Opinion
CV 05-5456 FMC (RNBx).
August 2, 2006
ORDER AFFIRMING FINAL DECISION OF PROVIDER REIMBURSEMENT REVIEW BOARD
This matter is before the Court on Plaintiffs' Complaint for Judicial Review of the June 10, 2005 final decision of the Provider Reimbursement Review Board ("PRRB"), affirming the fiscal intermediary's decision regarding the reclassification of Plaintiffs' FICA tax expenses (Complaint for Judicial Review: docket no. 1), filed July 27, 2005. The Court has read and considered Plaintiffs' Opening Brief, Defendant's Reply, and the responses of both Plaintiffs and Defendant. The Court deems this matter appropriate for decision without oral argument. See Fed.R.Civ.P. 78; Local Rule 7-15. For the reasons and in the manner set forth below, the Court hereby AFFIRMS the PRRB's final decision.
Defendant, the Secretary of Health and Human Services, is referred to as "Defendant" or "Secretary."
I. Procedural and Factual Background
This case requires the Court to address whether the PRRB properly affirmed the refusal of Plaintiffs' assigned Fiscal Intermediary ("Intermediary"), Mutual of Omaha, to reclassify Plaintiffs' Federal Income Contributions Act ("FICA") tax costs from Employee Health Welfare ("H W" or "Employee Benefits") cost center to the Administrative and General ("A G") cost center for fiscal years 1996 through 1998.
A fiscal intermediary is a private organization or entity that acts as the Secretary's agent and helps process Medicare provider reimbursements. 42 U.S.C. § 1395h(a).
Plaintiffs operate nursing home facilities that participate in the Medicare Program.
During the cost reporting years at issue in this case (1996, 1997, and 1998), Plaintiffs classified their employer contributions for FICA taxes in the Employee Benefits cost center when they submitted their cost reports to their Intermediary.
Under the Medicare program, a provider must submit a cost report to its fiscal intermediaries after the close of each fiscal year, detailing all the costs for which the provider seeks reimbursement. 42 C.F.R. § 413.24(f)(2)(i). Thereafter, the fiscal intermediary calculates the reimbursement due the provider and may make adjustments to the amount requested in the cost report. 42 C.F.R. § 408.1803. If a provider is dissatisfied with the intermediary's decision, the provider may appeal to the PRRB. 42 U.S.C. §§ 1395oo(a). The CMS Administrator, the Secretary's delegate, may review the PRRB's decision, but if the CMS Administrator declines to review it, the PRRB's decision becomes the final agency decision. 42 U.S.C. § 1395oo(f)(1).
"All costs classified as employee benefits are allocated through Medicare's cost finding process (i.e., the process of allocating a provider's total costs to its revenue-producing cost centers where Medicare's share of those costs is ultimately determined) based upon gross salaries." (AR I at 7.)
In contrast, "Administrative and general costs are allocated through the cost finding process based upon all costs accumulated in a revenue-producing cost center without regard to the type of costs." (AR I at 8.)
From September 18, 1998 to August 23, 1999, the Intermediary reviewed each of the subject cost reports and issued Notices of Amount of Program Reimbursement ("NPRs") for them without making adjustments to Plaintiffs' allocation of FICA tax expenses to the Employee Benefits cost center.
An NPR is the Intermediary's determination of the allowable Medicare reimbursement due a provider.
Plaintiffs' appeal to the PRRB concerned 38 cost reporting periods. (AR I at 7.)
A. CMS "Instructional" Letters
The Provider Reimbursement Manual ("PRM") is a Centers for Medicare and Medicaid Services ("CMS") publication that governs cost reporting and reimbursement. (Pls' Opening Br. Ex. 1 at 20.) The PRM does not directly address the classification of FICA tax costs. ( See Administrative Record, Volume I ("AR I") at 220.) However, in April 1999, Plaintiffs learned about letters the CMS had issued on the topic in 1998 and early 1999.
CMS is the division within the Department of Health and Services that directly administers the Medicare program.
