Anaheim Memorial Hosp. v. Shalala

• Decision Date: 26 November 1997
• Docket Number: 96-55796,Nos. 96-55724,s. 96-55724
• Citation: 130 F.3d 845
• Parties: , Medicare & Medicaid Guide P 45,775, 97 Cal. Daily Op. Serv. 8888, 97 Daily Journal D.A.R. 14,499 ANAHEIM MEMORIAL HOSPITAL, Plaintiff-Appellant, v. Donna E. SHALALA, Secretary, Defendant-Appellee. ANAHEIM MEMORIAL HOSPITAL, Plaintiff-Appellant, v. Donna E. SHALALA, Secretary, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 845

130 F.3d 845

54 Soc.Sec.Rep.Ser. 571, Medicare & Medicaid Guide

P 45,775,

97 Cal. Daily Op. Serv. 8888,

97 Daily Journal D.A.R. 14,499

ANAHEIM MEMORIAL HOSPITAL, Plaintiff-Appellant, v. Donna E. SHALALA, Secretary, Defendant-Appellee.

ANAHEIM MEMORIAL HOSPITAL, Plaintiff-Appellant, v. Donna E. SHALALA, Secretary, Defendant-Appellee.

Nos. 96-55724, 96-55796.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 7, 1997.

Decided Nov. 26, 1997.

Mitchell R. Miller, Attorney at Law and the Law Offices of Jacob N. Segura, Beverly Hills, California, for the plaintiff-appellant.

Gerard Keating, Department of Health and Human Services, Washington, DC, for the defendant-appellee.

Appeals from the United States District Court for the Central District of California; Linda H. McLaughlin, District Judge, presiding. D.C. Nos. CV-96-00073-LHM, CV-95-00365-LHM.

Before: REINHARDT and TASHIMA, Circuit Judges, and SHADUR, ^* District Judge.

TASHIMA, Circuit Judge:

In French Hosp. Med. Ctr. v. Shalala, 89 F.3d 1411 (9th Cir.1996) ("French Hospital "), we held that the reopening of a Medicare cost report entitles the provider to appeal only the "issue" on which the report had been reopened. On these consolidated appeals, we face the question which logically follows: How broad is the "issue" that was reopened?

I. BACKGROUND

A. The Statutory and Regulatory Framework

The Medicare statute, Title XVIII of the Social Security Act, Pub.L. No. 89-97, 79 Stat. 291 (1965) (codified as amended at 42 U.S.C. § 1395 to 1395ccc (1991 & Supp.1997)), creates a federally funded health insurance program for the elderly and disabled. The statute provides that the Secretary of Health and Human Services (the "Secretary") will reimburse health care providers for services provided to Medicare patients. A hospital may participate in the Medicare program as a provider by entering into a provider agreement with the Secretary. 42 U.S.C. § 1395h; 42 C.F.R. § 421.103 (1996).

Reimbursement to a provider is normally handled by a "fiscal intermediary." 42 U.S.C. § 1395h(a). A provider seeking reimbursement submits an annual cost report to the fiscal intermediary, 42 C.F.R. §§ 413.20(a)-(b) & 413.24(f), which then audits the report, determines the reimbursable amount, and issues an initial Notice of Amount of Medicare Program Reimbursement ("NPR") for the relevant fiscal year. 42 C.F.R. § 405.1803.

During the periods at issue in this case, Medicare paid the lower of a provider's "customary charges" or the "reasonable cost" of furnishing covered services. 42 U.S.C. § 1395f(b)(1). The statute authorizes the Secretary to set up "cost limits" that help define reasonable costs. 42 U.S.C. § 1395x(v)(1)(A). Pursuant to this statutory authorization, the Secretary, acting through the Health Care Financing Administration (the "HCFA"), established cost ceilings called "routine cost limits" ("RCL"). 46 Fed.Reg. 33637, 33639-40 (June 30, 1981) (concerning the fiscal years in question). Providers were not normally reimbursed for costs incurred in excess of the RCL.

The RCL is derived from a number of factors, including: (1) a database consisting of a large set of Medicare cost reports; (2) a market basket index of goods and services purchased by hospitals; (3) determinations of separate labor-related and non-labor components of hospital costs; (4) a hospital wage index; (5) a geographic classification system; (6) inflation factors; (7) cut-off points for determining mean costs; (8) separate adjustments for medical education costs, the cost-of-living in Alaska and Hawaii, and the beginning date of a hospital's cost reporting period; and (9) an upward adjustment for hospitals located in states with lower than the national average of covered days of care ("CDCA factor"). 46 Fed.Reg. 33637, 33639-40 (June 30, 1981); 45 Fed.Reg. 41868-80 (June 20, 1980); 44 Fed.Reg. 31806, 31810 (June 1, 1979). See also 42 C.F.R. § 413.30(a)(2), (c)-(f) (describing procedure for deriving the RCL).

