimony of Drs.

Michael Flynn and Stuart Graves.

Dr. Flynn testified by deposition :

“Q. 44. Would you agree that the Transitional Care

Unit is basically for patients well enough not to be in

the Intensive Care Unit or Coronary Care Unit, but

not sufficiently recovered to be in the routine area?

A. That is one classification of patient that can

be in there, yes.

* * * * * * *

Would you agree that the Transitional Care

Unit is a Sub-Intensive Care Unit?

A. (Well, you know, I am not exactly sure what

you mean. I would say it is a Special-Care area. That

isn’t quite as—doesn’t really—does not—zin certain

circumstances, does not provide quite the same level of

intensive care as the Intensive Care Unit.

Now, you know, you are asking me to, you

know, Sub-Intensive Care Unit, you’ll have to really

define that for me before I know what you are talking

about.

But it is an Intensive Care Unit which

doesn’t provide quite the same level of intensive care,

in that the patients are not in an open ward, so they

are not subjected to the constant visual monitoring;

they do not use respirators, and they don’t have quite

the number of nurses, so that they obviously can’t pro-

vide the same intensive level of nursing care just be-

cause they don’t have the numbers.

1The pages of the transcript of evidence are not numbered in

sequence. Dr. Flynn’s deposition begins after page 120 of the

administrative hearing which is included in volume 2 of the record.

Dr. Grave’s deposition follows Dr. Flynn’s.

lla

Now, if that’s what you mean by Sub-In-

tensive Care Unit, yes, I would agree with that.”

(Flynn deposition pp. 25, 35.)

Dr. Graves testified by deposition:

Q.21. Is there any other distinction between the

quality of nursing care rendered in TCU and that ren-

dered in the routine area of the hospital?

A. I don’t know that there’s any difference in

quality. There is certainly a difference in quantity.

Q. 22. All right.

A. We like to think —I’m biased towards the

Norton’s, incidentally, but we like to think all of our

nurses are very qualified, and with the exception of this

cardiac training, I think they all are. I think all our

nurses are as good as our ICU or TCU nurses. We just

have a lot more of them.

Q. 23. When you talk about the quantity, you’re

saying you have a lot more of them, meaning there’s a

higher ratio of nursing care per patient rendered in

the TCU than in the routine area?

A. Considerably higher.

* * * ¥* * * *

Q. 44. Would you agree, Doctor, that the level of

care offered in the transitional care unit is of a lesser

level than that offered in the coronary care unit or the

intensive care unit, again, not from a quality stand-

point, but from a quantity standpoint?

A. Yes.

Q.45. Are you familiar with the written policies

of the transitional care unit?

A. You mean, can I quote them to you? I can’t

do that.

12a

Q.46. No. But are you generally familiar with

them?

A. I think so.

Q.47. Would you agree that those policies indi-

cate that the purpose of the transitional care unit is to

eare for patients who were well enough to be out of

the intensive care unit or the coronary care unit but

not well enough to go to the medical-surgical wards?

A. Yes.

* * * * * * *

Q. 59. You testified that the transitional care unit

offers more nursing care, again, from a quantity stand-

point than the routine medical-surgical ward would

offer?

A. Yes, sir.

Q. 60. Would you also agree that the ICU or CCU

offers more nursing care from a quantity standpoint

than the TCU?

A. From a quantity standpoir ’

Q.61. Yes, sir.

A. Yes.” (Graves deposition, pp. 10, 19-20, 22.

In Psychiatric Institute, Etc. v. Schweiker, 669 F. 2d 812

(D.C. Cir. 1981), the court treated an argument similar to

that advanced by plaintiff here. In rejecting the argument

the court wrote:

“Judicial review of such determinations is limited

by the familiar standards of 5 U.S.C. [Section] 706

(1976). Furthermore, where the decision under re-

view involves an agency’s interpretation of its own

regulations, forming part of a complex statutory scheme

which the agency is charged with administering, the

arguments or deference to administrative expertise

13a

are at their strongest. See Ford Motor Credit Co. v.

Milhollin, 444 U. S. 555, 566, 100 S. Ct. 790, 797, 63

L. Ed. 2d 22 (1980). A reviewing court may not set

aside the agency’s interpretation merely because an-

other interpretation was possible and seems better, so

long as the agency’s interpretation is within the range

of reasonable meanings that the words of the regula-

tion admit.”

The Psychiatric Institute court followed the lead of the

Ninth Cireuit in John Muir Memorial Hospital, Inc. v.

Schweiker, 664 F. 2d 1337 (1981), where the Court noted:

“The Memorial Hospital of Gardena and the John

Muir Memorial Hospital established ‘Maxicare’ and

‘Definite Care’ units, respectively, to provide inter-

mediate care to patients who did not require inten-

sive care but who were too seriously ill to be cared for

on general medical-surgical floors. The hospitals

classified these units as ‘special care units’ (SCUs) and

applied for the higher SCU per diem reimbursement.

The Secretary decided in each case that the care

provided in the units was not ‘extraordinary and on a

concentrated and continuous basis,’ and that the units

did not qualify as SCUs under the definition in 42

C.F.R. [Section] 405.452(d)(10). Both district courts

found that, because the care rendered in the inter-

mediate units was greater than that provided on a

general floor, a higher per diem was appropriate.

We shall not disturb the Secretary’s findings that

the units are not SCUs, our decision being controlled

by White Memorial Medical Center v. Schweiker, 640

F. 2d 1126 (9th Cir. 1981). White established that the

regulation defining SCUs was an ejusdem generis one,

limiting its coverage to units similar to these enum-

erated. The Secretary’s interpretation calling for com-

l4a

parison to enumerated units, not routine service floors,

is reasonable. Complex accounting methods used to

distribute medicare funds are involved. Jd. at 1129.

We defer to the Secretary’s expertise.

The Secretary decided in White, and here, that the

intermediate care units did not deliver care similar to

that in burn, coronary, pulmonary, trauma, or intensive

care units. Although both hospitals produced evidence

that their units deliver ‘extra-ordinary’ care, substan-

tial evidence supports the Secretary’s conclusions.”

If this Court were writing on a clean slate, we would

have no hesitancy in finding that plaintiff's TCU meets the

criteria of the regulation. We cannot say, however, that

the TCU admits of no other interpretation and we cannot

conclude that the Secretary’s interpretation of the regula-

tion is unreasonable.

The Court concludes that defendant’s motion for judg-

ment on the pleadings should be granted and plaintiff's

motion for summary judgment should be denied.

An appropriate order has been entered this date.

September 27, 1983

(s) Thomas A. Ballantine, Jr.

Thomas A. Ballantine, Jr.

United States District Judge

Copies to:

Counsel of record

15a

UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF KENTUCKY

AT LOUISVILLE

No. C 82-0200-L(B)

ee ee ee ee

Vv.