On May 5, 1998, CMS issued a letter in response to a fiscal intermediary's request for clarification regarding the classification of worker's compensation and employment-related taxes. (AR II at 30.) With that letter, CMS explained:
Worker's compensation and other employment related taxes (employer's share of F.I.C.A., unemployment compensation) are not fringe (employee) benefits; rather, they are administrative business costs of the provider. Accordingly, these costs are generally included in the provider's administrative and general cost center although they may, dependent upon the individual provider's accounting sophistication and subject to intermediary approval, be allocated directly to the various cost centers to which related employee compensation costs have been allocated.
( Id.)
On July 6, 1998, CMS issued a second letter to the same intermediary on the same topic, stating:
Because payroll-related tax costs are based on payroll costs, usually a percentage of payroll cost, they may be accumulated in those specific cost centers to which payroll costs have been accumulated. This is the most accurate method of accounting for these costs and, consequently, it is preferred over a method that would allocate these costs through the A G cost center.
However, not all providers have the degree of sophistication of recordkeeping to make this accumulation of costs. These providers may include these costs in the A G cost center for allocation purposes. (It should be noted, a similar option is available for accumulating and allocating fringe benefit costs (see PRM section 2144.7).) At this time, we have no plans to limit the flexibility that providers have in reporting these costs.
Payroll-related taxes such as workers compensation, unemployment compensation and F.I.C.A. (employer's share) are not considered fringe benefits because they are not amounts paid to, or on behalf of, an employee in addition to direct salary or wages (see PRM section 2144.1). Rather, these costs are considered payroll-related tax costs. The inclusion of these payroll-related tax costs in the hospital wage index calculation does not conflict with our existing policy on fringe benefits because the wage index includes all wage related costs, including both fringe benefits and payroll-related tax costs.
(AR II at 34-35.)
On April 8, 1999, CMS issued another letter on the topic, responding to an inquiry from a Medicare appeals consultant regarding the proper classification of payroll-related taxes in a skilled nursing facility's cost reports. With that letter, CMS directed that:
Payroll related tax costs for workers compensation, F.I.C.A. (Employer's portion), F.U.T.A. and S.U.T.A. should be recorded as administrative and general (A G) costs. If a provider's accounting system is capable, the provider may, subject to intermediary review and approval, directly allocate the costs to the various cost centers to which related salary costs had been allocated.
(AR II at 37.)
B. Plaintiffs' May 1999 Request for Reclassification Initial PRRB Finding of No Jurisdiction
In May 1999, after the NPRs were issued for the subject cost reporting periods and after Plaintiffs learned of the CMS letters from May and July 1998 and April 1999, Plaintiffs asked the Intermediary to reopen the cost reports in question and to retroactively reclassify the payroll-related taxes, including FICA tax expenses, as A G costs on their 1996, 1997, and 1998 cost reports. (AR I at 219.) The intermediary denied that request.
According to Plaintiffs, in June 1999, the Intermediary agreed to reopen the cost reports and allowed the requested reclassification in connection with some of the cost reports at issue, but it prematurely ceased that process. Plaintiffs estimate that they would have received $829,367 more in reimbursement payments if the disputed payroll costs for the disputed period had been reclassified as A G costs. (AR IV at 1369.)
Plaintiffs cite only to their own Post-Hearing Brief to the PRRB in support of this point. (AR I at 48.) They do not cite to other evidence of the Intermediary's reopening and reclassification of some costs reported in some cost reports.
Plaintiffs' briefing and the referenced evidence do not make clear whether the $829,367 refers to all the costs they initially sought to have reclassified ( i.e., unemployment taxes, Workers Compensation, and FICA taxes) or only to the FICA costs presently before this Court. However, the PRRB's June 10, 2005 decision indicates it considered the full $829,367 to be the amount of Medicare funds in controversy.
On February 11, 2000, Plaintiffs filed a group appeal to the PRRB of the Intermediary's refusal to reopen and reclassify their payroll tax costs in the cost reports at issue in this case. (AR IV at 1401.)
