Transitional Hospitals Corp. of Louisiana, Inc. v. Shalala

In 1983, Congress implemented the Medicare Prospective Payment System (PPS), under which healthcare facilities received a flat reimbursement rate for treating Medicare patients. However, long-term-care hospitals, defined as facilities with an average inpatient stay of 25 days or greater, can receive reimbursement through the reasonable-cost system, under which reimbursement rates were calculated based on the average cost of the service performed. Congress tasked the Department of Health and Human Services (HHS) Secretary Donna Shalala (defendant) with determining how to decide whether the facility met the statutory definition. HHS promulgated regulations requiring facilities to collect inpatient-stay data for six months before receiving long-term-care status. In 1992, Transitional Hospitals Corporation of Louisiana (THC) (plaintiff) applied for long-term-care status. HHS denied the request, explaining that the statute allowed exemption only for a facility that has an average inpatient stay of 25 days or greater, and therefore HHS had instituted the mandatory data-collection period. THC completed the data collection and then received long-term-care-hospital status. However, HHS refused to reimburse THC for the six-month data-collection period using the reasonable-cost system, as was consistent with the HHS regulation. THC requested a hearing by the Provider Reimbursement Review Board (board). The board concluded it did not have authority to hold HHS regulations invalid. THC filed suit in district court. The district court agreed with THC that the PPS statute required HHS to exempt long-term-care facilities from the PPS reimbursement scheme from the time the facility first participates in Medicare. HHS appealed.