Ricuarp S. Scuweiker, Secretary of

Health and Human Services - - - Defendant

ORDER — Entered September 27, 1983

For the reasons set forth in the memorandum filed this

date,

Ir Is Orperep that the motion of the plaintiff for sum-

mary judgment on its claim against the defendant be and

hereby is denied.

Ir Is Furtuer Orperep that the motion of the defendant

for judgment on the pleadings be and hereby is granted,

and this action is dismissed with prejudice.

There is no just reason for delay, and this is a final and

appealable Order.

This 27th day of September, 1983.

(s) Thomas A. Ballantine, Jr.

Thomas A. Ballantine, Jr.

United States District Judge

Copies to:

Counsel of record

16a

[LETTERHEAD OF DEPARTMENT OF HEALTH

& HUMAN SERVICES]

Office of Attorney-Advisor

Carson P. Porter, Esq. n

Reisz, Rice, Porter & Rosenbaum ' |

1207 Citizens Plaza

Louisville, Kentucky 40202

Dear Mr. Porter:

Re: Norton-Children’s Hospitals, Inc., v. BCA/BC/Blue

Shield of Kentucky, Inc., Determination of Reasonable

Costs for Cost Reporting Periods Ending 12/31/77,

and 12/31/78, PRRB Decision No. 82-D24. |

Enclosed is a copy of the Deputy Administrator’s decision

in the above case. This decision reverses the decision of

the Provider Reimbursement Review Board.

If the Provider wishes to obtain judicial review of the

matter, civil action must be initiated within 60 days of the

date the Administrator’s decision is received. For your

ready reference, I enclose a copy of Section 1878(f) of the

Social Security Act, as amended [42 USC 139500(f)].

Sincerely yours,

(s) Erica L. Gosnell

Krica L. Gosnell, Director

Office of Attorney-Advisor

Enclosures i

17a

DECISION OF THE DEPUTY ADMINISTRATOR,

HEALTH CARE FINANCING ADMINISTRATION

DATED FEBRUARY 4, 1982

Norton-Children’s Hospitals, Inc., v. BCA/BC/Blue Shield

of Kentucky, Inc., Determination of Reasonable Costs for

Cost Reporting Periods Ending 12/31/77, and 12/31/78,

PRRB Decision No. 82-D24

Provider Reimbursement—Determination of Costs of

Services—Special Care Units—Where the patients in

the Transitional Care Unit required a significantly

lesser level of care than patients in the Provider’s

established special care units, the Deputy Adminis-

trator found that the patients did not require extra-

ordinary care on a concentrated and continuous basis

and held that the Transitional Care Unit did not supply

all of the criteria of 42 CFR 405.452(d)(10) to be con-

sidered a special care unit. [NOTE: This issue fol-

lows the Administrator’s previous decisions on review

of PRRB Decisions Nos. 77-D76, 77-D83, 78-D72, 79-

D3, 79-D24, 79-D70, 79-D87, 79-D98, 80-D28, 80-D29,

80-D35, 80-D36, 80-D49, 80-D65, 80-D101, 81-D34, 81-

D65, 81-D80, 81-D82, 81-D90, and 82-D20].

PRRB Decision No. 82-D24, at Commerce Clearing House,

Medicare and Medicaid Guide § , is reversed.

18a

HEALTH CARE FINANCING ADMINISTRATION

Decision of the Administrator

In the Case of:

Norton-Cuitpren’s Hosprras, Inc. - - Provider

Vv.

Buve Cross Association/BuvE Cross/

Buve Sutevp or Kentvcry, Inco. - Intermediary

Claim for:

Provider Cost Reimbursement

Determination of Reasonable Costs for Cost Reporting

Period(s) Ending December 31, 1977 and December 31,

1978

Review of:

PRRB Decision No. 82-D24

Dated: December 10, 1981

This case is before the Deputy Administrator, Health

Care Financing Administration, for review of the decision

of the Provider Reimbursement Review Board. The review

is during the 60-day period in Section 1878(f)(1) of the

Social Security Act, as amended [42 USC 139500(f) ].

Comments were received from the Intermediary requesting

reversal of the Board’s decision. The Parties were noti-

fied that the Board’s decision would be reviewed in light

of the Administrator’s Decision in PRRB Decision No.

77-D76. No comments were received from the Provider.

Accordingly, this case is now before the Deputy Adminis-

trator for final administrative decision.

THE ISSUE AND PRRB OPINION

The issue concerns whether the costs and statistics of

the Provider’s Transitional Care Unit (TCU) should be

19a

classified as routine care costs or special care costs for the

December 31, 1977 and 1978 cost years at issue. The appeal

involves whether the Provider’s TCU renders care to pa-

tients who require extraordinary care on a concentrated

and continuous basis so as to qualify the TCU as a special

care unit. The Board held that the TCU qualifies as a

special care unit for Medicare reimbursement purposes.

SUMMARY OF INTERMEDIARY’S COMMENTS

Counsel for the Intermediary requested reversal of the

Board’s decision. The Intermediary noted that the hos-

pital’s written policies, as well as the statistics concerning

the average number of nursing hours per patient day, costs

per patient day, patient transfers and discharges, and

equipment availability indicate that the Provider’s Transi-

tional Care Unit is a step-down unit to the recognized

special care areas, the Intensive Care Unit and the Cor-

onary Care Unit.

The Intermediary commented that the Board had ig-

nored the written policies of the TCU and erred in reject-

ing the actual cost comparisons. Instead, the Board relied

on hypothetical statistics adjusted for differences to a

90% occupancy level.

The Intermediary wrote that the Board was also in

error when it relied on the Administrator’s decision in

Loyola University of Chicago, PRRB Decision No. 81-D54.

The Intermediary noted that the nurse-to-patient ratio

used in Loyola was not the only pertinent comparison in

this case. The Board should have considered others. In

Loyola the unit in question rendered the same type of care

as in that provider’s recognized special care units. This

was not true for this Provider’s TCU.

Further, the Intermediary commented that the Board

erred in comparing the TCU to the Provider’s neonatal

20a

unit. The neonatal unit is an intensive care nursery and

should not be compared to units serving adults.

LAW, REGULATIONS, AND OTHER

GOVERNING CRITERIA

The provisions of the Law, Regulations, and other gov-

erning criteria relied on in this decision are quoted in the

attached which is incorporated by reference and is to be

read as a part of this decision.

DISCUSSION AND EVALUATION

All the evidence that was furnished by the Provider Re-

imbursement Review Board has been considered, including

the exhibits, transcript of the oral hearing before the Board,

sworn testimony of the witnesses, position papers, photo-

graphs, and the parties’ post-hearing briefs. All communi-

cations and comments received from and sent to the parties

after entry of the Board’s decision have been made a part

of the record. The complete statement of facts set forth

by the Board is incorporated by reference.

