Appalachian Regional Hospitals, Inc. v. US

• Citation: 576 F.2d 858
• Decision Date: 17 May 1978
• Docket Number: No. 247-76.,247-76.
• Parties: APPALACHIAN REGIONAL HOSPITALS, INC. v. The UNITED STATES.
• Court: Court of Federal Claims

576 F.2d 858

APPALACHIAN REGIONAL HOSPITALS, INC. v. The UNITED STATES.

No. 247-76.

United States Court of Claims.

May 17, 1978.

Joe W. Fleming, II, Washington, D.C., attorney of record, for plaintiff. David T. Enlow, Murphy, King, Enlow, Dunn & Sledd, Lexington, Ky., of counsel.

Arlene Fine, Washington, D.C., with whom was Asst. Atty. Gen. Barbara Allen Babcock, Washington, D.C., for defendant.

Before COWEN, Senior Judge, and DAVIS and BENNETT, Judges.

ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND PLAINTIFF'S CROSS-MOTION FOR SUMMARY JUDGMENT

BENNETT, Judge.

This is another in a recent spate of Medicare provider cases. In question is the propriety of Medicare's recoupment of "reimbursements" to plaintiff's nine hospitals for accrued but unpaid interest expenses. The dispute springs from Medicare's recovery of the reimbursements when a private law was passed to forgive plaintiff's debt of principal and interest. This law made it clear that the interest which plaintiff's providers had accrued, and for which Medicare had properly reimbursed them, would never have to be paid.

I

Plaintiff, Appalachian Regional Hospitals, Inc., a nonprofit corporation, owns and operates nine hospitals in Kentucky, Virginia, and West Virginia. The hospitals have been "providers of services," 42 U.S.C. § 1395x(u) (1970), in the Medicare program since 1966. In 1963 and 1964, plaintiff acquired 10 hospitals built in 1955 and 1956 by a subsidiary of the United Mine Workers Welfare and Retirement Fund. Operation of the facilities in poverty-stricken Appalachia had proved too great a drain on United Mine Workers resources, and plaintiff was organized to assume ownership and operational responsibilities.

The acquisition of five of the hospitals was financed by a grant of $3.9 million obtained by plaintiff in 1963 from the Area Redevelopment Administration (now known as the Economic Development Administration), part of the United States Department of Commerce. Five other hospitals were acquired with the proceeds of a loan from the same source in the amount of $4.1 million, obtained on June 26, 1964, providing for repayment over 40 years with interest accruing at an annual rate of 3 5/8 percent. One hospital of the second group was sold by plaintiff in 1966, and the principal of plaintiff's loan was then reduced to $3,607,590.

Plaintiff's nine Medicare providers filed annual cost reports, as required, with their respective fiscal intermediaries¹ for fiscal years ending June 30 from 1967 through 1973, claiming as current costs the accruing interest liability on the loan. After audit, Medicare compensated the provider hospitals² for the accrued interest along with other reimbursable costs. The parties agree that the reimbursements by Medicare of plaintiff's accrued interest were proper when made.

Plaintiff never paid any interest on the loan. Instead, on July 1, 1970, plaintiff and the Economic Development Administration executed a "Modification and Extension Agreement," which waived all defaults to date and deferred all interest payments until July 1975 and payments on principal until July 1985. The 1970 document directed that plaintiff continue to accrue interest as a current expense in computing charges and fees at the hospitals.

Nonetheless, this agreement did not end the hospitals' financial troubles, and congressional assistance was sought. On October 27, 1972, Priv.L.No. 92-161 was enacted. 86 Stat. 1568 (1972). The statute relieved plaintiff of all liability for the principal ($3,607,590) and accrued interest ($1,115,880 through September 30, 1972) on the 1964 loan. Thereupon, the fiscal intermediaries of the hospitals determined that, since the interest expense which had been reimbursed would never be paid, the reimbursements to the hospitals for accrued interest were overpayments which should be recouped. Adjustments were made in various cost reports of the hospitals and the recoupment was made by withholding money which would otherwise have been due under normal Medicare reimbursement practice until the offsets had been achieved. Interest reimbursements totaling $189,192 were eventually recouped.

Each hospital was notified of the overpayment determinations, the fiscal intermediaries having concluded that reimbursements of the accrued interest expenses were in fact overpayments. Plaintiff's counsel was informed by the Bureau of Health Insurance of the Social Security Administration that an appeal of the determinations could be had under regulations which provided for a hearing and determination by a person or board designated by the fiscal intermediary. Plaintiff was also informed that such decision would be reviewable by the Social Security Administration which retained final authority in the matter. Plaintiff apparently indicated it would pursue these administrative remedies.

