South Windsor Convalescent Home, Inc. v. Mathews

• Citation: 541 F.2d 910
• Decision Date: 27 July 1976
• Docket Number: D,No. 938,938
• Parties: SOUTH WINDSOR CONVALESCENT HOME, INC., Plaintiff-Appellee, v. David MATHEWS, Secretary of Health, Education and Welfare, et al., Defendants-Appellants. ocket 75-6136.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 910

541 F.2d 910

SOUTH WINDSOR CONVALESCENT HOME, INC., Plaintiff-Appellee, v. David MATHEWS, Secretary of Health, Education and Welfare et al., Defendants-Appellants.

No. 938, Docket 75-6136.

United States Court of Appeals Second Circuit.

Argued April 19, 1976.

Decided July 27, 1976.

Judith S. Feigin, Atty., Washington, D. C. (Peter C. Dorsey, U. S. Atty., D. Conn., New Haven, Conn., Rex E. Lee, Asst. Atty. Gen., Robert E. Kopp, David M. Cohen, Attys., Dept. of Justice, Washington, D. C., of counsel), for defendants-appellants.

Arnold W. Aronson, Hartford, Conn., for plaintiff-appellee.

Before HAYS and MANSFIELD, Circuit Judges, and BRIEANT, District Judge. ^*

MANSFIELD, Circuit Judge:

The Secretary of the Department of Health, Education and Welfare (hereafter "HEW") appeals from a decision and summary judgment order of the United States District Court, District of Connecticut, T. Emmet Clarie, Chief Judge, entered on July 17, 1975, holding that HEW regulation 20 C.F.R. § 405.415(d) (3), as applied to the years preceding 1970, contravenes the Medicare Act, 42 U.S.C. §§ 1395, et seq. (hereafter "the Act"), and the Due Process Clause of the Fifth Amendment. Because we conclude that jurisdiction was not available in the district court to test the HEW regulation, but rested exclusively in the Court of Claims, we reverse.

Plaintiff-appellee is a voluntary "provider of services" under the Medicare program, 42 U.S.C. § 1395x(u). Under the Act the hospital or convalescent facility provides defined basic services to individuals aged 65 or over, §§ 1395c, 1395d, and receives payment from the Federal Hospital Insurance Trust Fund that is controlled by HEW and financed by special wage taxes, §§ 1395cc(a) (1)(A), 1395i. The payment ordinarily is routed through a fiscal intermediary such as defendant Travelers Insurance Company and is designed to reimburse the provider for the "reasonable cost" incurred by him in furnishing treatment.

The Medicare Act does not explicitly define the term "reasonable cost." Instead, the Secretary of HEW is charged with promulgating regulations establishing the methods to be utilized and the items to be included in calculating the costs "actually incurred" by the provider, § 1395x(v)(1)(A). Crucial to this suit, the Act specifically requires that the regulations "provide for the making of suitable retroactive corrective adjustments where, for a provider of services for any fiscal period, the aggregate reimbursement (to the provider) produced by the methods (established by the Secretary for) determining costs proves to be either inadequate or excessive," § 1395x(v)(1) (A)(ii).

The regulations defining "reasonable cost" always have included payment for capital assets used in providing Medicare services by permitting a depreciation allowance. Prior to August 1, 1970, providers were entitled to compute such depreciation charges by either the "straight-line" or the accelerated method. Plaintiff used the accelerated technique during his participation in the program from July 1, 1967, to October 1, 1971, when he terminated his involvement. At that point plaintiff fell within the ambit of the regulation challenged in this action, 20 C.F.R. § 405.415(d)(3).

The regulation, which became effective on August 1, 1970, provides in pertinent part:

"When a provider who has used an accelerated method of depreciation with respect to any of its assets terminates participation in the program, or where the health insurance proportion of its allowable costs decreases so that cumulatively substantially more depreciation was paid than would have been paid using the straight-line method of depreciation, the excess of reimbursable cost, determined by using accelerated depreciation methods and paid under the program over the reimbursable cost which would have been determined and paid under the program by using the straight-line method of depreciation, will be recovered . . . as an overpayment."

Acting pursuant to this regulation, plaintiff's fiscal intermediary, upon termination of plaintiff's participation as a provider, requested that Windsor repay the difference between the total reimbursements it had received for the period 1967-71 utilizing accelerated depreciation and the payment it would have received had it used a straight-line calculation. Fearing a cut-off of other funds claimed under Subchapter XIX of the Act, 42 U.S.C. § 1396, known as the Medicaid program, plaintiff complied and repaid the sum of $16,367.45. It then instituted suit in the district court on August 16, 1974, seeking repayment of the money alleged to have been recaptured illegally by HEW. The complaint alleged that the amounts in issue were owed to plaintiff as allowances for accelerated depreciation permitted under regulations promulgated pursuant to the Medicare program, 20 C.F.R. Subpart D of Part 405, §§ 405.401-.454, 31 Fed.Reg. 12808, prior to the addition of 20 C.F.R. § 405.415(d)(3), the recapture provision, and that the latter regulation, to the extent that it authorized recapture of accelerated depreciation allowances for periods prior to its effective date, was void for lack of statutory authority and as violative of the Due Process Clause of the Fifth Amendment.