The Deputy Administrator has carefully reviewed the

factors in this case in light of the Board’s decision. Great

weight has been given to the findings of the Board. How-

ever, the Administrator does not agree with the Board’s

decision and is of the opinion that the decision that the unit

under appeal is a special care unit is not substantiated by

the probative records and is not in keeping with the regu-

lations.

At issue in this case is not so much the question of

facts as is the inference to be drawn from them and the

interpretation of them in light of the Medicare law and

regulations. In this regard, it is noted that under the Ad-

ministrative Procedure Act (5 USC 557(b)), this agency

has all the powers on review that “it would have in making

POR it

21a

the initial decision... .” That Act, of course, gives the

basic \precept governing all administrative proceedings

throughout the U.S. Government. There is nothing in the

Medicare legislation [42 USC 139500] that provides to the

contrary.

The Board’s decision is based on a finding that the care

required for patients in the unit at issue was extraordinary

and on a concentrated and continuous basis. An analysis

of the governing regulation, 42 CFR 405.452(d) (10), shows

that the terms “extraordinary”, “concentrated”, and “con-

tinuous” do not lend themselves to precise definition. These

terms should be understood within the meaning as applied

to the special care units listed in the Regulation. The

Regulation lists burn, coronary care, pulmonary care,

trauma, and intensive care units as examples of qualifying

units. The listing of existing units which would generally

meet the definition of a special care unit establishes the

frame of reference against which to measure newly estab-

lished units in order to determine whether they provide

“extraordinary” care “on a concentrated and continuous

basis.”

The Regulation’s listing of various special care units

which meet the extraordinary, concentrated, and continuous

care requirement indicates the specific class of units to

which the general words, “extraordinary” “concentrated”

and “continuous”, apply. As such, the Regulation’s extra-

ordinary, concentrated and continuous requirement applies

only to units which are of the same class as those specif-

ically listed. Thus, a qualifying unit must be comparable

to the recognized units listed in the Regulation rather than

merely one that renders care over and above that which is

rendered in the routine area.

Webster’s Dictionary defines “extraordinary” as “being

beyond what is usual, regular, customary or exceptional to

a very marked extent.” The Board’s interpretation of

22a

“extraordinary” may rest on Webster’s definition that it is

“beyond what is usual, regular or customary.” It is the

Deputy Administrator’s opinion that the context in which

“extraordinary” is used in the Regulation, establishes that

it means “exceptional to a very marked extent.” Extra-

ordinary care under the Regulation is exceptional care

which is absolutely required of patients admitted to special

care units. Patients who require extraordinary care are

those who are critically ill and in immediate life-threaten-

ing situations. If a unit treats, and is designed to treat

patients who are convalescing and whose conditions are im-

proving to the point where they are not critically ill, the

unit is usually not rendering extraordinary care. The

patients in such a unit do not absolutely require extra-

ordinary care.

The terms “concentrated and continuous” as used in

42 CFR 405.452(d)(10) are no less easily defined than the

term “extraordinary.” The requirement of extraordinary

care on a concentrated and continuous basis means that the

care must be focused on a relatively small number of pa-

tients constantly. The care rendered is not on a concen-

trated and continuous basis if the patients receiving it are

not constantly being monitored or if direct visual observa-

tion of the patients is not possible at all times. The latter

requirement is emphasized in the JCAH Manual which

states that in special care units “direct visual observation

of all patients should be possible from a central vantage

point.” Thus, patients who are not constantly monitored

and who are free to move about independently within a unit

are not receiving extraordinary care on a concentrated and

continuous basis, as those terms are used in the Regulation.

The care in a qualifying special care unit must either

meet the definition of 42 CFR 405.452(d) (10), or be treated

as a part of the routine area. The unit at issue in this

appeal is specifically referred to as the Transitional Care

23a

Unit (TCU). The unit is “intermediate” because it treats

patients who require care greater than routine, but less

than special. Even though the care rendered in a unit may

be more than that rendered in an average routine area, this

does not make that unit a special care unit. The Medicare

Regulations recognize only special and routine care for

cost apportionment purposes. A unit which does not

qualify as special care must be considered routine.

While many of the patients in the TCU were ad-

mitted postoperatively, the record reflects that approxi-

ately one-half of the patients are transferred from the

Coronary and Intensive Care Units (CCU and ICU). These

patients are usually transferred after their conditions have

improved and they are convalescing. The unit is not

equipped as extensively as the hospitals’ CCU and ICU.

The testimony by the Provider’s witnesses established that

patients transferred to the unit under appeal were still

very ill and required care greater than that available in

other routine areas. The fact that some of these patients

may still require a higher level of care than that available

in a routine area does not, however, establish that the unit

is a special care unit under the Regulation.

A comparison of the unit in question to the same hos-

pital’s recognized special care units reveals that the unit in

question renders a step-down or intermediate level of

care. The policy governing the unit provides that the

critically ill patients who are placed in the recognized

special care units, tt» ICU or CCU, will be transferred to

the TCU after they have been found well enough to leave

the ICU and CCU.

The level of nursing care provided in the TCU is re-

flected in the average number of nursing hours per patient

day. These statistics, when compared to those of the estab-

lished special care areas, show that the nursing hours sup-

plied in the TCU are less than those supplied in the Pro-

24a

vider’s established special care areas. The nursing cost

ratios in these units also show that the TCU supplied a

lesser level of nursing care.

A breakdown of the average number of nursing hours

per patient day, unit costs per patient day (before and

after step-down allocation), hourly nursing charges, and

nursing costs per patient day shows the ratio in the estab-

lished special care units to be consistently greater than the

same factor in the step-down unit at issue. The higher

ratios in the recognized special care units show that the

patients in the unit under consideration require a lesser

level of specialized care than the patients in the recognized

special care units. The unit provides a lesser level of

nursing care than provided in the established special care

units because the patients do not require the extraordinary

care that patients in units such as the ICU and CCU re-

quire. Patients are placed in the step-down unit when

they are no longer in immediate life-threatening situations.

Another indication that the TCU cares for patients who

require a lesser level of care than those in the established

special care units is reflected in equipment of that unit as

compared to that of established special care areas. For

example, the TCU provides only 2 hard-wire and only 8

telemetry monitors, although it has 16 beds. In the Pro-

vider’s CCU all patients are monitored with hardwire units.

Although the charges and equipment of the various units

are not conclusive as te the level of care supplied, they are

an indication that the actual costs to the hospital are less.