Initially, the PRRB found that it lacked jurisdiction over Plaintiffs' appeal, and Administrator denied Plaintiffs' request to review the PRRB's decision. (AR II at 17, 2.) However, on February 12, 2003, after Plaintiffs filed suit for judicial review of the PRRB's decision in the U.S. District Court for the District of Columbia, the parties signed a Stipulation of Settlement and Dismissal, whereby the Secretary agreed to instruct the PRRB to accept jurisdiction over Plaintiffs' group appeal and decide the case on the merits. (AR I at 312.)
C. The PRRB's Decision on the Merits
The only issue before the PRRB at the March 26, 2004 hearing was the reclassification of Plaintiffs' FICA tax costs.
On March 19, 2004, the Intermediary agreed to reclassify Plaintiffs' unemployment taxes and Workers Compensation costs as A G costs.
On June 10, 2005, the PRRB affirmed the Intermediary's decision, concluding that Plaintiffs' FICA tax expenses "should not be reclassified from the Employee Benefits cost center to A G." (AR I at 11.) The PRRB decision reviewed the parties' arguments and concluded that "an employer's share of FICA taxes is an employee benefit that serves to secure a right to a future benefit" and, "[a]s such, FICA taxes meet the definition of fringe benefits set forth in [the PRM] § 2144.1." (AR I at 10.) Further, the PRRB decision finds that:
[A]s a fringe benefit, the FICA costs should be classified in the Employee Benefits cost center. Since these costs are salary-generated, the use of gross salaries as the allocation basis properly matches these expenses to the activities which benefit from the services rendered by the employees. Using the cost report classification advocated by the Provider would result in the allocation of FICA taxes to cost centers that do not contain any employees or direct salary expense, and the Intermediary has demonstrated that the Provider's approach does in fact allocate costs to ancillary departments that have no employees.
( Id.)
Addressing Plaintiffs' reliance on the CMS letters of 1998 and April 1999, the NRRB decision also notes:
[A] subsequent CMS letter dated August 23, 1999, serves to clarify the earlier correspondence. It states that, in terms of the various options for allocating payroll-related tax costs, the A G allocation methodology would not be the most appropriate or accurate. However, the letters referenced in the instant case reflect inconsistent points of view by the same writer. Accordingly the Board finds the CMS letters cited by the [Plaintiffs] are unpersuasive and entitled to no particular deference.
( Id. (citing Christensen v. Harris County, 529 U.S. 576, 587 (2000).) The August 1999 letter referenced in the PRRB decision was from CMS to the fiscal intermediary to whom the May and July 1998 letters were addressed and purports to clarify a July 30, 1998 letter "concerning Medicare payment policy for allocating payroll-related tax costs." (AR I at 138.) The August 23, 1999 letter explained that, although the earlier guidance had expressed a preference for the direct assignment of such costs to the cost centers charged with the related salary costs over assignment to the A G cost center on the basis of accumulated cost:
[The] prior letter . . . should have pointed out that the current cost reporting instructions provide that payroll-related tax costs may be reclassified to the employee benefits cost center to be allocated on the basis of gross salaries (see the Provider Reimbursement Manual, Part 2 (HCFA Pub. 15-II) (PRM), section 3611). In terms of the degree of appropriateness and accuracy, this method would rank second (i.e., slightly less accurate than directly assigning the payroll-related tax costs, but clearly more accurate than allocating these costs as a component of A G).
I understand that some providers have requested and received your approval to change their allocation bases from a more accurate option to a less accurate option (e.g., from direct allocation to A G or from employee benefits to A G). Any further requests of that nature should not be approved. Moreover, any previously granted requests should be rescinded. The regulations at 42 CFR 413.24 and the PRM at chapter 23 prohibit the use of a less appropriate and accurate cost allocation once the provider has used a more appropriate and more accurate cost allocation.
(AR I at 138-39.)
Finally, the NRRB concludes that, because the payment of reasonable costs "consistent with the regulation at 42 C.F.R. § 413.24" is the primary consideration, "the most accurate and appropriate methodology is that of allocating FICA expenses only to those cost centers with salary expenses." (AR I at 10.)
