BYBEE, Circuit Judge:
Plaintiff-Appellant Beacon Healthcare Services, Inc., ("Beacon") appeals the district court's judgment affirming the Provider Reimbursement Review Board's ("PRRB") determination that it did not have jurisdiction to hear Beacon's appeal of a fiscal intermediary's decision; concluding on the merits that the Secretary of the U.S. Department of Health and Human Services ("Secretary") is not required by law to adjust Beacon's target TEFRA costs; and dismissing Beacon's remaining claims.
For the reasons discussed below, we conclude the PRRB did have jurisdiction to hear Beacon's appeal. We affirm, however, the district court's (1) decision that the Secretary is not required by law to adjust Beacon's TEFRA target, and (2) dismissal of the additional claims for which Beacon invoked subject matter jurisdiction under 28 U.S.C. § 1331.
Beacon operates Newport Bay Hospital, a 34-bed psychiatric hospital specializing in services for geriatric patients in California. The medical conditions attendant to this aged population require Beacon to provide a larger and more varied array of services, medical machines, and physical amenities (e.g., railings and ramps) than does a psychiatric hospital serving the general population. For this reason, Beacon's expected annual expenses are higher than those of typical psychiatric hospitals.
For the period ending April 30, 2001, and in accordance with the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"), Pub.L. No. 97-248, the Centers for Medicare and Medicaid Services capped Beacon's annual reimbursement at a target amount based upon the expected annual costs of all psychiatric hospitals. 42 U.S.C. § 1395ww(b)(3)(H). Beacon's TEFRA target amount is adjusted annually in accordance with a statutory index designed to reflect inflation. Id.
In 2003, Beacon made a claim to its fiscal intermediary, Mutual of Omaha Insurance
Beacon appealed to the PRRB. The PRRB found it "lack[ed] jurisdiction to decide [Beacon's] case" because Beacon's claim did not meet "the `amount in controversy' requirement for a Board hearing." The PRRB reasoned that Beacon's claim for $164,000 in additional payments did not meet the statutory requirement that the PRRB only hear cases for which "the amount in controversy is $10,000 or more," 42 U.S.C. § 1395oo(a)(2), because "[Beacon's] calculation is based upon an adjustment to its TEFRA ceiling (and a corresponding increase to its TEFRA incentive or bonus payment), not how much additional reimbursement will be due to the Provider, which is inconsistent with program rules." Citing 42 C.F.R. § 413.40(g)(1)(iii), the PRRB concluded that the Secretary was prohibited from making the adjustment Beacon requested. The PRRB held that because "[Beacon's] TEFRA ceiling is not subject to adjustment, [Beacon's] amount in controversy calculation is inaccurate, and there is no Medicare reimbursement at issue." The PRRB ordered the dismissal of Beacon's appeal.
Beacon appealed the PRRB's dismissal to the district court, which declined to resolve whether the issue on appeal was "jurisdictional or substantive" but held that, regardless, "the dispute here really turns on whether a provider whose expenses do not exceed the TEFRA cap may seek an adjustment." The court concluded "the PRRB was correct when it concluded that Beacon's claim did not meet the amount-in-controversy requirement." But the court also held, in the alternative, that even if the PRRB were mistaken in its jurisdictional decision, "the error would be harmless because there was no substantive basis for an adjustment." Beacon filed a timely appeal.
We review de novo the district court's affirmance of the PRRB's dismissal for lack of subject matter jurisdiction, McNatt v. Apfel, 201 F.3d 1084, 1087 (9th Cir.2000); the district court's determination of the merits of Beacon's appeal, Regents of Univ. of Cal. v. Heckler, 756 F.2d 1387, 1393 (9th Cir.1985); and the district court's dismissal of Beacon's unexhausted claims, Boettcher v. Sec'y of Health & Human Services, 759 F.2d 719, 720 (9th Cir. 1985).