It follows that costs are less because the services and care

furnished to patients in the TCU are not as extensive as

those furnished to patients in the traditional special care

areas. Patients in the step-down unit, by the admission of

the Provider’s own witnesses, do not require the intensive

care supplied in the recognized special care units,

25a

The Board held that the comparison of these statistics

is biased. While the TCU nursing hours were relatively

comparable to those of the CCU, the CCU had lower utili-

zation. The CCU had to maintain high staffing under

JCAH requirements. The Board concluded that the CCU

nursing hours and costs should be adjusted for comparison

to the same utilization level as that of the TCU. The

Deputy Administrator notes, however, that there was no

evidence that the CCU staffing would have remained at the

same level with increased utilization. The usual response

in this context would be to increase staff in order to main-

tain the proper level of care.

In its decision the Board referred to the Administrator’s

decision in Loyola University of Chicago, PRRB Decision

No. 81-D54 and favorably compared the nurse to patient

ratio in the TCU to the units in Loyola. Since the ratio

of 1:2 and at a minimum 1:3, was a sufficient level of care

in that case, it seemed to follow that a 1:3 ratio in the Pro-

vider’s TCU should be sufficient. In Loyola, nursing hours

in the unit under appeal were as high as or higher than in

the same hospital’s established special care units: they

remained constant in the units under appeal for 24 hours

each day. In Loyola, the appealed units did not serve the

ICU or CCU as step-down care units. In this case the

Provider’s TCU nurse-to-patient ratio declined on the night

shift which does not reflect extraordinary care on a con-

centrated and continuous basis. Further, by written hos-

pital policy, the TCU is specifically an intermediate care

unit.

All of the evidence establishes that the unit at issue

renders care which is of a substantially lower level than

the care rendered in the recognized special care units. Two

physicians who regularly utilize the Provider’s facility

testified that the TCU functions as a subintensive unit to

both the ICU and CCU. The patients in the step-down

26a

unit are convalescing and are farther removed from critica!

and immediate life-threatening conditions than are patients |

in the recognized special care units such as the ICU and |

CCU. Visiting hours of the step-down unit reflect this in

that they are more liberal than those in the established

special care units. The patients’ conditions are improving

when they are in these units so that they do not need the

restrictions required in the recognized special care units.

The TCU is neither equal to, nor comparable to the

Provider’s recognized special care units and, as such, does

not qualify as a special care unit under 42 CFR 405.452

(d)(10). Obviously, some patients are more ill than

others, and some patients convalesce faster than others.

Some patients in this unit could be ill enough to need the

concentrated care of an intensive care unit. Other patients

in this unit could need only the care associated with a

general routine area. However, the typical patient treated

in this unit was not ill enough to require treatment in an

intensive care unit and, in fact, had often been transferred

from that type of unit because his condition had improved.

42 CFR 405.452(d)(10) specifically provides for the ex-

clusion of post-operative recovery rooms, post-anesthesia

recovery rooms or maternity labor rooms. The concept of

the Provider’s unit is substantially similar to these types

of rooms. As such, it is specifically excluded by 42 CFR

405.452(d) (10).

With regard to the examples indicated in Section

2202.7B of the Provider Reimbursement Manual (HIM-15),

the Deputy Administrator notes that no factor listed there

is conclusive. Although the number of nursing hours and

the source of patients are very important criteria to con-

sider in a determination of the intensity of care provided,

these criteria alone are not the only basis for the determi-

nation. However, when considered along with information

concerning the various admission and discharge policies,

OO a

27a

the type of patients treated, and the treatment provided,

the criteria in Section 2202.7B may corroborate the con-

clusions reached on the issue of the level of care provided.

Decisions regarding entitlement to provider reimburse-

ment must rest upon the cust reports submitted. Providers

are required to keep adequate records upon which to base

Medicare payment. Due consideration has been given to

the testimony presented. Reimbursement must be based

on auditable records and not essentially on testimony at

the hearing before the Board showing the contrary. Thus,

the contemporaneous records concerning nurse/patient

hours must furnish the basis for payment, rather than

estimates based on imputed utilization rates.

The Deputy Administrator, after considering the entire

record taken as a whole, finds that the TCU is a step-down

unit to the Provider’s established special care areas. The

TCU does not render the care necessary to qualify it as a

special care unit. Accordingly, the TCU does not qualify

as a special care unit for Medicare reimbursement pur-

poses.

FINDINGS OF FACT

1. The amount in controversy exceeds $10,000 for both

the 1977 and 1978 cost reporting period.

29. The Provider is a 492-bed, short-term, acute-care,

hospital.

8 The Provider operated a Transitional Care Unit

(TCU) which it claimed as a special care unit on its FY

1977 and 1978 Medicare cost reports.

4. The Provider’s TCU was a 16-bed unit, its Intensive

Care Unit (ICU) was an 18-bed unit, and its Coronary Care

Unit (CCU) was a 10-bed unit (Hearing Exhibit: “Compu-

tation of Staffing Pattern”).

28a

5. All patients in the CCU are monitored, but in the

Provider’s TCU only 10 of 16 patients can be monitored,

and only 2 of those by hard-wire (Tr. 61).

6. The Provider’s TCU utilized telemetry monitoring

which is less restrictive than the “hard-wire” monitoring

utilized by the Provider’s CCU (Tr. 48, 61).

7. The Provider’s TCU was not as extensively equipped

as the Provider’s ICU or CCU (Tr. 60-61).

8. Patients in the Provider’s TCU did not need all the

life-saving equipment on a continuous basis that CCU and

ICU patients needed (Tr. 63, 60-61, 92-3, 149).

9. Many patients in the TCU are postoperative pa-

tients recovering from surgery (Deposition of Dr. Graves,

p. 15).

10. Approximately 50% of the TCU patients were

transferred to the TCU from the ICU and CCU after their

couditions had improved (Tr. 147).

11. Ninety-two percent of the patients transferred

from the Provider’s TCU were sent to routine care areas

while the ICU and CCU each discharged 30% of their

patients to the TCU and 65% and 50% (respectively) to

routine care areas (Intermediary’s Position Paper (IPP)

Exhibit II).

12. The registered nurses in the Provider’s TCU re-

ceived the same critical care training as nurses in the

established special care units, the ICU and CCU (Tr. 43-4).

13. The total nursing care hours per patient day in the

TCU averaged 9.21. The CCU averaged 11.89 hours, and

the ICU averaged 16.71 hours (Intermediary’s Post-Hear-

ing Brief, Exhibit A).

14. The Provider’s TCU had available additional

“float” nurses from the Provider’s established special care

units (Tr. 44).

ain i i ote Saree

tt. Ballet Oe ae sna tae

29a

15. The nurse-to-patient ratios decreased from the day

to evening shift in the TCU (Tr. 80-1).

16. Comparison of charges for additional nursing re-

quired in units other than the routine care units showed

that charges in the TCU were less than half of charges in

the ICU and CCU (Tr. 151).