During the cost periods at issue in this case, Plaintiffs' were reimbursed on a "reasonable cost" basis. 42 U.S.C. § 1395f(b)(1); 42 U.S.C. § 1395x(v)(1)(A) (defining "reasonable cost" as "the cost actually incurred, excluding therefrom any part of incurred cost found to be unnecessary in the efficient delivery of needed health services . . ." and providing that such costs "shall be determined in accordance with regulations establishing the method or methods to be used, and the items to be included, in determining such costs . . .").
The CMS Administrator, the Secretary's delegate, declined to review the PRRB's decision, rendering the NRRB decision final and reviewable by this Court. (AR I at 1.)
II. Standard of Review
Under the Administrative Procedure Act ("APA"), 5 U.S.C. § 551 et seq., reviewing courts may set aside agency action that is "arbitrary, capricious, an abuse of discretion, not in accordance with law, or unsupported by substantial evidence on the record taken as a whole." Vista Hill Foundation, Inc. v. Heckler, 767 F.2d 556, 559 (9th Cir. 1985) (quoting Villa View Community Hospital, Inc. v. Heckler, 720 F.2d 1086, 1090 (9th Cir. 1983) (citing 5 U.S.C. § 706(2) (1982)) (internal quotation omitted); See also Mt. Diablo Hosp. v. Shalala, 3 F.3d 1226, 1230 (9th Cir. 1993) ("In making this determination, we `must consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment.' Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 824, 28 L.Ed.2d 136 (1971).").
Substantial deference is given to an agency's interpretation of its own regulations. Thomas Jefferson University v. Shalala, 512 U.S. 504, 512 (1994); French Hosp. Medical Center v. Shalala, 89 F.3d 1411, 1416 (9th Cir. 1996) ("Unless an alternative reading is compelled by the plain language of the regulation or by other indications of the agency's intent at the time it promulgated the regulation, we must defer to the agency's interpretation."). "[P]rovided an agency's interpretation of its own regulations does not violate the Constitution or a federal statute, it must be given `controlling weight unless it is plainly erroneous or inconsistent with the regulation.'" Stinson v. U.S., 508 U.S. 36, 45, 113 S.Ct. 1913, 1919 (1993) (quoting Bowles v. Seminole Rock Sand Co., 325 U.S. 410, 414, 65 S.Ct. 1215, 1217, 89 L.Ed. 1700 (1945)).
It is not the role of the Court to choose between competing interpretations to determine which best serves the regulatory purpose. Thomas Jefferson University, 512 U.S. at 512. Rather, the agency's interpretation is given "controlling weight unless it is plainly erroneous or inconsistent with the regulation." Id. (explaining that courts defer to the agency interpretation "unless an alternative reading is compelled by the regulation's plain language or by other indications of the [agency's] intent at the time of the regulation's promulgation"); Vista Hill Foundation, 767 F.2d at 559-60 (noting that "[t]he interpretation must sensibly conform to the purpose and wording of the regulations" (internal quotation and citations omitted)). Further, the Court may affirm an agency's decision only on the grounds upon which the agency relied in issuing its decision. SEC v. Chenery Corp., 318 U.S. 80, 87, 63 S.Ct. 454, 459 (1943) ("The grounds upon which an administrative order must be judged are those upon which the record discloses that its action was based.").
The Provider Reimbursement Manual ("PRM"), "although merely a manual interpreting the Medicare statute and not a regulation in itself, is entitled to be given weight." Neiman v. Secretary of the Dep't of Health and Human Services, 722 F. Supp. 954, 957 (E.D.N.Y. 1988).
III. Discussion
Plaintiffs acknowledge that the refusal to reclassify the FICA costs is significant to them because reclassification would increase their Medicare reimbursement, but they also maintain that the reclassification is proper under Medicare's cost finding methodology and the PRRB's refusal to direct the intermediary to reclassify their FICA costs to the A G cost center represents clear error.The PRRB found both that an employer's share of FICA taxes meets the PRM definition for fringe benefits and should be classified in the Employee Benefits cost center and that the CMS letters relied on by Plaintiffs reflect inconsistent points of view and are unpersuasive. The PRRB concluded that FICA expenses should be allocated only to those cost centers with salary expenses because, consistent with 24 C.F.R. § 413.24, that approach yields the most accurate determination of actual costs incurred under the Medicare program.
