St. Elizabeth Community Hosp. v. Heckler

• Decision Date: 19 October 1984
• Docket Number: Nos. 82-4658,83-2282,s. 82-4658
• Citation: 745 F.2d 587
• Parties: , Medicare&Medicaid Gu 34,182 ST. ELIZABETH COMMUNITY HOSPITAL, Plaintiff-Appellant, v. Margaret M. HECKLER, Secretary of Health and Human Services, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 587

745 F.2d 587

7 Soc.Sec.Rep.Ser. 118, Medicare&Medicaid Gu 34,182

ST. ELIZABETH COMMUNITY HOSPITAL, Plaintiff-Appellant, v. Margaret M. HECKLER, Secretary of Health and Human Services,

Defendant-Appellee.

Nos. 82-4658, 83-2282.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted July 13, 1984.

Decided Oct. 19, 1984.

Cary Adams, Memel, Jacobs, Pierno & Gersh, Sacramento, Cal., for plaintiff-appellant.

Michael Power, Jerry J. Bassett, Asst. Regional Atty., Sacramento, Cal., for defendant-appellee.

Appeal from the United States District Court for the Eastern District of California.

Before PHILLIPS, ^* Senior Circuit Judge, and FLETCHER and REINHARDT, Circuit Judges.

PHILLIPS, Senior Circuit Judge:

This is an action for judicial review of a final decision of the Secretary of Health and Human Services that plaintiff, St. Elizabeth Community Hospital, does not qualify for a "sole community provider" exemption from the Medicare cost limits for cost years 1977 and 1978. The district court affirmed the final decision of the Secretary. Plaintiff appeals. We reverse.

I

A

In 1965 Congress enacted Public Law 89-97, 79 Stat. 291, Title XVIII of which has become known as the "Medicare Act." 42 U.S.C. Sec. 1395 et seq. Under this statute and applicable regulations promulgated pursuant thereto, the Medicare program reimburses providers of hospital care the "reasonable cost" of such care as determined by the Secretary of the Department of Health and Human Services. 42 U.S.C. Sec. 1395x(v)(1)(A) (1982).

Amendments in 1972 to the Medicare statutes recognized that in smaller communities where only one hospital exists to provide needed care, program beneficiaries in fact may have no reasonable choice between a non-existent "non-luxury" hospital where Medicare would pay all of the beneficiaries' expenses and those existing in the community whose charges and services may be deemed "first-class." H.R.Rep. No. 92-231, reprinted in 1972 U.S.Code Cong. & Ad.News 4989, 5070. The House Report further noted "that the provision [setting limits on cost] will not be applicable where there is only one hospital in a community--that is, where, if the provision were applied, additional charges could be imposed on beneficiaries who have no real opportunity to use a less expensive, non-luxury institution, and where the provision would be difficult to apply because comparative cost data for the area are lacking." Id.

In response to the 1972 amendments, the Secretary promulgated regulations to exempt "sole community providers" from limitations on cost reimbursement. ¹

In administering the Medicare Program the Government operates through fiscal intermediaries, as authorized by 42 U.S.C. Sec. 1395h(a). The intermediaries are private organizations which operate under contracts with the Secretary of Health and Human Services. The intermediary performs many functions for the Secretary such as reviewing cost reports of providers, and setting of "reasonable costs" figures. Blue Cross of Northern California is the intermediary in this case.

Decisions of an intermediary may be appealed by a provider to the Provider Reimbursement Review Board (PRRB), a five member board knowledgeable in the field of cost reimbursement. 42 U.S.C. Sec. 1395oo(h). In seeking an exemption as a "sole community provider" the provider must demonstrate that it qualifies for such an exemption. 42 C.F.R. Sec. 405.460. A decision of the PRRB must be based upon the records made at a hearing, and is to be supported by substantial evidence on the record taken as a whole. 42 U.S.C. Sec. 1395oo(d). The decision of the PRRB is a final order, appealable by the provider to the United States District Court, unless the Secretary intervenes on her own motion. 42 U.S.C. Sec. 1395oo (f)(1). The Secretary of HHS has delegated her own motion review function to the Administrator of the Health Care Financing Administration, who has delegated the task to the Deputy Administrator. A decision of the Deputy Administrator who has exercised his own motion review constitutes the final administrative decision of the Secretary of HHS, and is subject to judicial review. 42 U.S.C. Sec. 1395 oo (f)(1). ²

B

St. Elizabeth Community Hospital, (Provider) is a general acute-care non-profit hospital located in the community of Red Bluff, Tehama County, California, population 8,850. St. Elizabeth's is the only hospital in the community. The cost years at issue in this case are the Provider's cost reporting periods ending June 30, 1977, and June 30, 1978. St. Elizabeth's had 68 licensed beds until March 1978 when it moved to a newly-constructed 45 bed facility.

