749 F.2d 788 (D.C. Cir. 1984), 83-2223, Walter O. Boswell Memorial Hosp. v. Heckler

Docket Nº:83-2223 to 83-2225.
Citation:749 F.2d 788
Party Name:Medicare&Medicaid Gu 34,261 WALTER O. BOSWELL MEMORIAL HOSPITAL, Appellant, v. Margaret M. HECKLER, Secretary of Department of Health and Human Services, et al. HOWARD UNIVERSITY HOSPITAL, et al., Appellants, v. Margaret M. HECKLER, Secretary of Department of Health and Human Services, et al. GREATER SOUTHEAST COMMUNITY HOSPITAL, et al., Appellants
Case Date:November 30, 1984
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit

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749 F.2d 788 (D.C. Cir. 1984)

Medicare&Medicaid Gu 34,261



Margaret M. HECKLER, Secretary of Department of Health and

Human Services, et al.



Margaret M. HECKLER, Secretary of Department of Health and

Human Services, et al.



Margaret M. HECKLER, Secretary of Department of Health and

Human Services, et al.

Nos. 83-2223 to 83-2225.

United States Court of Appeals, District of Columbia Circuit

November 30, 1984

Argued June 4, 1984.

As Amended .

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[Copyrighted Material Omitted]

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Ronald N. Sutter, Washington, D.C., for appellant.

Katherine S. Gruenheck, Atty., Dept. of Justice, Washington, D.C., with whom Richard K. Willard, Acting Asst. Atty. Gen., Joseph E. diGenova, U.S. Atty., and Anthony J. Steinmeyer, Atty., Dept. of Justice, Washington, D.C., were on the brief for appellees. Jean Schulte Scott, Atty., Dept. of Health and Human Services, Washington, D.C., also entered an appearance for appellee, Department of Health and Human Services.

Lenard C. Homer and Margaret M. Manning, Baltimore, Md., were on the brief for amicus curiae, South Carolina Hosp. Ass'n for reversal.

Before MIKVA and BORK, Circuit Judges, and McGOWAN, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge McGOWAN.

McGOWAN, Senior Circuit Judge:

In these consolidated cases, several hospitals contest the legality of a rule promulgated by the Department of Health and Human Services 1 (HHS) to reimburse hospitals for malpractice insurance premiums stemming from the treatment of Medicare patients. The District Court, hearing the case on "certified review" from HHS's Provider Reimbursement Review Board (PRRB), held that the Secretary's actions were within the scope of her broad discretion. 573 F.Supp. 884 (D.D.C.1983). We remand these cases to the District Court for its consideration of the full rulemaking record, which was not before the District Court, under the guidelines discussed below. 2

On March 15, 1979, the Secretary published a notice of proposed rulemaking (NPRM) that expressed her desire to promulgate a new rule, governing Medicare reimbursement of malpractice premiums, to prevent Medicare from paying a "disproportionate" amount of total malpractice premiums. 44 Fed.Reg. 15,744 (1979). The rule then in effect reimbursed a hospital for malpractice premiums in proportion to Medicare patients' utilization of

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its services during the year. See 42 C.F.R. Sec. 405.452(b)(1) (1978). If, for example, 25% of the services (measured in dollars) rendered by the hospital in a particular year were for Medicare patients, Medicare would reimburse the hospital for 25% of its total malpractice premiums for the year. The proposed rule, in contrast, was to compensate hospitals for their malpractice premiums in proportion to malpractice awards paid to Medicare patients during the year in question and the four preceding years. If, for example, 40% of a hospital's malpractice claim dollars actually paid out during the five fiscal years ending 1976 through 1981 were paid to Medicare patients, then the hospital would be reimbursed for 40% of its malpractice premiums in 1981. The proposed rule specified an exception for hospitals that had paid no malpractice claims at all during the previous five years. Such hospitals were to be compensated according to an "actuarial estimate" of the proportion of Medicare losses to be expected in the next year.

Approximately two weeks after the close of comments, HHS promulgated its final rule ("Malpractice Rule"), which differed from the proposed rule only in its treatment of hospitals without claim records from the past five years. See 44 Fed.Reg. 31,641 (1979) (final rule) (codified at 42 C.F.R. Sec. 405.452(b)(1)(ii) (1982)). For such hospitals, HHS was to pay a fixed percentage of premiums: the national average percentage of paid malpractice claims attributable to Medicare patients. This "national ratio," set at 5.1% for the first year, was to be recalculated each year in light of the previous year's data. The Malpractice Rule also specified that any hospital with records insufficient to determine whether every claim paid during the last five years was to a Medicare patient or a non-Medicare patient was to be reimbursed according to the national ratio. 3

The hospitals brought their claims before the PRRB, an entity designed to resolve technical reimbursement disputes. 42 U.S.C. Sec. 1395oo (a) (1982). The PRRB certified that the matter was outside its jurisdiction, thus allowing the hospitals to bypass any review by the Secretary and proceed directly to the District Court. 42 U.S.C. Sec. 1395oo (f)(1).