17. Comparison of nursing hours per patient day, nurs-

ing costs per patient day, unit costs per patient day (before

and after step-down allocation) among the TCU, ICU and

CCU shows that the ratio in the TCU is consistently less

than the ratio in the established special care units (IPP,

p. 1).

18. Visiting hours in the TCU were more liberal than

those in the ICU: they were 2 hours twice a day, while the

ICU allowed only 10 minute visits several times a day

(Tr. 28).

19. Patients in the Provider’s TCU were allowed to

have the use of telephones and televisions, while patients in

the ICU and CCU were not (Provider’s Position Paper

(PPP) p. 12 and Provider’s Supplemental Exhibits, Exh.

3, p. 5).

20. Smoking was not prohibited in the Provider’s TCU,

but smoking was prohibited in the ICU and CCU (Provid-

er’s Supplemental Exhibits, Exh. 3, p. 5).

21. Written hospital policy governing the Provider’s

TCU stated that the purpose of the unit was to serve pa-

tients found well enough to leave the ICU and CCU (Pro-

vider’s Supplemental Exhibit 3, p. 6).

22. Hospital policy required that patients requiring

mechanical ventilatory support, or who were suspected of

having an acute myocardial infarction within the preceding

3 days were not to be admitted to the TCU, but were to be

admitted to the ICU or CCU (Tr. 149).

30a

23. During the December 31, 1977 and 1978 cost years

at issue, the patients treated in the Provider’s Transitional

Care Unit (TCU) did not require such care as was con-

sidered special in the Provider’s recognized special care

units, the ICU and the CCU.

24. The Provider’s TCU treated patients who required

less intensive care than those in the Provider’s recognized

special care units, the ICU and CCU (Deposition of Dr.

Flynn, p. 41: Deposition of Dr. Graves, p. 7, 15, 19, 21:

Transcript of Oral Hearing (Tr.) 63, 67).

CONCLUSIONS OF LAW

1. Medicare recognizes only two levels of care for reim-

bursement purposes under 42 CFR 405.452: routine services

and special care services.

2. The Provider’s Transitional Care Unit rendered an

intermediate level of care which is not a recognized sep-

arate level of care for Medicare reimbursement purposes

under 42 CFR 405.452.

3. The Provider’s Transitional Care Unit does not meet

all the criteria to be considered an intensive care unit or

other special care unit under 42 CFR 405.452(d) (10).

4. The patients in the Provider’s Transitional Care

Unit do not require the extraordinary care contemplated

by 42 CFR 405.452(d)/10).

5. The patients in the Provider’s Transitional Care

Unit do not require extraordinary nursing care on a con-

centrated basis as required by 42 CFR 405.452(d) (10).

6. The patients in the Provider’s Transitional Care

Unit do not require extraordinary nursing care on a con-

tinuous basis as required under 42 CFR 405.452(d) (10).

7. Since the care required by the patients in the Tran-

sitional Care Unit is not equal to nor comparable to the

care required in the Provider’s established special care

3la

units, this unit does not qualify as a special care unit under

42 CFR 405.452(d) (10).

8. The care required by patients in the Provider’s

Transitional Care Unit, while different from the care re-

quired in the routine area, is not the extraordinary, concen-

trated and continuous care necessary to qualify it as a

special care unit under 42 CFR 405.452(d) (10).

DECISION

The decision of the Provider Reimbursement Review

Board is reversed. The Provider’s Transitional Care Unit

does not qualify as a special care unit for reimbursement

purposes.

This Constitutes the Final Administrative Decision of

the Secretary of Health and Human Services

(s) Paul R. Willging, Ph.D.

Deputy Administrator

Health Care Financing Administration

Date: 2/4/1982

32a

[LETTERHEAD OF DEPARTMENT OF HEALTH

AND HUMAN SERVICES]

Carson P. Porter, Esquire

Law Offices

Reisz, Porter & Rosenbaum

1207 Citizens Plaza

Louisville, Kentucky 40202

Dear Mr. Porter:

Re: Norton-Children’s Hospital, Inc., Louisville, Kentucky,

Provider No. 18-0088, Case No. 80-119, F/Y/E—De-

cember 31, 1977 and 1978, Decision No. 82-D24

This letter is transmitting the Provider Reimbursement

Review Board’s decision on the Hearing held on April 16,

1981.

The Board’s decision is that:

The Provider’s TCU qualifies as a special care unit in

accordance with 405.452(d)(10). The Provider is sus-

tained.

For information regarding the Provider’s rights of ap-

peal involving this decision, please see the enclosures.

The Board will be glad to furnish any further informa-

tion you may wish regarding this matter.

Sincerely yours,

(s) Thomas M. Tierney

Chairman

Enclosures 3

33a

ISSUE:

Whether or not the Provider’s Transitional Care Unit

qualifies as a special care unit pursuant to 42 CFR

405.452.(d) (10)?

SUMMARY OF FACTS:

Norton-Children’s Hospitals, Inc., is a 492-bed, short-

term, acute-care hospital. Medicare cost reports were filed

with Blue Cross/Blue Shield of Kentucky, Inc., for the

periods ending December 31, 1977, and 1978. Notices of

Program Reimbursement were issued by the Intermediary

for the cost-reporting periods in dispute on September 27,

1979, and October 3, 1980, respectively. The Provider has

appealed the Intermediary’s reimbursable cost determina-

tion to the Provider Reimbursement Review Board pursvu-

ant to 42 CFR 405.1835ff. The jurisdictional requirements

in the aforesaid regulations have been met.

During the cost-reporting periods under appeal the

Provider maintained a 16-bed Transitional Care Unit

(TCU). In filing its cost report, the Provider treated the

TCU as a special care unit. The Intermediary took ex-

ception to this treatment and combined the cost and sta-

tistics of the TCU with the routine care cost center.

The Provider asserts that its TCU meets all the ap-

plicable criteria for a special care unit as set forth in 42

CFR 405.452(d)(10) as described below:

1. The TCU is clearly located within Norton-Children’s

Hospital.

2. The care required in the TCU is extraordinary in

that it requires unusual training and equipment. The

training and skills of TCU nurses are significantly

higher than those of routine area nurses. Further-

more, the TCU has much more specialized equipment

than the routine areas of the hospital.

34a

3. The care required in the TCU is heavily concentrated

innature. Lifesaving equipment is always available.

Monitors permit the staff to render one-to-one super-

vision and care as required at all times, particularly

when a medical emergency arises.

4. The care in the TCU is provided on a continuous

basis. Round the clock medical supervision is pro-

vided to the patients in the TCU.

The TCU is separate from the general routine areas

of Norton-Children’s Hospital.

6. The TCU possesses specific written policies for its

training, organization, management and operation.

