Baptist Hosp. East v. Secretary of Health and Human Services

• Decision Date: 06 October 1986
• Docket Number: No. 85-5473,85-5473
• Citation: 802 F.2d 860
• Parties: , Medicare&Medicaid Gu 35,867 BAPTIST HOSPITAL EAST, et al., Plaintiffs-Appellants, v. SECRETARY OF HEALTH AND HUMAN SERVICES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 860

802 F.2d 860

15 Soc.Sec.Rep.Ser. 204, Medicare&Medicaid Gu 35,867

BAPTIST HOSPITAL EAST, et al., Plaintiffs-Appellants, v. SECRETARY OF HEALTH AND HUMAN SERVICES, Defendant-Appellee.

No. 85-5473.

United States Court of Appeals,

Sixth Circuit.

Argued March 11, 1986.

Decided Oct. 6, 1986.

Gaylee W. Gillim, Rice, Porter and Seiller, Louisville, Ky., Carson P. Porter (argued), for plaintiffs-appellants.

Ronald E. Meredith, U.S. Atty., Louisville, Ky., Mark A. Guza (argued), Asst. Regional Atty., Dept. of H.H.S., Atlanta, Ga., for defendant-appellee.

Before ENGEL and MILBURN, Circuit Judges and CONTIE, ^* Senior Circuit Judge.

ENGEL, Circuit Judge.

Appellants, five non-profit hospitals, are all providers of health care services under the Medicare program who, during the relevant period, provided some free health care to non-Medicare patients. These services were accounted for by the hospitals as either bad debts, charity or courtesy allowances. ¹ The hospitals now seek reimbursement from the Medicare program for a portion of these services. They appeal a decision of the United States District Court for the Western District of Kentucky upholding 42 C.F.R. Sec. 405.420 under which the Secretary of Health and Human Services denied their claims for reimbursement. We agree with Chief Judge Charles M. Allen that a provider's self-disallowance is not a matter covered by its cost report and does not preserve the jurisdiction of the Provider Reimbursement Review Board with respect to the self-disallowance, that section 405.420 does not conflict with the reasonable cost provisions of the Medicare Act, 42 U.S.C. Sec. 1395x(v)(1)(A), and that section 405.420 does not violate the due process clause of the Fifth Amendment.

I.

To recover costs incurred in providing health care services to Medicare recipients, a provider must file a cost report with the Department of Health and Human Services, usually through a private insurance company acting as an agent for the Secretary and denominated a "fiscal intermediary." The appellants, in filing their cost reports with their fiscal intermediary, claimed compensation from the Medicare program for a portion of their bad debts, charity and courtesy allowances, while one appellant, William Booth Memorial Hospital, self-disallowed reimbursement for its free services on its cost report for fiscal 1981. ² The fiscal intermediary rejected the claims for reimbursement for bad debts, charity and courtesy allowances in accordance with 42 C.F.R. Sec. 405.420(b). The providers appealed as part of a group appeal from these denials to the Provider Reimbursement Review Board pursuant to 42 U.S.C. Sec. 1395oo, challenging 42 C.F.R. Sec. 405.420 and seeking expedited judicial review. Booth Memorial, along with other providers who had not claimed recovery for bad debts, charity and courtesy allowances sought to join the appeal to the Board.

The Board dismissed the appeals of several hospitals on the ground that it lacked jurisdiction to hear a claim not initially raised with the fiscal intermediary. It granted the remaining hospitals' request for expedited judicial review under 42 U.S.C. Sec. 1395oo (f)(1) since only a controlling question of law, which the Board was not empowered to decide, remained at issue. The providers then filed suit in the district court.

The district court granted summary judgment against those hospitals, including Booth, which did not expressly claim reimbursement for their free services but made self-disallowing adjustments. It held that those hospitals had failed to satisfy the jurisdictional prerequisites for appeal to the Board.

[A] mere self-disallowance, which is no more than setting out a figure on a cost report without claiming it, is insufficient to preserve the jurisdiction of the Board to consider that item for reimbursement purposes.... A provider simply cannot request reimbursement from the Board for an item which it did not even claim from its fiscal intermediary before receiving its NPR.

The court further upheld the challenged regulations as "entirely consistent" with the Medicare Act and as not in violation of the Fifth Amendment due process clause.