On the basis of a record that included some but not all of the Department's rulemaking record, the District Court found that, given the Secretary's broad discretion in administering a complicated statute, her actions comported both with the procedural and substantive requirements of the Administrative Procedure Act and with more specific statutory duties--in particular, with the statute that requires HHS to compensate hospitals for the "reasonable cost" of caring for Medicare patients and which prohibits "cost-shifting" between Medicare and non-Medicare patients, 42 U.S.C. Sec. 1395x(v)(1)(A) (1982) ("Medicare Act"). The hospitals appeal the District Court's decision. 4

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Under the Administrative Procedure Act, a reviewing court "shall review the whole record or those parts of it cited by a party." 5 U.S.C. Sec. 706 (1982). We therefore begin with a discussion of the record that should properly have been before the District Court before discussing whether HHS complied with the Administrative Procedure Act and with the Medicare Act.


If a court is to review an agency's action fairly, it should have before it neither more nor less information than did the agency when it made its decision. The Supreme Court's formulation in Overton Park cautions against both under- and over-inclusiveness in the administrative record before a reviewing court: "[R]eview is to be based on the full administrative record that was before the Secretary at the time he made his decision." Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 420, 91 S.Ct. 814, 825, 28 L.Ed.2d 136 (1971) (emphasis added) (footnote omitted); see also Environmental Defense Fund, Inc. v. Costle, 657 F.2d 275, 284 (D.C.Cir.1981). To review less than the full administrative record might allow a party to withhold evidence unfavorable to its case, and so the APA requires review of "the whole record." 5 U.S.C. Sec. 706 (1982); see S.Rep. 752, 79th Cong., 1st Sess. 28 (1945) ("The requirement of review upon 'the whole record' means that courts may not look only to the case presented by one party, since other evidence may weaken or even indisputably destroy that case."); H.R.Rep. No. 9180, 79th Cong., 2nd Sess. 46 (1946) (same); see also Universal Camera Corp. v. NLRB, 340 U.S. 474, 487-88, 71 S.Ct. 456, 463-65, 95 L.Ed. 456 (1951). To review more than the information before the Secretary at the time she made her decision risks our requiring administrators to be prescient or allowing them to take advantage of post hoc rationalizations, see American Petroleum Institute v. Costle, 609 F.2d 20, 23 (D.C.Cir.1979). We are faced in this case with examples of both an under- and an over-inclusive record, and remand to the District Court so that it may obtain the full administrative record and may prevent any improper supplementation thereof.

The Secretary submitted as evidence before the District Court only an internal memorandum. The plaintiffs submitted a miscellany of documents, many of which might properly appear in an administrative record. See Schedule of Exhibits, Memorandum in Support of Plaintiff's Motion for Summary Judgment, Walter O. Boswell Memorial Hospital v. Heckler, No. 82-0710 (D.D.C. filed June 24, 1982). Nonetheless, nothing purporting to be the complete administrative record was submitted by either party.

HHS did eventually compile an administrative record for the Malpractice Rule, which it has submitted in other cases and which is in the appellate record as an appendix to an amicus brief. See Brief for Amicus Curiae South Carolina Hospital Association, Walter O. Boswell Memorial Hospital v. Heckler, Nos. 83-2223, 83-2224 & 83-2225, at 4-5 (D.C.Cir. filed Jan. 31, 1984) [hereinafter "Amicus Brief"]. That record comprises eleven volumes, in contrast to the five volumes of documents (many of which are quite properly not included in the administrative record) submitted by the plaintiffs to the District Court.

In Overton Park, the Supreme Court reversed a judgment based only on "litigation affidavits" rather than on any direct

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evidence before the agency. Such affidavits, said the Overton Park Court, "clearly do not constitute the 'whole record' compiled by the agency: the basis for review required by Sec. 706 of the Administrative Procedure Act." Overton Park, 401 U.S. at 419, 91 S.Ct. at 825. Although Overton Park presents an extreme case, since essentially none of the evidence before the agency was before the reviewing court, the District Court here was similarly confronted with large gaps in the facts and opinions before the agency, and thus faced material that did not constitute the "whole record" before the agency at the time of its decision.

The APA does allow review based not only on "the whole record," but on "those parts of it cited by a party." One might therefore argue that review could go forward in this case using those parts of the record cited to the District Court. We believe, however, that in the circumstances of this case such an outcome would be fundamentally unfair. For review to go forward...

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