The Court reviews the PRRB's decision for arbitrariness and capriciousness.
A. The CMS Letters
Plaintiffs' arguments, both to the PRRB and to this Court, focus on the importance of the 1998 letters from the CMS on this issue of whether FICA costs are "fringe benefits."
As the discussion infra demonstrates, the fact that the CMS did not expressly reverse itself on this specific issue is not dispositive.
However, as an initial matter, the complete absence in Plaintiffs' briefing of any discussion or acknowledgment of the CMS letter of August 1999 is conspicuous. The PRRB decision clearly references that letter, which is included in the Administrative Record.
The August 1999 letter "clarifies" the guidance provided in the 1998 letters on which Plaintiffs rely and explains that, "[i]n terms of the degree of appropriateness and accuracy," the order of preference of classification methods for payroll-related tax costs, including FICA costs, is: (1) directly assigning the payroll-related tax costs, (2) classifying the costs to the employee benefits cost center to be allocated on the basis of gross salaries, and (3) allocating these costs as a component of A G.
The letter goes on to instruct fiscal intermediaries to refuse future requests for, and to rescind past grants of, reclassification of payroll-related tax costs from the Employee Benefits cost center to the A G cost center because such reclassification would effect a less appropriate and accurate cost allocation.
Plaintiffs have not advanced any arguments or identified any documentation in the Administrative Record to controvert the PRRB's position that this represents the current, operative guidance from CMS regarding the classification of employer FICA expenses. Further, Plaintiffs have not demonstrated the existence of any basis for finding that the PRRB's decision to act in accordance with this agency interpretation of its own regulations is arbitrary or capricious.
B. FICA Costs within PRM Definition of Fringe Benefits
Plaintiffs devote a considerable portion of their argument to the proposition that the PRRB's finding that FICA costs "meet the definition of fringe benefits" in the Provider Reimbursement Manual ("PRM") is flawed, rendering the decision clearly erroneous.
PRM § 2144.1 defines fringe benefits as "amounts paid to, or on behalf of, an employee, in addition to direct salary or wages, and from which the employee . . . derives a personal benefit before or after the employee's retirement or death." (Pls' Opening Br., Ex. 1 at 23.)
The PRM, "although merely a manual interpreting the Medicare statute and not a regulation in itself, is entitled to be given weight." Neiman v. Secretary of the Dept. of Health and Human Services, 722 F.Supp. 954, 957 (E.D.N.Y. 1988) (citing St. Mary's Hospital v. Blue Cross Blue Shield Ass'n, 788 F.2d 888, 890 (2d Cir. 1986)).
Plaintiffs look to the Internal Revenue Code in support of their contention that FICA taxes are not paid on behalf of an employer but, rather, represent "an excise tax, with respect to having individuals in his employ." 26 U.S.C. § 3111(a) (b). In that respect, Plaintiffs argue, Defendant cannot justify treating FICA taxes differently from the unemployment taxes ( e.g., FUTA and SUTA) the Intermediary agreed to reclassify to the A G cost center. They also rely on Supreme Court decisions to demonstrate that the employer's share of FICA taxes is not an employee benefit that serves to secure a right to a future benefit for that employer's current employees because current payments, in fact, fund benefits for current beneficiaries of the Social Security system, i.e., presently retired or disabled individuals and their dependents. See e.g., Fleming v. Nestor, 363 U.S. 603, 609-11, 80 S.Ct. 1367, 1372-73, 4 L.Ed.2d 1435 (1960). However, these lines of argument fail to appreciate that the PRRB's reimbursement decisions are not governed by the Internal Revenue Code and do not relate to the administration of the Social Security system. The standard of review looks to whether an agency's decision is consistent with its own regulations or is violative of a controlling federal statute. Chevron U.SA., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 863, 104 S.Ct. 2778, 2792, 81 L.Ed.2d 694 (1984). Plaintiffs' arguments do not establish that the PRRB finding that employer FICA costs come within the PRM definition of "fringe benefits" is inconsistent with agency regulations or controlling statutes.