Plaintiff did not take the matter to the Blue Cross Association board apparently designated by each fiscal intermediary, but instead wrote directly to the Director of the Bureau of Health Insurance. His response, later confirmed informally by the Commissioner of the Social Security Administration, held that the Government was entitled to recover the payments made to reimburse interest expenses which, while validly accrued, had become certain never to be actually paid by the hospitals. On June 17, 1976, plaintiff filed suit here, claiming entitlement to the amount recouped (now agreed to be $189,192), plus interest, costs, and attorneys' fees, and seeking a declaratory judgment that plaintiff is entitled to same. Both parties have moved for summary judgment, focusing their arguments on three issues: jurisdiction, the effect of the private law which forgave plaintiff's debt, and the allowability under the Medicare statute and regulations of the retroactive denial of plaintiff's interest expense claim. Before discussing these issues in detail, we first summarize briefly the arguments presented.

Defendant contends that this court lacks jurisdiction of this case, asserting that 42 U.S.C. § 1395oo(f) (Supp. IV, 1974) provides for judicial review of plaintiff's claim exclusively in the district court. Plaintiff responds that the statute relied on by defendant to establish exclusive district court jurisdiction applies only to cost reports of Medicare service providers for accounting periods ending on or after June 30, 1973. Plaintiff asserts that very little of the claimed interest expense was accrued in the cost period ending in 1973 and argues that the years primarily involved are 1967-72, years as to which this court has held it has jurisdiction of provider reimbursement disputes under 28 U.S.C. § 1491 (1970). See Whitecliff, Inc. v. United States, 536 F.2d 347, 351-52, 210 Ct.Cl. 53, 58 (1976), cert. denied, 430 U.S. 969, 97 S.Ct. 1652, 52 L.Ed.2d 361 (1977). Defendant's view is that the critical event, the passage of the private law, occurred in the 1972-73 cost reporting period, triggering section 1395oo(f).

On the merits, defendant claims that the applicable statute and regulations permit the recovery of reimbursements for interest accrued but never paid, while plaintiff responds that neither the statute nor regulations promulgated thereunder authorize the recoupment. Plaintiff believes that since the interest expense was validly accrued, it does not matter that later events ensured the interest expenses would never have to be paid. Plaintiff relies on the private law as evidencing a congressional intent that plaintiff be relieved of all liability to the Government for interest and principal and contends the adjustments made by the fiscal intermediaries violate the intent of that law by diminishing the assistance thereby furnished to the hospital system operated by plaintiff. Plaintiff also invokes a regulation which it properly says provides that Medicare reimbursements of medical service providers should not be reduced to offset unrestricted grants to such providers. Defendant responds that Medicare can properly reimburse only those interest expenses which are to be ultimately paid and contends the statute and regulations permit adjustments to recover accrued interest reimbursements when it becomes clear that the accrued interest will not be paid. The private law, defendant insists, does not eliminate defendant's right of recoupment, since it was designed only to relieve plaintiff of its obligations to the Economic Development Administration, not to permit plaintiff to retain reimbursements for expenses which the private law ensured would never actually occur. Defendant does not believe the regulation about unrestricted gifts cited by plaintiff has application to this case, but defendant argues that in any case the grant made to plaintiff should be regarded as restricted.

We turn first to the jurisdictional issue.

II

Jurisdiction in this case presents an unexpectedly knotty problem. The Government has challenged our jurisdiction in provider reimbursement disputes, often without success. Whitecliff, Inc. v. United States, supra, St. Elizabeth Hospital v. United States, 558 F.2d 8, 214 Ct.Cl. 322 (1977), and Overlook Nursing Home, Inc. v. United States, 556 F.2d 500, 214 Ct.Cl. 60 (1977), are leading cases. They establish that our basic jurisdictional statute, 28 U.S.C. § 1491 (1970), confers jurisdiction upon this court to resolve claims for Medicare reimbursement, in the absence of specific legislation providing that judicial review be available exclusively elsewhere. The Whitecliff opinion stated that "where the Medicare statute provides for review, providers and courts must follow the specified procedures and limitations." 536 F.2d at 351, 210 Ct.Cl. at 58.

In this case, the jurisdictional difficulty is created by 42 U.S.C. § 1395oo (Supp. IV, 1974), especially subsection (f). Section 1395oo was added to the Medicare statute in 1972. Pub.L.No. 92-603, § 243(a), 86 Stat. 1422. That section ordered the Secretary to establish a "...