Without discussing jurisdiction, the district court ruled that regulation 405.415(d)(3) cannot be legally enforced for the years preceding January 1, 1970, the beginning of the year of its promulgation. The court thereupon entered judgment for plaintiff in the amount of $15,655. Defendants appeal.

DISCUSSION

At the threshold, we must consider the Secretary's challenge to the district court's jurisdiction since, without a grant of subject matter jurisdiction, the court was without power to consider the merits.

Although the complaint does not specify in haec verba the ground upon which federal jurisdiction is asserted, it is readily apparent from the nature of the claim asserted (recovery of monies due under a federal statute and withheld in violation of plaintiff's constitutional rights) and the complaint's allegation of jurisdictional amount ($10,000) that jurisdiction is invoked pursuant to the general federal question grant of 28 U.S.C. § 1331. ¹ This jurisdictional avenue, however, is foreclosed by 42 U.S.C. § 1395ii, which incorporates by reference 42 U.S.C. § 405(h) of the Social Security Act. The latter section provides:

"The findings and decisions of the Secretary (of HEW) after a hearing shall be binding upon all individuals who were parties to such hearing. No finding of fact or decision of the Secretary shall be reviewed by any person, tribunal, or governmental agency except as herein provided. No action against the United States, the Secretary, or any officer or employee thereof shall be brought under section 41 (now § 1331) of Title 28 to recover on any claim arising under this subchapter." (Emphasis added).

Ordinarily when a party challenges HEW action under the Social Security Act, § 405(h) simply serves to route jurisdiction through 42 U.S.C. § 405(g), which authorizes a civil action to be commenced in the district court within 60 days of the mailing of HEW's notice of decision. However, while the Medicare Act expressly incorporates § 405(h), it does not incorporate § 405(g) as a basis for judicial review with respect to disputes over provider reimbursement. See 42 U.S.C. § 1395ff(c). Consequently, appellant argues, Congress explicitly deprived federal courts of jurisdiction by the last sentence of § 405(h).

In the past we have not accepted the argument that § 405(h) serves to close the federal forum to judicial challenges grounded on the Medicare Act. Instead, we have repeatedly construed the statute to provide that "(w)here the Medicare Act establishes procedures for review of the Secretary's decision, a court may not review that decision by any other means. However, where the Act does not provide such procedures, section 405(h) does not preclude review" under 28 U.S.C. § 1331. Kingsbrook Jewish Medical Center v. Richardson, 486 F.2d 663, 666-67 (2d Cir. 1973); Aquavella v. Richardson, 437 F.2d 397, 402 (2d Cir. 1971); Cappadora v. Celebreeze, 356 F.2d 1, 4-5 (2d Cir. 1966) (Social Security insurance claim). These cases, however, preceded the Supreme Court's recent decision in Weinberger v. Salfi, 422 U.S. 749, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975), the reasoning of which, though not the outcome, ² is not easily reconcilable with our earlier interpretation of § 405(h). In Salfi the plaintiffs, invoking jurisdiction under 28 U.S.C. § 1331, sued for insurance benefits allegedly due them under the Social Security Act, 42 U.S.C. §§ 402(d) and (g)(1), but withheld on the basis of certain requirements of that Act claimed by the plaintiffs to violate the Fifth Amendment. Despite the plaintiffs' assertion of the constitutional claim, which would ordinarily provide a basis for general federal jurisdiction under § 1331, the Supreme Court construed the third sentence of § 405(h), quoted supra, at page 912, as barring such jurisdiction.

The applicability of the Salfi holding to the present case is readily apparent and cannot be escaped in view of the parallelism between the two cases. Here, as in Salfi, the plaintiff seeks to recover payments allegedly due under the Act, claiming that a regulation retroactively disallowing these payments violates the Fifth Amendment. Yet, despite the constitutional underpinning of plaintiffs' claims, Salfi made clear that § 405(h) bars § 1331 as a basis for federal judicial review.

In its context the Salfi holding produced a result of no great moment since, despite the absence of jurisdiction under § 1331, § 405(g) was found to authorize judicial review. See note 2 supra. However, when Salfi's conclusion is applied to a case where no alternative jurisdictional basis exists, its restrictive interpretation of § 1331 might ³ lead to a constitutional question of the first order, one that has arisen but...