Adams Nursing Home of Williamstown, Inc. v. Mathews, 76-1212

• Decision Date: 02 February 1977
• Docket Number: No. 76-1212,76-1212
• Parties: ADAMS NURSING HOME OF WILLIAMSTOWN, INC., Plaintiff, Appellee, v. F. David MATHEWS, Secretary of Health, Education and Welfare, et al., Defendants, Appellants.
• Court: U.S. Court of Appeals — First Circuit

Page 1077

548 F.2d 1077

ADAMS NURSING HOME OF WILLIAMSTOWN, INC., Plaintiff, Appellee, v. F. David MATHEWS, Secretary of Health, Education and Welfare, et al., Defendants, Appellants.

No. 76-1212.

United States Court of Appeals, First Circuit.

Feb. 2, 1977.

John K. Villa, Atty., Appellate Section, Civ. Div., Dept. of Justice, Washington, D. C., with whom Rex E. Lee, Asst. Atty. Gen., Washington, D. C., James N. Gabriel, U. S. Atty., Boston, Mass., Robert E. Kopp and Judith S. Feigin, Attys., Appellate Section, Civ. Div., Dept. of Justice, Washington, D. C., were on brief, for defendants, appellants.

Thomas C. Fox, Washington, D. C., with whom Kearons J. Whalen and Reder & Whalen, Pittsfield, Mass., were on brief, for plaintiff, appellee.

Before COFFIN, Chief Judge, and McENTEE and CAMPBELL, Circuit Judges.

COFFIN, Chief Judge.

In the court below, appellee, Adams Nursing Home of Williamstown, Inc. (Adams), obtained an injunction preventing the enforcement of a Medicare regulation issued by the Secretary of Health, Education and Welfare (Secretary). Some background is necessary to an understanding of the case. Medicare ¹ is administered by a combination of private and governmental entities. Those eligible for Medicare benefits are given treatment by a qualified "provider of services"; the provider is paid, not by the patient, but by a federal trust fund. 42 U.S.C. § 1395g. Payment is frequently made through "fiscal intermediaries", private organizations acting under contracts with the Secretary. 42 U.S.C. § 1395h. Fiscal intermediaries also conduct audits of providers and otherwise assist in administering the Medicare program.

Providers are ordinarily paid the "reasonable cost" of their services. 42 U.S.C. § 1395b. The Secretary is authorized to issue regulations refining the meaning of "reasonable cost"; he must ensure that Medicare payments do not subsidize private patients and that private patients do not bear any of the costs of Medicare services. 42 U.S.C. § 1395x(v)(1)(A)(i). As might be expected, determining the "reasonable cost" of capital assets is a major source of uncertainty, and as soon as the program was under way the Secretary issued regulations to deal with the problem. His original rules allowed providers to depreciate any capital assets used to serve Medicare patients and to treat the depreciation as a cost of providing care. Between November, 1966, and August, 1970, the method of computing depreciation was left largely to the provider; providers could choose straight line depreciation or some form of accelerated depreciation. Straight line depreciation yields an even flow of reimbursement payments during the expected life of the asset, while accelerated depreciation produces larger payments in the early years and smaller ones toward the end of the asset's life. In 1970, the Secretary decided to restrict the future use of accelerated depreciation. He also issued a regulation designed to "recapture" the difference between accelerated and straight line depreciation when providers using the accelerated method left the program. ²

Adams was a provider between 1967 and 1972. During this period it took accelerated depreciation on some assets. When the nursing home withdrew from the program, its fiscal intermediary applied the recapture regulation and claimed that Adams owed the program $4,739 for depreciation taken in 1967, 1968, and 1969. Adams brought this suit to enjoin the Secretary from collecting the asserted debt. The Secretary asks us to overturn the district court's injunction; he attacks the court's jurisdiction as well as its decision on the merits. We reject the jurisdictional challenge, but reverse on the merits.

In his jurisdictional argument, the Secretary claims that he is shielded from judicial intervention by 42 U.S.C. § 1395ii, which incorporates 42 U.S.C. § 405(h). The incorporated section says "The findings and decisions of the Secretary after a hearing shall be binding upon all individuals who were parties to such hearing. No findings of fact or decision of the Secretary shall be reviewed by any person, tribunal, or governmental agency except as herein provided. No action against the United States, the Secretary, or any officer or employee thereof shall be brought under section 41 of Title 28 to recover on any claim arising under this subchapter."

