Appeal from the United States District Court for the Central District of California. D.C. No. CV-93-04242-RSL. Ronald S.W. Lew, Presiding.
Before: Harry Pregerson and Thomas G. Nelson, Circuit Judges, and David A. Ezra,*fn** District Judge. Opinion by Judge T.g. Nelson.
T.G. NELSON, Circuit Judge:
Regents of the University of California ("Regents") appeals the district court's summary judgment in favor of the Secretary of Health and Human Services in Regents' action under Title XVIII of the Social Security Act, 42 U.S.C. § 1395oo(f)(a), challenging the Secretary's decision to deny Medicare reimbursement for patient expenses attributable to interest costs incurred on working loans from Regents to three University hospitals ("providers").
We have jurisdiction under 28 U.S.C. § 1291, and we affirm.
FACTS AND PROCEDURAL HISTORY
Regents owns and operates the three Medicare providers on whose behalf this appeal is taken, UCLA Medical Center, UC Irvine Medical Center, and UCSD Medical Center. The providers are not separate legal entities from the Regents and, as such, cannot sue, be sued, enter into contracts, or perform other legal functions in their own names, including borrowing monies from outside sources.
In 1982, 1983, 1984, and 1985, Regents made working capital loans to the providers. It is undisputed that the proceeds from the loans were used for necessary and proper purposes related to patient care. These loans were necessitated by a budget shortfall resulting from a decrease in funding from the state legislature.
The providers filed claims for Medicare reimbursement for the interest expenses associated with these loans. The claims were initially reviewed by the fiscal intermediary, Blue Cross in this case, and were denied on the basis of 42 C.F.R. § 405.419 (1985), which disallows reimbursement for interest expenses on loans between related organizations. Regents appealed to the Provider Reimbursement Review Board ("PRRB"), which affirmed the intermediary and disallowed the interest expense. On review, the district court granted the Secretary's motion for summary judgment.
We review a grant of summary judgment order de novo. Rendleman v. Shalala, 21 F.3d 957, 960 (9th Cir. 1994). Judicial review of Medicare reimbursement disputes under 42 U.S.C. § 1395oo(f)(1) is governed by the Administrative Procedure Act, 5 U.S.C. §§ 701-706 ("APA"). Under the APA, "review is limited to determining whether the Secretary's action was arbitrary, capricious, an abuse of discretion, not in accordance with the law, or unsupported by substantial evidence on the record taken as a whole." Vallejo Gen. Hosp. v. Bowen, 851 F.2d 229, 231 (9th Cir. 1988).
When the meaning of a provision within the expertise of an agency is involved, the agency's expertise makes it particularly suited to interpret the language. Pacific Coast Medical Enters. v. Harris, 633 F.2d 123, 131 (9th Cir. 1980). In such cases, we will generally afford deference to the agency's construction of its own regulation.
Review of an agency's interpretation of its regulations involves a two-pronged analysis. First, we look to the plain language of the regulation. The words of the regulation must be "reasonably susceptible to the construction placed upon them by the Secretary, both on their face and in light of their prior interpretation and application." Id. Second, "the Secretary's construction must be reviewed in relation to the governing statute." Id. "Agency regulations must be ...