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Sewickley Valley Hospital v. Sebelius

Citation: 337 F. App'x 167Docket: No. 08-3360

Court: Court of Appeals for the Third Circuit; July 24, 2009; Federal Appellate Court

Narrative Opinion Summary

The case involves Sewickley Valley Hospital and The Medical Center, two Medicare service providers, appealing a District Court's summary judgment favoring the Secretary of Health and Human Services. The hospitals sought reimbursement for depreciation losses following their consolidation into Valley Medical Facilities in 1996. Their claims were initially denied by the Centers for Medicare and Medicaid Services (CMS), with the Provider Reimbursement Review Board affirming the denial for The Medical Center and reversing for Sewickley. However, the CMS Administrator ruled against both claims, determining the transaction was neither a bona fide sale nor between unrelated parties. The District Court upheld this decision, referencing regulations under the Medicare Act that permit reimbursement only if the merger is a bona fide sale involving unrelated parties. The court concluded that the consolidation lacked negotiation and reasonable consideration, supported by substantial evidence, as required under 5 U.S.C. § 706(2)(E). The appellants' reliance on unpublished Program Memoranda was dismissed as it aligned with agency policy. Ultimately, the court affirmed the judgment favoring the Secretary, emphasizing the providers' failure to prove the transaction met the bona fide sale criteria, thereby denying their reimbursement claims.

Legal Issues Addressed

Bona Fide Sale Requirement for Reimbursement

Application: The court determined that the consolidation did not constitute a bona fide sale, as it lacked negotiation and reasonable consideration, disqualifying the hospitals from reimbursement claims.

Reasoning: A 'bona fide sale' is defined as a transaction with negotiated terms at arm's length involving reasonable consideration, and this definition applies to both consolidations and statutory mergers, as clarified in a 2000 Program Memorandum by the Secretary.

Burden of Proof in Reimbursement Claims

Application: The burden to prove compliance with the bona fide sale provision lies with the service provider, which Sewickley and the Medical Center failed to meet.

Reasoning: The burden of proving the transaction's compliance with the bona fide sale provision lies with the provider, as outlined in governing statutes and regulations.

Interpretation of Regulations through Program Memoranda

Application: The court found that reliance on Program Memorandum A-00-76 was appropriate as it aligns with prior agency policy and clarifies the bona fide sale provision.

Reasoning: Their first argument is precluded by the ruling in Albert Einstein Med. Ctr. v. Sebelius, which affirmed that Program Memorandum A-00-76 clarifies the Bona Fide Sale Provision and aligns with prior agency policy.

Reimbursement for Depreciation Losses under Medicare Act

Application: The case examines whether Sewickley Valley Hospital and The Medical Center are entitled to reimbursement for depreciation losses following their consolidation.

Reasoning: Under the Medicare Act, service providers are entitled to reimbursement for reasonable costs, and the Secretary is authorized to establish regulations for such calculations, including allowances for depreciation.

Substantial Evidence Standard under Administrative Procedure Act

Application: The Administrator's decision was upheld as it was based on substantial evidence, indicating that the transaction did not meet the bona fide sale criteria.

Reasoning: Substantial evidence, defined as adequate evidence a reasonable mind would accept, supports the Administrator's conclusion, noting that neither entity's assets were marketed openly, and the absence of an arms' length transaction is suggested by the lack of a pre-consolidation appraisal and insufficient evidence of price negotiations.