Abington Memorial Hosp. v. Heckler, 84-1079
| Decision Date | 21 January 1985 |
| Docket Number | No. 84-1079,84-1079 |
| Citation | 750 F.2d 242 |
| Parties | , Medicare&Medicaid Gu 34,407 ABINGTON MEMORIAL HOSPITAL, et al. v. HECKLER, Margaret M., Secretary of the Department of Health and Human Services and Davis, Carolyne K., Administrator Health Care Financing Administration. MEMORIAL OSTEOPATHIC HOSPITAL, et al. v. HECKLER, Margaret M., Secretary of the Department of Health and Human Services and Davis, Carolyne K., Administrator, Health Care Financing Administration. ALLEGHENY GENERAL HOSPITAL, et al. v. HECKLER, Margaret M., Secretary of the Department of Health and Human Services and Davis, Carolyne K., Administrator Health Care Financing Administration. Margaret M. Heckler, et al., Appellants. |
| Court | U.S. Court of Appeals — Third Circuit |
Katherine S. Gruenheck (argued), Anthony J. Steinmeyer, Robert V. Zener, Appellate Staff, Civil Div., Dept. of Justice, Washington, D.C., Richard K. Willard, Acting Asst. Atty. Gen., Washington, D.C., Edward S.G. Dennis, Jr., U.S. Atty., Philadelphia, Pa., for appellants.
Jane D. Elliott (argued), Roland Morris, David E. Loder, Duane, Morris & Heckacher, Philadelphia, Pa., for appellees.
Leonard C. Homer, Margaret M. Manning, Carel T. Hedlund, Ober, Kaler, Grimes & Shriver, Baltimore, Md., for amici curiae Florida Hospital Ass'n, North Carolina Hospital Ass'n, Ohio Hospital Ass'n, Virginia Hospital Ass'n.
Before HUNTER and WEIS, Circuit Judges, and COHEN, * District Judge.
This appeal arises from an order invalidating a regulation promulgated under Title XVIII of the Social Security Act, 42 U.S.C. Sec. 1395 et seq. (1982) ("the Medicare Act"). The regulation in question governs the reimbursement of malpractice insurance premiums associated with the care of Medicare patients to health-care providers. 42 C.F.R. Sec. 405.452(a)(1)(ii) (1983) ("the Malpractice Rule"). Subject matter jurisdiction in this court is based on 42 U.S.C. Sec. 1395oo(f)(1) (1982), and our review is governed by the principles of the Administrative Procedure Act, 5 U.S.C. Sec. 706 (1982). For the reasons stated below, we affirm, and adopt the reasoning and opinion of the district court. 576 F.Supp. 1081 (E.D.Pa.1983). 1
When promulgated in 1979, the Malpractice Rule completely altered the method by which health-care providers were reimbursed for malpractice insurance premiums associated with the care of Medicare patients. Prior to 1979, malpractice insurance costs were lumped together with all general and administrative costs, and the amount of reimbursement for general and administrative costs was calculated by multiplying the total costs by the percentage utilization rate of Medicare patients. App. at 76-77. Thus, if Medicare patients utilized fifty percent of a health-care provider's beds, the federal government would reimburse the health-care provider for fifty percent of its total general and administrative costs, including malpractice insurance costs.
Under the new Malpractice Rule, reimbursement for malpractice insurance costs is not tied to utilization rates, nor are such costs included in the category of general and administrative costs. Rather, reimbursement of malpractice insurance costs is based on the health-care provider's past claims history with Medicare patients, or, if no history exists, on the national ratio of malpractice awards paid to Medicare beneficiaries to malpractice awards paid to all patients. 42 C.F.R. Sec. 405.452(a)(1)(ii) (1983).
The district court below found this new regulation to be invalid on three grounds: (1) because the Malpractice Rule was promulgated in violation of the notice and comment procedures of 5 U.S.C. Sec. 553 (1982); (2) because the rule is arbitrary, capricious, and an abuse of the Secretary of Health and Human Services' discretion, and is thus substantively invalid under 5 U.S.C. Sec. 706(2)(A) (1982); and (3) because the rule is in conflict with section 1395x(v)(1)(a) of the Medicare Act. We find the reasoning and holding of the district court to be persuasive, and thus adopt the opinion below. We will, however, address the arguments of the parties and amici as to the appropriate remedy in this case.
The district court's order provides that "[p]laintiffs' appeals are remanded to the Provider Reimbursement Review Board for such further proceedings as may be required by and appropriate under 42 U.S.C. Sec. 1395oo." App. at 32. The Secretary contends that the appropriate remedy is to remand to her for further rule-making procedures, because any other remedy would unlawfully deprive the Secretary of her exclusive authority to choose reimbursement methods. Appellants' Reply Brief at 20-21 n. 13. We find the Secretary's arguments unpersuasive.
First, and contrary to the Secretary's contention, the district court did not find that the prior method of reimbursement was invalid. 2 Thus, until rendered invalid by a court decision or replaced by a valid new regulation, the prior method of reimbursement remains operative. See, e.g., Action on Smoking and Health v. CAB, 713 F.2d 795, 797 (D.C.Cir.1983) (). Indeed, because the Malpractice Rule was promulgated as an exception to the general rule of utilization-approach reimbursement, invalidating the exception leaves only the general rule. This result is also consistent with our statutory authority under the Administrative Procedure Act, which envisions the vacation of unlawfully promulgated regulations. 5 U.S.C. Sec. 706(2) (1982). ("The reviewing court shall ... hold unlawful and set aside agency action ....") (emphasis added). Our decision today, therefore, has the effect of reinstituting the utilization approach to malpractice insurance cost reimbursement unless and until the Secretary promulgates a valid alternative regulation. See, e.g., Northwest Hospital, Inc. v. Hospital Service Corp., 687 F.2d 985 (7th Cir.1982) (). 3
The specific relief in this case, however, is limited to the individual claims of appellees for reimbursement...
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