Lloyd Noland Hosp. and Clinic v. Heckler

• Decision Date: 12 June 1985
• Docket Number: Nos. 84-7444,84-8699,s. 84-7444
• Citation: 762 F.2d 1561
• Parties: , Medicare&Medicaid Gu 34,657 LLOYD NOLAND HOSPITAL AND CLINIC, Plaintiff-Appellee, v. Margaret M. HECKLER, Secretary of Health and Human Services, Defendant- Appellant. METROPOLITAN HOSPITAL, INC., a Georgia Corporation, Plaintiff-Appellee, v. Margaret M. HECKLER, Secretary of Health & Human Services, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1561

762 F.2d 1561

10 Soc.Sec.Rep.Ser. 25, Medicare&Medicaid Gu 34,657

LLOYD NOLAND HOSPITAL AND CLINIC, Plaintiff-Appellee, v. Margaret M. HECKLER, Secretary of Health and Human Services,

Defendant- Appellant.

METROPOLITAN HOSPITAL, INC., a Georgia Corporation, Plaintiff-Appellee, v. Margaret M. HECKLER, Secretary of Health & Human Services,

Defendant-Appellant.

Nos. 84-7444, 84-8699.

United States Court of Appeals Eleventh Circuit.

June 12, 1985.

Frank W. Donaldson, U.S. Atty., Herbert J. Lewis, III, Asst. U.S. Atty., Birmingham, Ala., Barbara C. Biddle, Dept. of Justice, Appellate Staff, Civ. Div., Anthony J. Steinmeyer, Washington, D.C., for defendant-appellant.

Ober, Grimes & Shriver, Margaret Manning, Leonard C. Homer, Carel T. Hedlund, Baltimore, Md., for plaintiff-appellee in No. 84-7444.

Nina Loree Hunt, Asst. U.S. Atty., Atlanta, Ga., for defendant-appellant in No. 84-8699.

Richard L. Shackelford, Glen A. Reed, Atlanta, Ga., for plaintiff-appellee in No. 84-8699.

Appeal from the United States District Court for the Northern District of Alabama.

Appeal from the United States District Court for the Northern District of Georgia.

Before KRAVITCH, HATCHETT and WRIGHT ^*, Circuit Judges.

EUGENE A. WRIGHT, Circuit Judge:

In this consolidated appeal, we must determine if the new malpractice insurance premium rule was promulgated in violation of the Administrative Procedure Act (APA), 5 U.S.C. Sec. 500 et seq., or the Medicare Act (Act), 42 U.S.C. Sec. 1395 et seq. We first address jurisdiction.

FACTS

Until recently amended, the Medicare Act required that participating providers be reimbursed their reasonable costs for services. ¹ 42 U.S.C. Sec. 1395f(b)(1) (1979). Reasonable costs are those actually incurred, excluding costs unnecessary for efficient delivery of health care. 42 U.S.C. Sec. 1395x(v)(1)(A). Reasonable costs are to be determined by regulations promulgated by the Secretary of Health and Human Services (HHS). Id.

The Secretary initially adopted the standard accounting method of allocating costs according to usage. See 31 Fed.Reg. 14808 (Nov. 23, 1966), promulgating 20 C.F.R. Sec. 405, Subpart D (1966). The theory underlying this method of cost accounting is that the differences allocable primarily to one patient population or the other average out across the population and across the cost year.

General and administrative (G & A) costs include such items as costs of admissions, billing, workers' compensation and fire, casualty, accident and malpractice insurance. Under the preexisting system, G & A costs were grouped into a "cost center", such as the emergency room. Medicare then reimbursed the provider for a portion of each cost center's G & A, based on the Medicare patient utilization rate for that center.

In 1979, concerned with the cost of malpractice insurance, the Secretary issued a proposed new rule for public comment. It provided that hospitals which had paid malpractice claims within the previous five years would be reimbursed based on the ratio of claims paid to Medicare patients to the total claims paid in those five years and hospitals with no five-year claims history would be reimbursed using actuarial estimates of Medicare's share of malpractice costs. 44 Fed.Reg. 15744-45 (March 15, 1979).

The final rule (the malpractice rule) retained the five-year claims ratio in those hospitals with a five-year claims history and used a national ratio which supposedly reflects average national loss experience for those hospitals without a five-year claims history. 44 Fed.Reg. 31641-42, codified at 42 C.F.R. Sec. 405.452(b)(1)(ii) (1979). ² The national ratio is 5.1%.

Noland Hospital's Medicare patient utilization rate was approximately 32% for the cost year ending in 1980. Under the standard accounting reimbursement method, it should have received 32% of its malpractice premiums. Instead, it received Medicare reimbursement for its malpractice premiums under the national ratio of 5.1% because the hospital had no malpractice losses during that year or the previous four years. The amount at issue is $13,191.

Metropolitan Eye & Ear Hospital (Metropolitan) had a Medicare patient utilization rate of approximately 42% for the cost year ending in 1980. It would have been reimbursed approximately 42% of its premiums under the old rule. It also received Medicare reimbursement under the 5.1% national ratio. The amount at issue is $10,626.

Both hospitals brought their disputes before the Provider Reimbursement Review Board (PRRB), which is designed to resolve technical reimbursement disputes. The PRRB determined that it did have authority to adjudicate these challenges to the regulations. 42 U.S.C. Sec. 1395oo(f)(1). After certification from the PRRB, both Noland and Metropolitan challenged the malpractice rule in the district courts. Both courts granted plaintiffs' summary judgment motions.