Although FICA taxes are distinguishable from other types of "employee benefits" and similar to unemployment insurance contributions in the sense that FICA contributions are required by law and not bargained for by employees (AR I at 66), FICA taxes are also distinguishable from workers compensation and unemployment insurance contributions because FICA contributions are "computed based on salaries" ( See AR I at 63).
Plaintiffs' also reference PRM § 2122.3, which relates to the classification of employment-related taxes paid by an employer on behalf of a provider-based physician and explains that such payments "are considered business expenses of the employer and not fringe benefits" (Pls' Opening Br., Ex. 1 at 22). Plaintiffs argue that there is no reason to treat FICA taxes for other types of employees any differently than those paid on behalf of provider-based physicians. However, the very fact that a separate PRM provision was drafted to address the classification of such taxes for provider-based physicians belies this argument. Additionally, it appears that Plaintiffs failed to make this argument before the PRRB.
Additionally, the Court finds that a reading of the plain language of the PRRB decision does not lend itself to Plaintiffs' interpretation of the PRRB's ultimate conclusion (that the most accurate and appropriate method of allocating FICA costs requires classifying those costs only in those cost centers with salary expenses) is wholly dependent on its finding that FICA taxes meet the PRM definition of fringe benefits. Rather, the PRRB's decision also explains, inter alia, that "[s]ince these [FICA] costs are salary-generated, the use of gross salaries as the allocation basis properly matches these expenses to the activities which benefit from the services rendered by the employees." (AR I at 10.) Therefore, the Court finds that the PRRB's discussion of the "fringe benefit" issue is not central to a determination of whether the PRRB's decision to deny Plaintiffs' reclassification request was arbitrary or capricious.
Accordingly, the Court examines whether it may affirm the PRRB's decision only on the grounds upon which the decision rests. SEC v. Chenery Corp., 318 U.S. at 87.
C. Allocation of FICA Costs Only to Cost Centers with Salary Expenses
The Court must defer to the PRRB's conclusion that FICA costs are appropriately allocated only to those cost centers with salary expenses unless the Court finds that the PRRB's interpretation of the regulation at 42 C.F.R. § 413.23, on which the PRRB relies in its decision, is plainly erroneous.
The PRRB decision states that, as salary-generated costs, FICA costs should be "match[ed] . . . to the activities which benefit from the services rendered by the employees." (AR I at 10.) The decision goes on to explain that:
Using the cost report classification advocated by the Provider would result in the allocation of FICA taxes to cost centers that do not contain any employees or direct salary expense, and the Intermediary has demonstrated that the Provider's approach does in fact allocate costs to ancillary departments that have no employees.
( Id.) The PRRB concludes that "the primary consideration in this case is the payment of reasonable costs consistent with the regulation at 42 C.F.R. § 413.24" such that, in light of the regulation's goals, "the most accurate and appropriate methodology is that of allocating FICA expenses only to those cost centers with salary expenses." ( Id.)
The regulation at 42 C.F.R. § 413.24 requires that "[p]roviders receiving payment on the basis of reimbursable cost . . . provide adequate cost data," which "must be based on an approved method of cost finding and on the accrual basis of accounting." 42 C.F.R. § 413.24(a) (emphasis added). The regulation goes on to define "cost finding" as "the process of recasting the data derived from the accounts ordinarily kept by a provider to ascertain costs of the various types of services furnished. It is the determination of these costs by the allocation of direct costs and proration of indirect costs." 42 C.F.R. § 413.24(b)(1) (emphasis added). It also identifies a variety of "cost finding methods," from which providers must select one to use "to determine the actual costs of services furnished" during an accounting period. 42 C.F.R. § 413.24(d).
The cost finding methods include: (1) the "step-down" method, (2) "other methods," which include the "double apportionment method" and "more sophisticated methods," and (3) a "temporary method for initial period." 42 C.F.R. § 413.24(d)(1)-(7).
Defendant maintains that the "process of recasting data . . . to ascertain costs of the various types of services furnished" represents an initial step in implementing any particular cost allocation method and that the PRRB's interpretation of the goal of this cost-finding regulation-ensuring "the most accurate determination of actual costs incurred in the provision of health care services under the Medicare program" — is reasonably applied to require the classification of FICA costs in the Employee Benefits cost center.
