Supreme Court of the United States · 1995 · Administrative Law
Administrative LawMedicare reimbursementAgency rulemakingInterpretive rulesAPAnotice and commentinterpretive ruleMedicare
Facts
Guernsey Memorial Hospital refinanced bonded debt in 1985 and incurred an accounting loss of $672,581, of which about $314,000 was claimed as Medicare-reimbursable. The dispute concerned timing, not whether the loss was allowable at all: the Hospital sought full reimbursement in the refinancing year, while the Secretary required amortization over the life of the old bonds. The Secretary's position followed PRM § 233, an informal Medicare reimbursement guideline not promulgated through notice-and-comment rulemaking. The intermediary applied PRM § 233, and the Administrator ultimately required amortization.
Issue
Do the Secretary's Medicare regulations require reimbursement according to generally accepted accounting principles, such that the Hospital was entitled to immediate recognition of the loss? If not, is PRM § 233 invalid because it was issued without notice and comment under the APA?
Rule
The Secretary's Medicare regulations at issue do not require reimbursement according to GAAP merely because provider records are kept using standardized accounting practices or accrual accounting. An agency may issue an interpretive rule without notice and comment when the rule advises the public of the agency's construction of the statutes and regulations it administers and does not adopt a position inconsistent with existing regulations or effect a substantive change in them.
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One of 10 multiple-choice questions for this case. Pick an answer to see why.
Lakeview Care Center in Toledo, Ohio participates in a federal reimbursement program administered by the Department of Community Health. Its books are kept under widely accepted industry accounting standards, which would recognize a refinancing-related charge entirely in 2026. The agency applies a manual provision, issued without notice and comment, directing intermediaries to spread that charge over the remaining term of the retired debt; no regulation expressly states that reimbursement must follow those accounting standards.
If Lakeview argues that the manual provision is invalid solely because it was not promulgated through notice-and-comment rulemaking, what is the best answer?
Explanation. The majority held that an agency may issue an interpretive rule without notice and comment when it advises the public of the agency's construction of the statutes and regulations it administers and does not adopt a position inconsistent with existing regulations or effect a substantive change in them. Where the regulations do not already require reimbursement according to GAAP or another accounting convention, a manual rule resolving timing by interpretation is permissible. (Derived from Shalala v. Guernsey Memorial Hospital (n.d.).)