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Hospital loses claim for Medicare reimbursement

Where the Department of Health and Human Services, or HHS, denied a hospital’s request for Medicare reimbursement because it failed to submit information in a form that could be audited, that decision was affirmed. Relevant HHS regulations require the data to be “capable of verification by qualified auditors” and “capable of being audited.”


The Medicare program provides federally funded health insurance for the elderly and people with disabilities. Under the program, healthcare providers enter written agreements with the HHS Secretary to supply services to Medicare beneficiaries.

Lancaster Hospital Corporation operates an inpatient rehabilitation facility that provides services for Medicare beneficiaries. In 1994, Lancaster hired a full-service subcontractor to manage all aspects of that facility in exchange for a per-patient-per-day rate for any services provided to its patients. Under this arrangement, Lancaster paid the subcontractor and then sought reimbursement from HHS.

The controversy began when an initial decisionmaker (currently known as a Medicare Administrative Contractor) disallowed reimbursement for fiscal years 1997, 1998, 1999, and 2000 because Lancaster submitted inadequate documentation. Ultimately the HHS allowed reimbursement for all of the submitted years except for 1997. For that year, HHS denied the request for reimbursement because Lancaster failed to submit information in a form that could be audited. The district court granted summary judgment to HHS.


The Medicare statute contains a sweeping grant of authority to HHS to require providers to submit information to support reimbursement requests, declaring “no such payments shall be made to any provider unless it has furnished such information as the Secretary may request in order to determine the amounts due such provider.” Exercising that authority, the Secretary promulgated regulations stating that “[p]roviders receiving payment on the basis of reimbursable cost” — the method at issue — “must provide adequate cost data.”

That cost data, the regulations continue, “must be based on [a provider’s] financial and statistical records which must be capable of verification by qualified auditors” and be “capable of being audited.” Here, the Board denied reimbursement for fiscal year 1997 because it concluded the information Lancaster submitted for that year was not auditable.

Lancaster does not seek to overturn the Board’s decision on the ground that the information it supplied for 1997 was, in fact, “capable of being audited” within the meaning of the Secretary’s regulations. Nor does Lancaster challenge the validity of 42 C.F.R. § 413.24(c), the regulation containing that requirement. Instead, Lancaster argues: (1) this case is governed by a different regulation and (2) the alternative information it offered to provide “would have more than sufficed to substitute for the payroll records [HHS] sought.” Like the district court, this court is unpersuaded.


Lancaster Hospital Corporation v. Becerra, Case No. 21-1636, Jan. 18, 2023. 4th Cir. (Heytens), from DSC at Rock Hill (Lewis). Mark Douglas Polston for Appellant. Caroline D. Lopez for Appellee. VLW 023-2-017. 11 pp.

VLW 023-2-017