Good Samaritan Hospital v. Shalala

Background

Six Nebraska rural hospitals sued the Secretary of Health and Human Services after their costs from 1980 to 1984 exceeded Medicare’s regulatory cost limits. They argued the agency’s wage index ignored their larger share of part‑time workers and their proximity to urban employers, and they sought full reimbursement above the limits under the statute’s provision for “suitable retroactive corrective adjustments.”

Reasoning

The central question was whether that statutory provision requires the Secretary to pay individual providers all reasonable costs exceeding agency cost limits. The Court found the clause ambiguous about whether “aggregate reimbursement” meant interim payments or final amounts and what standard measures “inadequate or excessive.” Applying deference to the agency’s longstanding regulatory approach, the majority held the Secretary permissibly treats clause (ii) as allowing year‑end book‑balancing that reconciles interim payments with amounts computed under agency methods, rather than as a way to reopen or replace those methods case by case. The Supreme Court affirmed the Eighth Circuit.

Real world impact

Hospitals whose costs exceed Medicare’s cost limits will generally need to rely on the agency’s exceptions, reclassifications, or separate legal challenges to the methods, not on clause (ii) to obtain automatic extra payments. The decision preserves the Secretary’s discretion to use broad regulatory generalizations and steers providers toward administrative or APA routes to contest methods or seek waivers.

Dissents or concurrances

Justice Souter (joined by Justices Stevens and Scalia) dissented, arguing the text plainly authorizes case‑by‑case adjustments measured against actual reasonable costs and that the statute favors providers’ reading over the agency’s book‑balancing view.