The hospital's fiscal intermediary applied the Medicare program limits to the hospital and thereby reduced Medicare reimbursements by $35,543 for year 1977 and $65,624 for year 1978. On June 29, 1979 the hospital requested an exemption from the Medicare routine services cost limitation as a "sole community provider." The fiscal intermediary wrote to the San Francisco Regional office of the Medicare Bureau that the Provider qualified as a "sole community provider." ³

The Regional Office of the Health Care Financing Administration (HCFA) instructed the fiscal intermediary to examine the extent to which Tehama County residents were admitted to hospitals other than St. Elizabeth's. After examining the additional information the fiscal intermediary denied St. Elizabeth's "sole community provider" exemption application.

The hospital appealed the intermediary's decision to the Provider Reimbursement Review Board. The PRRB conducted a hearing and considered evidence presented by both parties. The five member board unanimously concluded St. Elizabeth's was entitled to the sole community provider exemption. The Board stated:

The evidence clearly establishes that the Provider draws the majority of its patients (in excess of 80 percent) from within a 10-mile radius of the Provider; and, therefore, that should be considered the Provider's service area, not Tehema County as argued by the Intermediary. Moreover, the evidence shows that the Intermediary relied upon the fact that hospitals outside the service area received 44% of their Medicare admissions from residents of the service area as a basis to deny the Provider's request for an exemption as a sole community provider. The Board finds that the Intermediary's reliance on the admissions statistics outside the Provider's service area (10-mile radius) is not correct. Finally, the Board notes that the majority of Medicare admissions to other facilities in Tehema County by residents of the Provider's service area were to obtain medical procedures not available at the Provider. Therefore, based upon the above factors, the Board concludes that the Provider is entitled to an exemption as a sole community provider.

The fiscal intermediary, Blue Cross, requested the Administrator of HCFA to conduct his "own motion" review of the decision of the PRRB. On February 9, 1981 an Attorney-Advisor with HCFA notified St Elizabeth's that the PRRB decision was to be reviewed by the Administrator. Both Blue Cross and St. Elizabeth submitted comments to the Administrator regarding the PRRB decision. On March 11, 1981 the Administrator issued the final agency decision and reversed the PRRB. The Administrator concluded that "[b]ased on the evidence of record, the Provider is not entitled to the sole community hospital exemption for limitations on coverage of costs for the permit at issue." It concluded the PRRB's decision was not supported by substantial evidence. This decision became the final Administrative decision of the Secretary of Health and Human Services.

St. Elizabeth's then filed for judicial review of the Secretary's decision in the United States District Court for the Eastern District of California, pursuant to 42 U.S.C. Sec. 1395oo (f)(1). The parties filed cross-motions for summary judgment. District Judge Wilkins referred the case to a magistrate. The magistrate issued proposed findings and recommendations. The magistrate concluded the final agency decision was based on substantial evidence and recommended that defendant's motion for summary judgment be granted, and that plaintiff's motion be denied. On September 9, 1982, after receiving objections to the recommendation, the district judge accepted the magistrate's Proposed Findings and Recommendations in toto and issued an order granting defendant's motion for summary judgment and denying plaintiff's.

On November 5, 1982 St. Elizabeth filed a notice of appeal from the grant of motion for summary judgment. That appeal was docketed in this Court as Case No. 82-4658. However, on November 15, 1982 St. Elizabeth returned to the district court and filed a motion for relief from judgment pursuant to Fed.R.Civ.P. 60(b). The parties agreed the appeal would have to be remanded in order to vest the district court with jurisdiction to rule on the 60(b) motion. Before stipulating to the remand, the parties asked the district court, pursuant to the procedure recognized by this Court in Crateo, Inc. v. Intermark, Inc., 536 F.2d 862 (9th Cir.) cert. denied, 429 U.S. 896, 97 S.Ct. 259, 50 L.Ed.2d 180 (1976), whether it would consider a rule 60(b) motion if the case were remanded. The district court indicated it would do so, and on February 23, 1983 this Court remanded the appeal to the district court.

The district court denied the Rule 60(b) motion on the merits and on August 12, 1983 St. Elizabeth filed appeal No. 83-2282. St. Elizabeth then filed its opening brief challenging the district court's summary judgment order. The Secretary sought to have the brief stricken arguing that the jurisdiction of this Court was limited to review of the denial of the Rule 60(b) motion, and not review of the summary judgment.

On March 20, 1984 this Court denied the Secretary's motion to strike and reinstated appeal No. 82-4658 (the original appeal from the...