JURISDICTION

The district court and this court on appeal have raised the jurisdictional issue. The Act requires suit be filed within 60 days of agency action. 42 U.S.C. Sec. 1395oo(f)(1). Lloyd Noland Hospital and Clinic (Noland) filed its action 63 days after the agency decision was rendered but within 60 days after receipt of notice of that decision. The notice said that this action could be filed 60 days after receipt.

The district court held that the 60-day statutory provision is a statute of limitation, comparable to that in the Social Security Act. The Secretary waived this defense by not timely raising it. Alternatively, the letter tolled the filing period until 60 days from receipt.

If this 60-day period is jurisdictional, we must dismiss Noland's action. See Victory Carriers, Inc. v. Law, 404 U.S. 202, 212, 92 S.Ct. 418, 425, 30 L.Ed.2d 383 (1971) (jurisdiction is confined to the precise limits defined by a federal statute), reh'g denied, 404 U.S. 1064, 92 S.Ct. 731, 30 L.Ed.2d 753 (1972). See also Owen Equipment & Erection Co. v. Kroger, 437 U.S. 365, 374, 98 S.Ct. 2396, 2403, 57 L.Ed.2d 274 (1978). The parties may not expand our jurisdiction by express consent, conduct or estoppel. 13 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure Sec. 3522 at 66-67 (2d ed. 1984). See American Fire & Cas. Co. v. Finn, 341 U.S. 6, 17-18, 71 S.Ct. 534, 541-42, 95 L.Ed. 702 (1951).

We are persuaded that the 60 days is a statute of limitation. The filing time within the Social Security Act is a statute of limitation, Mathews v. Eldridge, 424 U.S. 319, 328 n. 9, 96 S.Ct. 893, 899 n. 9, 47 L.Ed.2d 18 (1976); Weinberger v. Salfi, 422 U.S. 749, 763-64, 95 S.Ct. 2457, 2465-66, 45 L.Ed.2d 522 (1975), and both acts have similar appeals provisions. Compare 42 U.S.C. Sec. 405(g) with 42 U.S.C. Sec. 1395oo(f)(1). See V.N.A. of Greater Tift County, Inc. v. Heckler, 711 F.2d 1020 1024 & n. 6 (11th Cir.1983), cert. denied, --- U.S. ----, 104 S.Ct. 1908, 80 L.Ed.2d 457 (1984). We have subject matter jurisdiction over both appeals.

SCOPE OF REVIEW

Under the Medicare Act, judicial review is defined by the APA. 42 U.S.C. Sec. 1395oo(f). The APA directs an agency's decision be overturned if it is unsupported by substantial evidence in the record, 5 U.S.C. Sec. 706(2)(E), or arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. Id. Sec. 706(2)(A).

The standard of review is narrow and this court will not substitute its judgment for that of the agency. Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 823, 28 L.Ed.2d 136 (1971). We must determine whether the decision was based on a consideration of the relevant factors and whether there was a clear judgment error. Motor Vehicle Mfrs. Ass'n v. State Farm Mutual Automobile Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2867, 77 L.Ed.2d 443 (1983).

ANALYSIS

A. Notice

The Metropolitan court concluded that the notice of the proposed rulemaking failed to sufficiently identify the Westat study. ³ This prevented affected persons from offering meaningful comments on the proposed rule. Actual notice to some did not cure this deficiency.

The APA provides that general notice of proposed rulemaking must be published in the Federal Register, unless actual notice is given to regulated entities. APA, 5 U.S.C. Sec. 553(b). Notice must include either the terms or substance of the rule or a description of the subject and issues. Id. Sec. 553(b)(3). When a proposed rule is based on scientific data, the agency should identify the data and methodology used to obtain it. United States v. Nova Scotia Food Products Corp., 568 F.2d 240, 251 (2d Cir.1977).

The original notice cited only a "study conducted by an HEW consultant...." 44 Fed.Reg. 15745. The study was later identified in the final rule as the Medical Malpractice Closed Claims Study--1976 (the Westat study). 44 Fed.Reg. 31641 (June 1, 1979). This notice alone is inadequate. See Portland Cement Ass'n v. Ruckelshaus, 486 F.2d 375, 393-94 (D.C.Cir.1973) (agency cannot promulgate rules based on data known only to the agency), cert. denied, 417 U.S. 921, 94 S.Ct. 2628, 41 L.Ed.2d 226 (1974).

The purpose of notice under the APA is to disclose the thinking of the agency and the data relied on. Home Box Office, Inc. v. FCC, 567 F.2d 9, 35 (D.C.Cir.), cert. denied, 434 U.S. 829, 98 S.Ct. 111, 54 L.Ed.2d 89 (1977). Notice is adequate if "it affords interested parties a reasonable opportunity to participate in the rulemaking process." Forester v. Consumer Product Safety Comm'n, 559 F.2d 774, 787 (D.C.Cir.1977). Accord Bonney Motor Express, Inc. v. United States, 640 F.2d 646, 650 (5th Cir.1981).

The Secretary sent copies of the study to three hospital organizations which represented 7,520 hospitals. Based on the number and relative uniformity of responses, ⁴ actual notice was sufficient. See Common Carrier Conference v. United States, 534 F.2d 981, 982-83 (D.C.Cir.) (actual knowledge by most interested parties sufficient to cure notice defects), cert. denied,...