[|

Testimony by the Provider’s Assistant Administrator/

Director of Nursing and two physicians who practice at

Norton-Children’s Hospital support the aforementioned

conclusions concerning the care rendered in the TCU. The

Provider asserts that the Intermediary’s findings with re-

spect to care being rendered in the TCU has not been

viewed from a medical point of view but rather from a

mathematical computation of per diem costs. Drawing a

conclusion that the TCU does not render extraordinary care

that is concentrated on continuous basis based on the Inter-

mediary’s mathematical computation is without substance.

In the instant case, the per diem and nursing costs are dis-

torted because of differing occupancy rates in the Pro-

vider’s five special care units. The Provider points out

that if the per diem cost and nursing cost for the special

care units were recast using an occupancy evel of 90 per-

cent for the 5 special care units the per diem and nursing

costs would be arrayed in the following order:

35a

Per Diem Cost Nursing Costs Per Day

Burn Unit $201.02 $74.73

ICU 186.35 82.29

TCU 115.41 48.07

Neonatal 114.66 46.28

CCU 112.28 40.05

Thus, in comparing the TCU to the other special care units,

two important conclusions can be drawn:

1. In each category, the costs per day in the TCU ex-

ceed the costs per day in both the CCU and Neonatal

Unit. Both of these units are recognized by the In-

termediary as special care units; and

2. The TCU costs per day are much greater than those

incurred in the General Routine area of the hospital.

(Routine per diem costs—$94.61, Nursing Per Diem

Costs in Routine area—$22.25.)

Finally, the Provider argues that the Board should not

give credence to HIM-15, Section 2202.7, in rendering its

decision in the instant case. In John Muir Hospital, Inc. v.

Harris, N.D. CA., 1980, the court held that Section 2202.7

should not be applied because it “was not enacted pursuant

to the rulemaking requirements of the Administrative Pro-

cedure Act and did not exist at the time the Definitive Care

Unit was planned, constructed, and initially operated.”

HIM-15, Section 2202.7 was promulgated in June, 1979.

Norton-Children’s TCU was established in 1971. Thus, the

Intermediary should not be permitted to retroactively apply

Section 2202.7.

The Intermediary asserts that under 42 CFR 405.452

(b)(1) (i) and 405.452(e) (2) (ii) only two levels of care are

recognized, that is, special care units and routine care. In

order to qualify as a special care unit, 42 CFR 405.452(d)

(10) requires that the unit be “one in which the care re-

36a

quired is extraordinary and on a concentrated and con-

tinuous basis.” While “extraordinary, concentrated and

continuous” are not defined in the Regulation, HIM-15,

Section 2202.7 provides guidance for construing these

terms. In applying the guidance of HIM-15, Section 2202.7,

the Intermediary asserts that the TCU does not qualify as

a special care unit. This conclusion has been reached

because:

1. The TCU’s cost per patient day, nursing costs and

nursing hours were significantly below the Provider’s

ICU;

2. The transfer patterns for patients in the TCU indi-

cated a high percentage of patients coming from the

ICU and CCU; and,

3. Certain special life-saving equipment was not rou-

tinely available in the TCU.

Accordingly, the Intermediary finds that the Provider’s

TCU does not qualify as a special care unit.

CITATION OF APPLICABLE LAW, REGULATIONS,

AND PROGRAM INSTRUCTIONS

I. RecuLtations—42 CFR 405, Recunations No. 5, Sus-

Part D

Section 42 CFR 405.452(d) (10)—Intensive Care Type

Inpatient Hospital Unit

II. Procram Instructrions—HIM-15-1

Section 2202.7 — Special Care Units/Intensive Care

Type Units

CONCLUSIONS AND FINDINGS

The Provider Reimbursement Review Board, after con-

sideration of the facts, the parties’ contentions and evidence

37a

presented, concludes and finds that the Provider’s TCU

qualifies as a special care unit. In the instant case, the

Intermediary’s prime reason for not accepting the TCU

as a special care unit is predicated on mathematical asser-

tions, that is, cost per patient day, nursing costs per day

and nursing hours per patient day. However, as demon-

strated by the Provider, the mathematical assertions of the

Intermediary are biased because of a failure of the Inter-

mediary to reconcile the varying occupancy levels of the

Provider’s special care units. Even if the Intermediary’s

statistics can be considered reflective of care being extra-

ordinary, concentrated and on a continuous basis, the

nursing hours per patient day in TCU (9.21) substantially

exceeds those of the routine care areas (5.34). Accordingly,

the nursing hours ratio is better than 1 to 3 ratio. Ina

similar case involving special care units, the Administrator

stated:

“Considering the level of nursing care, for example.

it is significant that nurse-to-patient ratio in the four

units (i.e., special care units) at issue was generally

1:2 and at a minimum 1:3.” Loyola University of Chi-

cago PRRB Decision 81-D54.”

Accordingly, the parameters used by the Administrator in

Loyola University should be equally applicable to this case.

In addition, the Provider has presented competent testi-

mony indicating the existence or availability of special life-

saving equipment that was utilized in the TCU. Further,

the special training given the TCU enabled the nurse to per-

form many life-saving services which could not be per-

formed by a nurse in the routine care area. In fact, the

TCU nurse receives the same training as the ICU and CCU

nurse. The TCU, ICU, and CCU nurse are intérchangeable.

Thus, the TCU meets both an objective and subjective

test in qualifying as a special care unit.

38a

DECISION

The Provider’s TCU qualifies as a special care unit in

accordance with 405.452(d) (10). The Provider is sustained.

Board Members Participating

Thomas M. Tierney

James Houdek, Jr., CPA

Bette A. Kraus

FOR THE BOARD

December 10, 1981

(s) Thomas M. Tierney

Thomas M. Tierney

Chairman

39a

42 U.S.C. 1395x

(v) Reasonable Cost

(1)(A) The reasonable cost of any services shall be the

cost actually incurred, excluding therefrom any part of

incurred cost found to be unnecessary in the efficient de-

livery of needed health services, and shall be determined

in accordance with regulations establishing the method or

methods to be used, and the items to be included, in de-

termining such costs for various types or classes of insti-

tutions, agencies, and services; except that in any case to

which paragraph (2) or (3) applies, the amount of the

payment determined under such paragraph with respect to

the services involved shall be considered the reasonable

cost of such services. In prescribing the regulations re-

ferred to in the preceding sentence, the Secretary shall

consider, among other things, the principles generally ap-

plied by national organizations or established prepayment

organizations (which have developed such principles) in

computing the amount of payment, to be made by persons

other than the recipients of services, to providers of serv-

ices on account of services furnished to such recipients by

such providers. Such regulations may provide for de-

termination of the costs of services on a per diem, per unit,

per capita, or other basis, may provide for using different

methods in different circumstances, may provide for the

use of estimates of costs of particular items or services,

may provide for the establishment of limits on the direct

or indirect overall incurred costs or incurred costs of

specific items or services or groups of items or services to

be recognized as reasonable based on estimates of the costs

necessary in the efficient delivery of needed health services

to individuals covered by the insurance programs estab-

lished under this title, and may provide for the use of

charges or a percentage of charges where this method

40a

reasonably reflects the costs. Such regulations shall (i)

