The U.S. Department of Health and Human Services must revisit the issue of reimbursement of a refinanced loan made to a Randolph County hospital after the 7th Circuit Court of Appeals determined the federal agency failed to adequately explain why it rejected reimbursement of that loan.
After acquiring Randolph County Hospital in 2000, St. Vincent Randolph Hospital borrowed $15.3 million from St. Vincent Hospital and Health Care Center Inc. to replace the original Randolph County Hospital. Then, when St. Vincent Health Group was acquired by Ministries of Ascension Health, Ascension Health loaned $15.6 million to the hospital as a refinancing of the original loan from St. Vincent.
Federal statutes require a medical provider’s reasonable costs of caring for Medicare patients – including the “necessary and proper” costs of financing medical facilities – to be reimbursed, but the hospital’s fiscal intermediary rejected the hospital’s request for payment. The intermediary said regulation disqualifies loans from affiliated entities. Additionally, the arrangement between the hospital and St. Vincent Inc. was poorly documented, and the administrative handbook disqualifies loans lacking documents that show the advances were “’necessary and proper for the operation, maintenance, or acquisition of…facilities.’”
In response, the hospital withdrew its request for a Medicare reimbursement for expenses before fiscal year 2004, but requested compensation for 2004 through 2008, after the Ascension Health refinancing. The intermediary denied the request again, but the Provider Reimbursement Review Board reversed and ordered the claim from 2004 to 2008 to be paid, concluding the problems with the original loan did not taint the refinancing.
The intermediary then appealed to the administrator of the Centers for Medicare and Medicaid Services, who makes final decisions on behalf of the secretary of Health and Human Services. The acting principal deputy administrator reversed the review board, finding the hospital did not submit documentation to prove the first loan was proper or to prove the initial loan was paid off by the Ascension Health loan.
The U.S. District Court for the Southern District of Indiana then granted summary judgment in favor of the HHS’s secretary, agreeing with the acting deputy only on the point that the hospital did not establish the Ascension Health loan was a refinancing. However, the court disagreed on the first point, finding the acting deputy did not cite any regulation or handbook for the view that errors can never be fixed by refinancing.
The 7th Circuit Court of Appeals agreed with that concern, with Judge Frank Easterbrook writing in a Tuesday opinion that the acting deputy did not provide a reason as to why the original disqualified loan would stop reimbursement on the properly refinanced loan. Without such an explanation, the deputy provided no reason for the denial under the doctrine of SEC v. Chenery Corp., 318 U.S. 80, 87-88 (1943), Easterbrook wrote.
“A reader of the final administrative decision would have had no idea, not even an inkling, what is missing, what that missing thing is required, or how to fix the problem,” Easterbrook wrote.
The appellate court vacated the district court’s decision and remanded the issue to the government agency, allowing it to ask the hospital to provide more or better documentation or to explore the differences in the principal amount of the two loans.