On appeal, the hospitals argue that bad debts and charity allowances are necessary costs of hospital operation, a portion of which are indirectly attributable to the Medicare program and are accordingly recoverable as reasonable costs under 42 U.S.C. Sec. 1395x(v)(1)(A). ³ They contend that 42 C.F.R. Sec. 405.420, which precludes recovery for general bad debts and charity allowances, is inconsistent with the reasonable cost provisions of the Act. They further contend that 42 C.F.R. Sec. 405.420, to the extent it does not compensate the hospitals for costs of operation attributable to the Medicare program, effects a taking without compensation in violation of the due process clause of the Fifth Amendment. William Booth Memorial Hospital also contends that its self-disallowance of reimbursement for free services provided sufficient notice to preserve its right to appeal to the Board under section 1395oo.

II.

The review process for the claims of Medicare providers is established through 42 U.S.C. Sec. 1395oo, in which Congress created the Provider Reimbursement Review Board. ⁴ Booth contends that the Board has jurisdiction under section 1395oo to review the cost items that Booth self-disallowed since under that section the Board may "make any other revisions on matters covered by such cost report ... even though such matters were not considered by the intermediary in making such final determination." Booth argues that the items it self-disallowed may be reviewed by the Board as items covered in the cost report and not considered by the intermediary.

There is a division of authority on this issue both within the circuits and within the district courts of this circuit. This circuit has held, though, that section 1395oo "requires that a provider include disputed issues within the initial cost report and preserves the right of review if the intermediary ignores the claim, or instructs the provider to delete the claim.... The provider is not entitled to compel the Board to review new claims." Saline Community Hosp. Ass'n v. Secretary of H.H.S., 744 F.2d 517, 519 (6th Cir.1984) (per curiam) (original emphasis). By self-disallowing its bad debts, charity and courtesy allowances Booth did not claim them; on the contrary, through self-disallowance without an accompanying challenge, Booth expressly disclaimed entitlement to reimbursement. We do not believe that a mere self-disallowance even when made solely to conform to regulations with which a provider disagrees raises a claim within the meaning of Saline sufficient to preserve the issue for review by the Provider Reimbursement Review Board.

In Athens Community Hosp., Inc. v. Schweiker, 743 F.2d 1 (D.C.Cir.1984) (Athens II ), the D.C. Circuit held that "the PRRB has jurisdiction over costs that are specifically claimed--meaning that the provider requested reimbursement in a timely manner--as well as those cost issues raised by a provider prior to the intermediary's issuance of the NPR." Id. at 5-6. The court rejected the interpretation of section 1395oo stated by the Seventh Circuit in St. Mary of Nazareth Hosp. Center v. Department of H.H.S., 698 F.2d 1337 (7th Cir.), cert. denied, 464 U.S. 830, 104 S.Ct. 107, 78 L.Ed.2d 110 (1983), which granted jurisdiction to the Board over all matters whether or not disclosed in the cost report. ⁵ It held that that interpretation would render meaningless the statute's provision for revision by the Board of "matters covered by [a] cost report." Athens II, 743 F.2d at 6. The court further held that section 1395oo does not grant jurisdiction to the Board over items self-disallowed on the cost report. It concluded that any other interpretation would put "an irrational gloss on the statute." Id.

It simply is not plausible to contend that Congress has created a scheme where the provider can claim dissatisfaction and have recourse to an appeal procedure because the intermediary failed to read the provider's mind and anticipate all those things the provider would like to be reimbursed for, even though it did not request them.

Id. Moreover, it concluded that such an interpretation would place an overwhelming burden of identifying reimbursable costs on the intermediary.

Thus a provider could list every conceivable cost on its cost report, without claiming reimbursement, and hope that the intermediary will reimburse it for the reported but unclaimed costs, secure that it nevertheless will have until 180 days following the NPR to concoct some reasons to urge upon the PRRB for reimbursement of the unclaimed costs.

Id. It noted that permitting de novo claims at the Board level would generate baseless appeals and that such an interpretation runs counter to the process of progressive narrowing of issues reflected in the procedures for reopening a cost report.

We note that in the instant case Booth self-disallowed its bad debts and charity allowances simply because it was compelled to do so under the regulations. We further recognize that the intermediary has no authority to alter the Secretary's regulations governing reimbursement but must faithfully apply them as they stand. This is not a case, then, where extending jurisdiction over costs not claimed in the report would saddle the intermediary with an additional obligation. If the Board's jurisdiction were extended to this type of case, the Board would not have to search out unclaimed costs that were disallowed under close regulatory directives since, even if it had considered these costs, it could not have awarded reimbursement for them. Moreover, we recognize that in this situation, requiring a provider to claim reimbursement does not serve the purpose generally served by exhaustion requirements. Since the intermediary cannot review the Secretary's regulations, it...