take into account both direct and indirect costs of providers

of services (excluding therefrom any such costs, including

standby costs, which are determined in accordance with

regulations to be unnecessary in the efficient delivery of

services covered by the insurance programs established

under this title) in order that, under the methods of deter-

mining costs, the necessary costs of efficiently delivering

covered services to individuals covered by the insurance

programs established by this title will not be borne by

individuals not so covered, and the costs with respect to

individuals not so covered will not be borne by such in-

surance programs, and (ii) provide for the making of suit-

able retroactive corrective adjustments where, for a pro-

vider of services for any fiscal period, the aggregate reim-

bursement produced by the methods of determining costs

proves to be either inadequate or excessive.

PON AO he Ss 6 Ae REET ANY PR ae Boe

4la

42 U.S.C. §1395hh. Regulations

The Secretary shall prescribe such regulations as may

be necessary to carry out the administration of the insur-

ance programs under this title. When used in this title, the

term “regulations” means, unless the context otherwise

requires, regulations prescribed by the Secretary.

42a

42 C.F.R. §405.425(d) (10) (1972)

Intensive care units, coronary care units, and other

special care inpatient hospital units.

To be considered an intensive care unit, coronary care

unit, or other special care inpatient unit, the unit must be

in a hospital, must be one in which the care required is

extraordinary and on a concentrated and continuous basis

and must be physically identifiable as separate from the

general patient areas. There shall be specific written pol-

icies for each of such designated units which include, but

are not limited to burn, coronary care, pulmonary care,

trauma, and intensive care units but exclude post operative

recovery rooms, post-anesthesia recovery rooms, or ma-

ternity labor rooms.

eh hak

43a

42. C.F.R. §405.452 (1980)

(d) Criteria for identifying imtensive care type units.

For purposes of determining costs under this section, a

unit will be identified as an intensive care type inpatient

hospital unit only if the unit--

(1) Is in a hospital;

(2) Is physically and identifiably separate from

general routine patient care areas, including subinten-

sive or intermediate care units, and ancillary service

areas. There cannot be a concurrent sharing of nurs-

ing staff between an intensive care type unit and units

or areas furnishing different levels or types of care.

However, two or more intensive care type units that

concurrently share nursing staff can be reimbursed as

one combined intensive care type unit if all other cri-

teria are met. Float nurses (nurses who work in dif-

ferent units on an as-needed basis) can be utilized in

the intensive care type unit. If a float nurse works in

two different units during the same eight hour shift,

then the costs must be allocated to the appropriate

units depending upon the time spent in those units.

The hospital must maintain adequate records to sup-

port the < location. If such records are not available,

then the costs must be allocated to the general routine

services cost areas;

(3) Has specific written policies that include eri-

teria for admission to, and discharge from, the unit;

(4) Has registered nursing care available on a con-

tinuous 24-hour basis with at least one registered nurse

present in the unit at all times;

(5) Maintains a minimum nurse-patient ratio of

one nurse to two patients per patient day. Included in

the calculation of this nurse-patient ratio are regis-

44a

tered nurses, licensed vocational nurses, licensed prac-

tical nurses, and nursing assistants who provide patient

care. Not included are general support personnel such

as ward clerks, custodians, and housekeeping person-

nel; and

(6) Is equipped, or has available for immediate use,

life-saving equipment necessary to treat the critically

ill patients for which it is designed. This equipment

may include, but is not limited to, respiratory and

cardiac monitoring equipment, respirators, cardiac de-

fibrillators, and wall or canister oxygen and compressed

air.

45a

Special Care Units (Provider Reimbursement Manual,

Part 1, §2202.7) (1972)

To be considered a special care inpatient hospital unit,

the unit must be in a hospital, must be one in which the

care rendered is extraordinary and on a concentrated and

continuous basis and must be physically identifiable as

separate from general care areas. There shall be specific

written policies for each of such designated units which

include, but are not limited to, burn, coronary care, pul-

monary care, trauma, and intensive care units, but exclude

postoperative recovery rooms, postanesthesia recovery

rooms or maternity labor rooms. Segregation of patients

to specific areas by type of illness or age, such as psy-

chiatric, neuro-psychiatric, geriatric, pediatric, mental

health, rehabilitation, etc., does not qualify as special care

inpatient hospital units for purposes of apportionment, un-

less the above requirements are met.

46a

Special Care Units (Provider Reimbursement Manual,

Part 1, §2202.7) (1977)

A. Requirements to Qualify as an SCU.— To be con-

sidered a special care hospital unit, the following require-

ments must be met:

1. The unit must be in a hospital.

2. The unit must be one in which the nursing care

required is extraordinary and on a concentrated and

continuous basis. Extraordinary care incorporates

extensive life-saving nursing services of the type gen-

erally associated with nursing services provided in

burn, coronary care, pulmonary care, trauma and in-

tensive care units. For this reason, special life-saving

equipment should be routinely available in the unit.

3. The unit must be physically identifiable as

separate from general care areas and the unit’s nurs-

ing personnel must not be integrated with the general

care nursing personnel.

4. There shall be specific written policies for each

of such designated units which include, but are not

limited to, burn, coronary care, pulmonary care,

trauma, and intensive care units, but exclude post-

operative recovery rooms or maternity labor rooms.

The unit’s staff must be specially trained to serve in

such areas. Segregation of patients to specific areas

by type of illness or age, such as psychiatric, neuro-

psychiatric, geriatric, pediatric, mental health, rehabili-

tation, etc., does not qualify as special care inpatient

hospital units for purposes of apportionment unless

the above requirements are met.

* * *

B. Subintensive Units.—Some hospitals have units

which provide more intensive care than that provided in

the general care areas yet not sufficiently intensive to per-

47a

mit the unit to meet the requirements to qualify as a spe-

cial care unit under the definition provided in paragraph

A above. These units are typically designated as sub-

intensive, subacute, progressive, or intermediate care units,

etc. Such subintensive units are not special care units for

purposes of Medicare reimbursement.

There may, however, be cases where a unit is not easily

identified as a subintensive or special care unit without

further study. Im such cases, a review of the written

policies of the various units will indicate whether a unit

is or is not providing care as defined in paragraph A. If

the intermediary determines that such a unit meets the

requirements of paragraph A above, then the unit will

qualify as a special care unit.

