St. Vincent loses court battle over $15 million hospital loan

St. Vincent Health has lost a two-year battle over whether it can be reimbursed by Medicare for interest expenses on a $15 million loan it took out to build a new hospital in eastern Indiana.

A federal judge ruled this week against the Indianapolis-based health system, which had sued the U.S. Department of Health and Human Services for denying reimbursement of an unspecified amount of interest.

The case centered on an 80-year-old dilapidated hospital in eastern Indiana that St. Vincent bought in 2000, then known as Randolph County Hospital. St. Vincent replaced it with a new hospital, called St. Vincent Randolph, at a cost of about $15.5 million.

The Randolph hospital borrowed $15.3 million for the project in 2002 from its parent, St. Vincent Health of Indianapolis. But a formal loan agreement was not drafted and the only documentation was an amortization table.

Soon afterward, St. Vincent Health was acquired by St. Louis-based Ascension Health, the nation’s largest Catholic health care system.

To complicate the matter, the Randolph hospital participated in a bond-financing program in which Ascension Health agreed to pay the costs for development and construction. In exchange, St. Vincent Randolph agreed to pay interest on the funds it received from Ascension.

St. Vincent Randolph said it used the funds it received from Ascension Health to repay the loan it had received from St. Vincent Health of Indianapolis. Then it filed a report for Medicare reimbursement of the interest it paid during fiscal years 2002 (on the loan from St. Vincent Indianapolis) and 2004 through 2008 (for the bond financing from Ascension).

Medicare’s fiscal intermediary denied the reimbursement, saying the interest expense was not allowed. It pointed out that the 2002 loan was from a related party, as well as insufficiently documented.

St. Vincent Randolph withdrew the 2002 reimbursement request and appealed to a review board for the Ascension bond interest expense.

In 2014, the review board determined that St. Vincent Randolph properly claimed the interest expense for the periods of 2004 to 2008.

But, last year, the Centers for Medicare & Medicaid Services reversed the review board’s decision. The CMS said the documentation submitted by St. Vincent was insufficient to establish that the loans were necessary and proper and related to patient care.

St. Vincent filed suit against the Department of Health and Human Services, claiming it was “arbitrarily and capriciously” denied reimbursement for interest expenses.

But, on Monday, U.S. District Judge Tanya Walton Pratt ruled against St. Vincent, and in favor of HHS Secretary Sylvia M. Burwell.

“This court cannot say that the Secretary’s findings are indicative of an arbitrary and capricious decision, nor can it find the decision unsupported by substantial evidence,” she wrote.

Judge Pratt continued: “Although the Secretary’s determination may be harsh, her decision is entitled to substantial deference and the Court is not allowed to reweigh the evidence or substitute its own judgment for that of the Secretary.”

St. Vincent did not have an immediate comment on the ruling.