After the fiscal intermediary issues an initial NPR, the provider may appeal any aspect of the reimbursement to the Provider Reimbursement Review Board (the "PRRB" or "Board"), if the amount in controversy is at least $10,000 ($50,000 for a group appeal), and if the hearing request is submitted within 180 days of the initial NPR. 42 U.S.C. § 1395oo(a), (b). The PRRB has discretion to extend the 180-day appeal period for good cause if an extension is requested within three years of the initial NPR. 42 C.F.R. § 405.1841(b). If these jurisdictional prerequisites are fulfilled and the PRRB has the authority to decide the matter at issue, 42 C.F.R. § 405.1867, the PRRB may hold a hearing and issue a decision. The Secretary's delegate, the HCFA Administrator (the "Administrator"), may then review the PRRB's decision, either sua sponte or upon request. 42 C.F.R. § 405.1875. The Administrator must promptly notify the parties if he intends to review the PRRB's decision, and he must render his final decision within 60 days of the PRRB's decision. 42 U.S.C. § 1395oo(f)(1); 42 C.F.R. § 405.1875(d) & (g).

The Medicare statute also creates a process known as "expedited judicial review" ("EJR"). If the PRRB decides that it has jurisdiction over an appeal but lacks the authority to decide the controlling question of law, it may grant an EJR. 42 U.S.C. § 1395oo(f)(1). The provider then has 60 days to seek judicial review of the legal issue in question. 42 U.S.C. § 1395oo(f)(1).

If a provider does not timely appeal the initial NPR, its cost report for that fiscal year is considered closed. Under certain circumstances, however, a closed cost report can be reopened. 42 C.F.R. § 405.1885. When an NPR is reopened and a revision is made, that revision is considered "a separate and distinct determination or decision," i.e., it is a new final decision, subject to the appeal rights discussed above. 42 C.F.R. § 405.1889.

B. French Hospital

We first confronted the regulations governing the reopening of an NPR in French Hospital, 89 F.3d 1411. In that case, the fiscal intermediary reopened an initial NPR seven years after it was issued in order to reclassify the provider's malpractice insurance costs as an administrative and general cost. Id. at 1413. After that reopening, the provider pursued an appeal to the PRRB challenging the RCL formula on the grounds that the wage index in the RCL was flawed and that the CDCA factor was inaccurate. Id. at 1414.

We agreed with the Secretary that the PRRB lacked jurisdiction over the provider's appeal. We reasoned that because a revision in the NPR is a "separate and distinct determination," 42 C.F.R. § 405.1889, a revision must be separated from the initial NPR, and the right of appeal attaches only to the scope of the revision. Id. at 1419. This court thus joined the Seventh Circuit in holding that the PRRB has jurisdiction only over those elements of the NPR that are reconsidered by the fiscal intermediary upon reopening. Id. (citing Edgewater Hosp., Inc. v. Bowen, 857 F.2d 1123, 1134 (7th Cir.1988), modified, 866 F.2d 228 (1989)). Accord Rutland Regional Med. Ctr. v. Sullivan, 835 F.Supp. 754, 759 (D.Vt.1993); Albert Einstein Med. Ctr. v. Sullivan, 830 F.Supp. 846, 849 (E.D.Pa.1992), aff'd, 6 F.3d 778 (3d Cir.1993). ¹

We acknowledged in French Hospital that, on the facts of that case, the reclassification of malpractice insurance costs after reopening meant that the RCL had to be applied anew, i.e., the cost limits had to be applied to new numbers. French Hospital, 89 F.3d at 1421. But we distinguished between an application of the RCL and a reconsideration of it. Id. Since neither the RCL itself, nor any component of it, was reconsidered by the fiscal intermediary upon reopening, we held that the PRRB lacked jurisdiction over the provider's appeal. Id. at 1422. In sum, a reopening was said to be "issue-specific," id. at 1420, and the RCL was not the issue that was reopened.

C. Factual and Procedural Background

Plaintiff-appellant Anaheim Memorial Hospital ("Anaheim") is a "provider" of medical services under the Medicare statute. Blue Cross of California, the fiscal intermediary, issued an initial NPR for Anaheim for the fiscal year ending September 30, 1981 ("FY 1981") on October 18, 1982, and an initial NPR for the fiscal year ending September 30, 1982 ("FY 1982") on August 26, 1983.

On September 10, 1993, Blue Cross issued a revised NPR, in the wake of HCFA Ruling 89-1, a ruling that required fiscal intermediaries to treat malpractice insurance costs as an administrative and general cost. French Hospital, 89 F.3d at 1413. That ruling reversed the previous practice of classifying malpractice insurance costs and reinstated the pre-1979 classification. However, this meant that malpractice insurance costs for the affected years were retroactively subject to RCL limits that they had not been subject to before. To comply with Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 109 S.Ct. 468, 102 L.Ed.2d 493 (1988), which invalidated retroactive cost limits, the Secretary instructed fiscal intermediaries to implement the HCFA Ruling without regard to the RCL. This meant that the RCL was effectively suspended to allow for malpractice insurance cost payments without limitation. None of the methodological components of the RCL was altered by the Secretary.

Thus, when Blue Cross revised Anaheim's NPR, it both reclassified the malpractice insurance costs and partly suspended application of the RCL so that these reclassified costs could be fully reimbursed. In the revised NPR, Blue Cross explicitly stated that the reason for the revision was "to revise the Routine Cost Limit per HCFAR 89-1."

On September 30, 1993, and March 7, 1994, Anaheim filed appeals with the PRRB challenging the CDCA factor of the RCL for FY 1981 and FY 1982, respectively. On April 4, 1995, the PRRB ruled that it had jurisdiction over Anaheim's appeals and granted Anaheim's...