Wilson Clinic & Hosp., Inc. v. Blue Cross of South Carolina

• Citation: 494 F.2d 50
• Decision Date: 14 March 1974
• Docket Number: No. 73-1148.,73-1148.
• Parties: WILSON CLINIC & HOSPITAL, INC., Appellee, v. BLUE CROSS OF SOUTH CAROLINA et al., Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

494 F.2d 50 (1974)

WILSON CLINIC & HOSPITAL, INC., Appellee, v. BLUE CROSS OF SOUTH CAROLINA et al., Appellants.

No. 73-1148.

United States Court of Appeals, Fourth Circuit.

Argued October 2, 1973.

Decided March 14, 1974.

Jean A. Staudt, Atty., U. S. Dept. of Justice (Harlington Wood, Jr., Asst. Atty. Gen., of South Carolina, John K. Grisso, U. S. Atty., Kathryn H. Baldwin, Atty., U. S. Dept. of Justice, on brief), for appellants.

Benny R. Greer, Darlington, S. C. (Greer & Chandler, Darlington, S. C., on brief), for appellee.

Before BOREMAN and BRYAN, Senior Circuit Judges, and WINTER, Circuit Judge.

BRYAN, Senior Circuit Judge:

The Medicare program, administered by the Secretary of Health, Education and Welfare, under the Insurance for the Aged Act, 42 U.S.C. § 1395 et seq., provides, so far as imported into this case, for reimbursement of a hospital for services furnished to persons of 65 years and upwards. Id. § 1395, Parts A and C. Hospital cost reports are submitted and accounts settled periodically. Id. § 1395g. Upon this appeal, the question is whether in the instances here there was an evidentiary hearing before the Secretary withheld the amount of alleged overpayments from later accruals, and if not, was such recoupment illegal as a deprivation of Fifth Amendment due process.

On the allegation of want of due process, appellee-hospital here obtained an injunction from the District Court disallowing this adjustment. The Secretary's intermediary appeals.

We think the Secretary is altogether innocent of the charge, for the fact is that his action did in truth and practicality give the hospital generous opportunity for, and accorded it, a full hearing on the amount, if any, owing in reimbursement. Indeed, more was given than due process required.

Under the program the hospital is known as the "provider of services". Id. § 1395x(u). At agreeable times, the provider's 12-month costs are laid before the Secretary or his intermediary. An intermediary is a representative of the Secretary, appointed on the mutual selection of the latter and the provider. Id. § 1395h. Its function is to verify the amounts earned by the provider for services. In this instance the provider is the appellee Wilson Clinic & Hospital, and appellant Blue Cross of South Carolina is the intermediary.

The claim in suit is Blue Cross' demand for recovery of overpayments it contends were made to Clinic during 1966-69. Initial audits showed Clinic entitled to $31,000 more than the costs it had reported, and documents accepting these figures as final had been executed between Blue Cross and Clinic.

Accountings for 1970 and 1971 reflected excesses paid to Clinic of $16,303 and $4,232, respectively. Prompted by these results, 1966-69 statements were again reviewed; they disclosed Clinic as over-refunded by $25,551.00. Notice was given Clinic on September 22, 1972 of the intermediary's intention to suspend future reimbursements until the overages were recouped.

Clinic had filed the instant suit on September 20, 1972 to confirm the accounts as agreed for the years 1966-69 and to restrain the intermediary from any withholding of funds. The cause was heard on Blue Cross' motion to dismiss, supported by the unrefuted affidavit of Blue Cross' General Manager to the facts just related.

The District Court granted the injunction and also directed restoration to Clinic of the sums earlier retained. The Court was of opinion that while Blue Cross could reopen the agreements¹, it could not withhold indemnification from Clinic without first affording it an evidentiary hearing on the right of the suspension.

I. Reopenings are contemplated generally by the Act. To begin with, it impliedly, if not expressly, envisages the canvassing of all payments to a provider. See: Id. § 1395g; § 1395f(b); § 1395h (a)(2)(B). Obviously, this tutelage embraces the power and duty to reopen settlements.

Moreover, the Secretary is instructed to issue regulations for the making of "suitable retroactive corrective adjustments" whenever the indemnity of the provider appears "inadequate or excessive". Id. § 1395x(v)(1)(A)(ii). He did so in a regulation effective May 27, 1972, 20 CFR 405.499g², expressly permitting the intermediary to reopen a determination of the amount of a program reimbursement. Thus the intent of Congress to endow the Secretary with ample reopening powers is quite evident.