This is a provision of the Social Security Act, and in most cases it merely requires a claimant to exhaust his administrative remedies before seeking judicial relief, which is made available by 42 U.S.C. § 405(g). But section 405(g) is not fully incorporated into the Medicare subchapter. See 42 U.S.C. § 1395ii. That subchapter permits judicial review when the Secretary disqualifies providers of services, 42 U.S.C. § 1395ff(c), but decisions about the amount of reimbursement due to a provider are not explicitly made reviewable. ³

Adams argues that this court has jurisdiction nonetheless, relying primarily on the judicial review provisions of the Administrative Procedure Act, 5 U.S.C. §§ 701-706. ⁴ Our circuit has treated these provisions as an independent grant of jurisdiction. Bradley v. Weinberger, 483 F.2d 410, 413 (1st Cir. 1973). The provisions operate only when several requirements have been met. If judicial review has not been expressly authorized by statute, courts may review only "final agency action for which there is no other adequate remedy in a court". 5 U.S.C. § 704. And judicial review is barred when "agency action is committed to agency discretion by law" or when it is precluded by statute. Id. § 701(a). Of these possible barriers, the government relies solely on the last. ⁵ It argues that 42 U.S.C. § 405(h) precludes review. The literal words of § 405(h), however, do not restrict jurisdiction based on the Administrative Procedure Act; they deal only with jurisdictional grants contained in title 28. See generally Ruiz-Olan v. Secretary, Department of Health, Education and Welfare, 511 F.2d 1056, 1058 (1st Cir. 1975).

The government finds support for its position in Weinberger v. Salfi, 422 U.S. 749, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975). In Salfi, the Supreme Court held that federal question jurisdiction under 28 U.S.C. § 1331 is barred by § 405(h), a result that is consistent with a literal reading of § 405(h). This holding was apparently limited to cases in which judicial review could be obtained by other means. 422 U.S. at 762, 95 S.Ct. 2457. We do not think that Salfi restricts our jurisdiction over this case. Several other courts have also reached a similar conclusion. ⁶ Sanders v. Weinberger 522 F.2d 1167, 1171 (7th Cir. 1975), cert. granted, 426 U.S. 905, 96 S.Ct. 2225, 48 L.Ed.2d 829 (1976); Hunt v. Weinberger, 527 F.2d 544, 546-47 (6th Cir. 1976); Lejeune v. Matthews, 526 F.2d 950, 952-53 & n.2 (5th Cir. 1976); Whitecliff, Inc. v. United States, 536 F.2d 347, 349-51 (Ct.Cl.1976). See also South Windsor Convalescent Home, Inc. v. Mathews, 541 F.2d 910, 913 n.3 (2d Cir. 1976). But cf. St. Louis Univ. v. Blue Cross Hosp. Serv., 537 F.2d 283 (8th Cir. 1976), cert. denied, --- U.S. ----, 97 S.Ct. 484, 50 L.Ed.2d 584 (1976). ⁷

Turning to the merits, we face the argument, accepted by the district court, that the Secretary's "recapture" regulation violates the Fifth Amendment's guarantee of due process. ⁸ The district judge relied on the decisions of several other courts. South Windsor Convalescent Home, Inc. v. Weinberger, 403 F.Supp. 515 (D.Conn.1975), rev'd for lack of jurisdiction,541 F.2d 910 (2d Cir. 1976); Springdale Convalescent Center v. Mathews, Civ. No. 75-1562A (N.D.Ga.1975); Hazelwood Chronic and Convalescent Center v. Weinberger, Civ. No. 73-210 (D.Ore.1974), rev'd, 543 F.2d 703 (9th Cir. 1976); Hutchison Nursing Home, Inc. v. Burns, 236 N.W.2d 312 (Sup.Ct.Iowa 1975), cert. denied, 426 U.S. 945, 96 S.Ct. 3163, 49 L.Ed.2d 1182 (1976). The theme of these cases is that the recapture regulation overturns vested property rights and is therefore an invalid retrospective act.

Retrospective laws are often viewed with some suspicion. Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 96 S.Ct. 2882, 49 L.Ed.2d 752 (1976). This suspicion is grounded in some of the same considerations underlying the notion that legislatures should not "adjudicate" the rights of known individuals. Cf. United States v. Brown, 381 U.S. 437, 85 S.Ct. 1707, 14 L.Ed.2d 484 (1965). No such problem infects this regulation, however, for when it was instituted the Secretary could not know which providers would be forced to disgorge depreciation payments. But a second purpose is more commonly invoked: laws that unsettle settled rights can be harsh, and they deserve a special scrutiny. This principle has received explicit constitutional recognition in the taking and contract clauses. See Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 43 S.Ct. 158, 67 L.Ed. 322 (1922); El Paso v. Simmons,379 U.S. 497, 85 S.Ct. 577, 13 L.Ed.2d 446 (1965). Of course, not every law that upsets expectations is invalid; courts have generally compared the public interest in the retroactive rule with the private interests that are overturned by it. Hochman, The Supreme Court and the Constitutionality of Retroactive Legislation, 73 Harv.L.Rev. 692, 697 (1960). See Usery v. Turner Elkhorn Mining Co., supra; South Terminal Corp. v. EPA, 504 F.2d 646, 680 (1st Cir. 1974). Putting aside any attempt to tailor the conclusory label "vested right" to fit Adams' depreciation payments, and inquiring instead into Adams' actual expectations and the reasonableness of those expectations, we find that only a modest private interest is affected by the Secretary's rule. In any retroactivity challenge, a central question is how the challenger's conduct, or the conduct of others in his class, would have differed if the law in issue had applied from the start. If the recapture rule had been laid down in 1966, those providers who planned to stay in the program would not...