The Secretary's decision on the merits may be overturned only if it is arbitrary, capricious, or otherwise defective under the Administrative Procedure Act, 5 U.S.C. § 706. 42 U.S.C. § 1395oo(f)(1). See Mt. Diablo Hosp. v. Shalala, 3 F.3d 1226, 1230 (9th Cir.1993) ("Under the APA, we must determine if the Secretary's action was `arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.'" (quoting 5 U.S.C. § 706(2)(A))).
The scope of the PRRB's jurisdiction is established by 42 U.S.C. § 1395oo (a). The relevant portion of that section specifies that "any hospital which receives
The only § 1395oo (a) requirement in dispute here is the amount in controversy, which, in the context of cases originating in the federal district courts, "is normally determined from the face of the pleadings." Pachinger v. MGM Grand Hotel-Las Vegas, Inc., 802 F.2d 362, 363 (9th Cir.1986). In this case, Beacon claimed in its pleadings approximately $164,000 as the amount in controversy. This amount meets the requirements of § 1395oo (a)(2). Nevertheless, the PRRB dismissed Beacon's suit on jurisdictional grounds because it concluded that Beacon was not in fact entitled to an adjustment of at least $10,000, the PRRB's required amount in controversy. This was error. The PRRB confused the amount in controversy with the remedy.
As Beacon's case met all of the statutory requirements of 42 U.S.C. § 1395oo (a), it fell within the scope of the Secretary's jurisdiction, and the PRRB erred in finding otherwise.
The PRRB made clear, and the district court held in the alternative, that even if the PRRB had jurisdiction, Beacon could not receive an increase to its TEFRA target. This inquiry goes to the merits of Beacon's claim.
Section 1395ww(b)(4)(A) requires the Secretary to make TEFRA target exceptions and adjustments "where events beyond the hospital's control or extraordinary circumstances ... create a distortion in the increase in costs for a cost reporting period." The Secretary promulgated an additional regulation requiring that a hospital's "operating costs exceed the [TEFRA] rate-of-increase ceiling" before the Secretary will make a § 1395ww(b)(4)(A) adjustment. 42 C.F.R. § 413.40(g)(1)(iii).
The Secretary's regulation is a reasonable interpretation of 42 U.S.C. § 1395ww(b)(4)(A). The Medicare Act does not define the critical term—"distortion in the increase in costs"—meriting adjustment. Recognizing this ambiguity, the Secretary has interpreted "increase in
Because Beacon did not experience an increase in operating costs beyond the TEFRA ceiling, the district court correctly determined that Beacon was not eligible for a TEFRA target cost adjustment under 42 C.F.R. § 413.40(g)(1)(iii).
The district court dismissed Beacon's claims that were not raised before the PRRB. As the district court properly explained, 42 U.S.C. § 1395ii makes § 405(h) of the Social Security Act applicable to the Medicare Act. Section 405(h) states:
42 U.S.C. § 405(h). This provision makes exclusive the judicial review method set forth in § 1395oo (f), which allows for district court review of "any final decision" of the PRRB "or of any reversal, affirmance, or modification by the Secretary." See also 42 U.S.C. § 1395ii.
In Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1, 120 S.Ct. 1084, 146 L.Ed.2d 1 (2000), the Supreme Court held that, though the scope of the "arising under" language of § 405(h) is facially "uncertain," "th[e]se words clearly apply in a typical ... Medicare benefits case, where an individual seeks a monetary benefit from the agency ..., the agency denies the benefit, and the individual challenges the lawfulness of that denial." Id. at 10, 120 S.Ct. 1084. The Court observed that § 405(h) "plainly bars ... § 1331 review... irrespective of whether the individual challenges the agency's denial on evidentiary, rule-related, statutory, constitutional, or other legal grounds." Id. Such is the case here, and as a consequence, Beacon was barred from joining the claims it did not bring before the PRRB to its appeal of the agency's final decision. Therefore, the district court correctly concluded it lacked jurisdiction over Beacon's unexhausted claims.
In sum, although the PRRB improperly ruled that it lacked jurisdiction to hear
The judgment is AFFIRMED.