Filed May 3, 2007–Opinion by Judge Lawrence F. Rodowsky.
. . . for payment for services . . . under the plan 100 percent of costs which are reasonable and related to the cost of furnishing such services or based on such other tests of reasonableness, as the Secretary prescribes in regulations . . . or, in the case of services to which those regulations do not apply, on the same methodology used under section 13951(a)(e).”
Reasonable, and necessary and proper, costs were defined in 42 CFR § 413.9 (1996), as follows:
(1) Reasonable cost of any service must be determined in accordance with regulations establishing the method or methods to be used, and the items to be included. The regulations in this part take into account both direct and indirect costs of providers of services. The objective is that under the methods of determining costs, the costs with respect to individuals covered by the program will not be borne by individuals not so covered, and the costs with respect to individuals not so covered will not be borne by the program. These regulations also provide for the making of suitable retroactive adjustments after the provider has submitted fiscal and statistical reports. The retroactive adjustment will represent the difference between the amount received by the provider during the year for covered services from both Medicare and the beneficiaries and the amount determined in accordance with an accepted method of cost apportionment to be the actual cost of services furnished to beneficiaries during the year.
(2) Necessary and proper costs are costs that are appropriate and helpful in developing and maintaining the operation of patient care facilities and activities. They are usually costs that are common and accepted occurrences in the field of the provider’s activity.
It is the intent of the program that providers will be reimbursed for the actual costs if providing high quality care, regardless of how widely they may vary from provider to provider except where a particular institution’s costs are found to be substantially out of line with other institutions in the same area which are similar in size, scope of services, utilization and other relevant factors.
Reasonable costs do not exceed what a prudent and cost-conscious buyer pays for a given item or service
I. The circuit court erred in applying a substantial evidence test.
II. The Secretary erred in not accepting the ALJ’s conclusions of law after accepting the ALJ’s findings of fact.
III. DHMH never examined the limits at issue to determine whether they unlawfully curtailed the health centers’ reasonable costs.
Is the cap invalid under all circumstances? The Clinics contended that Maryland could not cap administrative expenses at a fixed percentage of total allowable costs unless it first had undertaken a study demonstrating that administrative costs above the chosen percentage are always unreasonable. The Court found that the cap was adopted in accordance with the Maryland Administrative Procedure Act and that it was approved by HCFA as complying with federal law. Consequently, the cap is presumed valid, and the burden rests with the Clinics to demonstrate its invalidity. In Maryland, the test for determining the validity of the adoption of a regulation is whether it contradicts the language or purpose of the statute authorizing the regulation. The Court held that the federal requirement for state reimbursement of 100% of an FQHC’s reasonable cost is satisfied by the state system that affords the FQHC the opportunity to demonstrate that its costs, albeit in excess of a cap, are reasonable. To answer the Clinics’ second question, whether the cap was validly applied in the instant matter, the Court found that the Secretary was not restrained by the recommended conclusion drawn by the ALJ; rather, the Secretary was free to make the determinative inference that the excess costs were unreasonable if that inference was supported by substantial evidence.
The full opinion is available in PDF