Plaintiffs contend that the PRRB's application of the regulation to deny the reclassification of their FICA costs is error because the regulation merely establishes various methods or systems for allocating costs-as opposed to providing a basis for making determinations about the classification of specific types of costs while employing a given cost allocation method. Plaintiffs maintain that they have not changed, and do not seek to change, the "step-down" method they use for allocating costs. Therefore, the reclassification of their FICA costs would not represent an impermissible switch, under the cost finding regulation, to a less accurate method for allocating costs.
However, even if Plaintiffs' reading of the regulation is a reasonable one, their argument fails to appreciate the degree of deference that must be given an agency's interpretation and application of its own regulations. See Good Samaritan Hosp. v. Shalala, 508 U.S. 402, 417, 113 S.Ct. 2151, 2161, 124 L.Ed.2d 368 (1993) ("In the circumstances of this case, where the agency's interpretation of a statute is at least as plausible as competing ones, there is little, if any, reason not to defer to its construction.").
As the Supreme Court explained regarding that deference in the context of reviewing the Secretary of Health and Human Services' denial of the reimbursement of certain educational costs incurred by hospitals:
[Courts] must defer to the Secretary's interpretation unless an "alternative reading is compelled by the regulation's plain language or by other indications of the Secretary's intent at the time of the regulation's promulgation." Gardebring v. Jenkins, 485 U.S. 415, 430, 108 S.Ct. 1306, 1314, 99 L.Ed.2d 515 (1988). This broad deference is all the more warranted when, as here, the regulation concerns "a complex and highly technical regulatory program," in which the identification and classification of relevant "criteria necessarily require significant expertise and entail the exercise of judgment grounded in policy concerns." Pauley v. BethEnergy Mines, Inc., 501 U.S. 680, 697, 111 S.Ct. 2524, 2534, 115 L.Ed.2d 604 (1991).Thomas Jefferson University v. Shalala, 512 U.S. at 512.
Here, Plaintiffs have advanced no argument that compels an alternative reading of the cost-finding regulation at issue in this case, and the Administrative Record indicates that the agency considered — but rejected — the arguments advanced by Plaintiffs. See Mt. Diablo Hosp., 3 F.3d at 1232 ("[A]n action will not be upheld where the agency has intentionally omitted evidence from consideration or where there is nothing in the record to support the agency's decision.").
The record establishes that the method of cost allocation Plaintiffs used prior to requesting reclassification of their payroll-related taxes was sufficiently sophisticated to permit the allocation of FICA costs to their Employee Benefits cost centers. (AR I at 81.) Plaintiffs have not refuted Defendant's expert testimony that Plaintiffs' existing cost-finding process for recasting provider accounting data regarding FICA costs to the Employee Benefits cost center, within the step-down method Plaintiffs use for their reporting, was and is appropriate because it allocates FICA costs only to those cost centers with payroll expenses. Therefore, the record supports the conclusion that Plaintiffs' allocation of FICA costs to Plaintiffs' employee benefits cost centers "ascertain[s] costs of the various types of [Medicare] services furnished," 42 C.F.R. § 413.24(b)(1), more effectively than would allocation to the A G cost center. Additionally, as discussed above, the record also contains the CMS letter of August 1999, and the PRRB's decision in this case is consistent with the that statement of agency policy.
Accordingly, the Court cannot conclude that the PRRB acted arbitrarily or capriciously in denying Plaintiffs' request for reclassification of their FICA costs. The PRRB's finding that Plaintiffs' FICA expenses were properly classified in the Employee Benefit cost center is based on consideration of the evidence in the record and is not opposed to the plain language of the agency statutes, regulations, PRM, or policy.
IV. Conclusion
The PRRB's decision not to reclassify Plaintiffs' FICA tax expenses from the Employee Benefits cost center to the A G cost center was not arbitrary or capricious. Therefore, the decision of the PRRB is AFFIRMED. Defendant is ordered to submit a proposed judgment, consistent with this Order, within 20 days for the Court's signature.