Indisputably, the United States can always retrieve moneys misunderstandingly outlaid. Even aside from the Act now in suit, the District Court was quite sound in declaring that, agreements non obstante, sums mistakenly paid to Clinic could be recaptured. It is underwritten by United States v. Wurts, 303 U.S. 414, 415-416, 58 S.Ct. 637, 82 L.Ed. 932 (1938) and Wisconsin Central Railroad Co. v. United States, 164 U.S. 190, 212, 17 S.Ct. 45, 41 L.Ed. 399 (1896). The corollary is included: that the Government may offset overpayments against current or subsequent obligations. Gratiot v. United States, 15 Pet. (40 U.S.) 336, 10 L.Ed. 759 (1841).

II. However, the District Court erred in vitiating, on the ground that there was no prior evidentiary hearing on the redeterminations, Blue Cross' threat of withholdings. Decision was rested on Coral Gables Convalescent Home, Inc. v. Richardson, 340 F.Supp. 646 (SDFla. 1972). There no hearing whatsoever was obtainable and the intermediary's computation was absolute. For that reason alone Coral Gables sustained the provider's right to attack at once in court the intermediary's reckoning.

Apparently to avoid the vulnerability in Coral Gables, the Secretary on May 27, 1972 disseminated overall regulations. 42 U.S.C. §§ 1395hh and 1395x(v)(1) (A). Inasmuch as the reopenings were put into effect (May 3, 1972) before the effectuation of the new regulations on May 27, 1972, they did not control the reopenings here.³ However, in respect to the redeterminations themselves, the new promulgations were applicable. They outline, as will appear immediately, the steps to be pursued in ascertaining the sums owing the provider.

Regulation 405.491 requires that, after receiving the provider's cost report and analyzing it, the intermediary notify the provider of any reimbursements due. This figure is declared to be the basis for any corrective action, including the suspension of further payments. Contemporaneously, the provider is informed of its right to a hearing on the determination, regulation 405.492 allowing the provider to request a hearing if dissatisfied with the intermediary's tally. Subsequent regulations spell out the procedure for the hearing and for the review of the intermediary's conclusions by disinterested but knowledgeable hearing officers. 405.492 to 405.499i.

Instantly, the historic events demonstrate that, at the time the injunction issued, Clinic was not aggrieved by lack of a single syllable of due process. As noted previously, Clinic had been tendered and enjoyed every demand of due process as to notice and related incidents precedent to the determination of reimbursement.⁴ These events without contradiction, were enumerated in the affidavit filed with the motion to dismiss and considered by the Court without objection. The affiant's narrative follows:

"On June 6, 1972, a conference was held at Wilson Clinic where the proposed adjustments by Provider Reimbursement were explained to Wilson Clinic. A copy of the adjustment and the revised cost reports and hearing procedures were explained to Wilson Clinic at that time. The hospital's CPA and attorney requested additional time to review the adjustments. Twenty-one (21) days were granted for Wilson Clinic to provide any additional data to negate or modify the proposed adjustments by Provider Reimbursement.

"On July 28, a conference was held at the Provider Reimbursement Department where the attorney and CPA for Wilson Clinic submitted additional data. Some of the adjustments were revised as a result of this additional data.

"The CPA representing Wilson Clinic requested that he have until August 2 to further review the adjustments. This request was granted.

"The CPA did not show up on August 2, 1972.

"On August 7, 1972, forms and instructions for the hearing procedure were provided to Wilson Clinic. . . .

"On August 24, 1972, Wilson Clinic was advised of an overpayment due for September 30, 1966; on August 28, 1972, Wilson Clinic was advised of an overpayment due for September 30, 1967; and August 29, 1972, Wilson Clinic was advised of an overpayment due for September 30, 1968; on August 31, 1972, Wilson Clinic was advised of an overpayment due for the year ended September 30, 1969; on September 6, 1972, Wilson Clinic was advised of an overpayment due for the year ended September 30, 1970; and on September 7, 1972, Wilson Clinic was advised of an overpayment due for the year ended September 30, 1971.

"In each of these it was stated that payment of the balances was due upon receipt of this notice and that Provider Reimbursement must automatically deduct from future remittances if payment were not reached within thirty (30) days." (Accent added.)

After the suit was filed by Clinic on September 20, 1972, nothing further was done by intermediary in the way of suspensions. On October 3, 1972 the hospital provider formally asked for a hearing on the amount of its entitlement to reimbursement. It did not further prosecute this request, by refutation of the findings of overpayments or otherwise.

Finally, the decisive question before the court then is whether the administrative procedures, as pursued by the intermediary, afforded due process for determination of Clinic's reimbursements.

To start with, the Act directs the Secretary in compensating the provider to make "necessary adjustments on account of previously made overpayments or underpayments". 42 U.S.C. § 1395g. In participating in the program, of course, Clinic subjected itself to this method of initial reconciliation....