For example, one indication of whether the unit in

question meets the requirements specified in §2202.7A.2.

is the extent of nursing services provided in the unit. If

the hours of nursing service per patient day are less than

the hours of nursing services provided in an established

special care unit, such as an ICU or CCU in that hospital

or in other area hospitals if the hospital has no established

special care unit, then the unit in question would generally

not qualify as a special care unit. Hospitals should main-

tain such records as are needed to establish the nursing

time in such units... .

48a

DEPARTMENT OF HEALTH, EDUCATION,

AND WELFARE

Health Care Financing Administration

[42 CFR Part 405]

Medicare Program; Definition of

Hospital Special

Care Units for

Reimbursement Purposes

AGENCY: Health Care Financing

Administration (HCFA), HEW.

ACTION: Proposed rule.

SUMMARY:

This rule refines the definition of hospital special care

units and clarifi.s the requirements for their reimburse-

ment under the Medicare program. The present special

care unit reimbursement regulation has been erroneously

interpreted by some hospitals to apply to units that furnish

a level of care that is less than that furnished in intensive

care.

Under the present regulation, units have been desig-

nated as special care units, when they are, in fact, inter-

mediate or subintensive care units that render a less

intensive level of care. The purpose of this amendment is

to clarify the intent of the regulation that the term “special

care unit” applies only to those units rendering a level of

care that is comparable to intensive care.

DATES:

Consideration will be given to written comments or sug-

gestions received on or before July 16, 1979.

49a

ADDRESSKS:

Address comments to: Administrator, Health Care Fi-

nancing Administration, Department of Health, Education

and Welfare, P.O. Box 2372, Washington, D.C. 20013.

When commenting, please refer to MAB-84-P. Agencies

and organizations are requested to submit their comments

in duplicate. The Health Care Financing Administration

specifically requests comments and supporting data, if

possible, on §405.412(d)(10)(v) and (vi) of the proposed

regulation. Comments will be available for public inspec-

tion, beginning approximately 2 weeks after publication, in

room 5231 of the Department’s offices at 330 C Street, S.W.,

Washington, D.C. on Monday through Friday of each week

from 8:30 to 5 p.m. (telephone 202-245-0950).

FOR FURTHER INFORMATION CONTACT:

William Goeller, Medicare Bureau, Health Care Fi-

nancing Administration, Room 405 East High Rise Build-

ing, Baltimore, Maryland, 21235, (301) 594-9820.

SUPPLEMENTARY INFORMATION:

Section 1881 (v) of the Social Security Act provides

that the Secretary may establish, by regulations, the

methods to be used in determining the reasonable costs of

services furnished to Medicare beneficiaries. The methods

used in reimbursing providers are based on costs actually

incurred in furnishing services to beneficiaries. The regu-

lations recognize that different types of care may result in

different per-diem costs. The per-diem cost of intensive

care and other special care units will usually exceed the

per-diem cost of general routine care. This is because

intensive care units require greater staffing and more

specialized equipment than what is required in the general

routine areas. Thus, the present regulations allow for a

50a

separate computation to determine Medicare’s share of

intensive care and other special care unit costs as well as

its share of general routine care costs.

Recently, some hospitals have designated as special care

units, units that provide various levels of care. These units

provide a level of care which is less than provided in in-

tensive care and more than furnished in the general routine

areas of the hospitals. The cost of operating these units

falls somewhere between those of operating intensive care

units and the cost of furnishing general routine care.

These units, sometimes referred to as intermediate or sub-

intensive care units, are frequently cited as a way to re-

duce hospital costs. When they are used as step-down

units from intensive care or to avoid the intensive care

unit altogether, hospital costs are reduced. Yet, if the

hospitals receive reimbursement for these units as special

eare units, Medicare reimbursement will be inequitably

increased. Notwithstanding that many of the intermediate

or subintensive care units provide a level of care which is

less than intensive care, some hospitals contend that the

units should be designated and reimbursed as special care

units under the current regulation.

Since the adoption of the special care unit reimburse-

ment policy, we have maintained that only those units

rendering a level of care comparable to intensive care

should be reimbursed as special care units. We maintain

that a subintensive level of care is only a part of the

spectrum of general routine care. Although a subintensive

care unit may not fit the regulatory description of a special

care unit, we will reimburse for the care rendered in that

unit by combining the reasonable costs of care in that unit

with the reasonable costs of care in other general routine

areas. Any reimbursement for general routine service

costs, however, will include an inpatient routine nursing

salary cost differential, and be subject to the schedule of

limits on hospital inpatient general routine service costs.

5la

Several recent Provider Reimbursement Review Board

and Federal court decisions have addressed the issue of

whether intermediate or subintensive care units are special

care units and have come to varying conclusions. These

decisions show an existing iack of uniformity as to what

constitutes a special care unit. In addition, since the regu-

lation was issued, substantial changes have occurred in

hospital organization, administration, and financial prac-

tices. Increasingly, the inpatient hospital special care unit

concept has become an acceptable part of medical care

practice. We perceive a definite need to further refine and

clear away ambiguity as to what a special care unit is for

Medicare reimbursement purposes. Thus, we propose to

amend the regulation.

The amendment would clarify the regulation by pro-

viding seven specific criteria which a unit must meet to

qualify as a special care unit. One such criterion is that

there must be a minimum of 12 scheduled hours of direct

patient nursing care per patient day. This 12 hour figure

is based on data contained in the American Hospital Asso-

ciation’s periodic publication of Hospital Administrative

Services data for the period ending December 31, 1977.

This information indicates that the great majority of hos-

pitals have at least 12 hours of such care per patient day

in their intensive care units.

Another criterion is that a minimum of 6 hours of di-

rect patient care per patient day must be furnished by

registered nurses and cannot be furnished by aides or

orderlies. As a result of a sample of rural and urban hos-

pitals, we concluded that at least 6 hours of direct patient-

care is normally furnished by registered nurses in intensive

care type units. This criterion takes into consideration

that the level of required registered nursing care in special

eare units is considerably higher than the level that is re-

quired in general routine areas. In most cases, only regis-

52a

tered nurses possess the necessary expertise for furnishing

eare to patients in special care units. In no case would

aides or orderlies satisfy the requirement.

The other criteria specify that the unit must be in a

hospital, must be physically and identifiably separate from

other areas and units in the hospital and must have specific

written policies concerning admission, discharge and other

matters. In addition, the unit must be permanently

equipped with life-saving equipment to treat the critically

ill patients for whom it is designed, and registered nurs-

ing care must be furnished daily on a continuous 24-hour

basis. We invite comments on whether the admission and

discharge policies for special care units must be consistent

with the standards set by the PSRO’s and must be approved

in advance by PSRO’s. (Proposed regulations on PSRO

hospital review were published in the Federal Register on

January 25, 1977 and final regulations will be published

soon. )