Association of American Medical Colleges v. Califano

Decision Date01 December 1977
Docket NumberNo. 75-1888,75-1888
Citation186 U.S.App.D.C. 270,569 F.2d 101
Parties, 186 U.S.App.D.C. 270 ASSOCIATION OF AMERICAN MEDICAL COLLEGES, Appellant, v. Joseph A. CALIFANO, Jr., Secretary, Department of Health, Education and Welfare, et al.
CourtU.S. Court of Appeals — District of Columbia Circuit

Bruce R. Hopkins, Washington, D. C., with whom Thomas A. Roha, Washington, D. C., was on the brief, for appellant.

John M. Rogers, Atty., Dept. of Justice, Washington, D. C., for appellees Rex E. Lee, Asst. Atty. Gen., Earl J. Silbert, U. S. Atty., Robert E. Kopp and David M. Cohen, Attys., Dept. of Justice, Washington, D. C., were on the brief, for appellees.

Before BAZELON, Chief Judge, and WRIGHT and ROBINSON, Circuit Judges.

Opinion for the Court filed by SPOTTSWOOD W. ROBINSON, III, Circuit Judge.

SPOTTSWOOD W. ROBINSON, III, Circuit Judge:

Appellant herein, the Association of American Medical Colleges, prosecuted in the District Court a challenge to regulations promulgated by the Secretary of Health, Education, and Welfare fixing limits on reimbursement under the Medicare Act 1 of costs incurred by providers of Medicare services. Reaching the merits of the case, the court sustained the regulations as reasonable and consistent with congressional objectives. 2 We find that appellant's failure to pursue the Act's remedial administrative procedures that culminate in judicial review left the District Court without subject-matter jurisdiction over the action.

I

The Medicare program undertakes cost-reimbursement to those who provide certain services to the program's beneficiaries. 3 The amount of reimbursement is based either on the provider's customary rates for the services rendered or on the "reasonable costs" of those services, whichever is less. 4 Reimbursement is usually effected through a fiscal intermediary, such as the Blue Cross Association, to which authority is delegated to administer the Act and supervise payments to healthcare providers. 5

In 1972, when Congress amended the Medicare statutes, 6 it defined "reasonable costs" as "the cost actually incurred, excluding therefrom any part of incurred cost found to be unnecessary in the efficient delivery of needed health services." 7 Additionally, Congress empowered the Secretary of Health, Education, and Welfare to promulgate regulations 8 establishing the "method or methods" for ascertaining what costs are unnecessary, and hence unreasonable. 9 Congress indicated that the regulations should give "wide, but not unlimited recognition . . . to the variations in (provider) costs accepted as reasonable" when those variations flowed from "differences in size, in the nature and scope of services provided, the type of patient treated, the location of the institution and various other factors," but that inefficiency and extravagance were not to be subsidized. 10

In 1974, the Secretary exercised his rulemaking authority, publishing in the Federal Register a notice of a proposed schedule of limits on hospital costs for routine services 11 "the regular room, dietary, and nursing services, minor medical and surgical supplies, and the use of equipment and facilities for which a separate charge is not customarily made." 12 As issued in final form after the requisite comment procedures, 13 the schedule divided the Nation into groupings in which states were arrayed according to per capita income. 14 Hospitals in each group were divided according to location within standard metropolitan statistical areas and location at nonurban points outside those areas, 15 and were further categorized by the number of patient beds maintained. 16 Dollar figures specifying the upper limit of "reasonableness" for routine charges were assigned to these categories. 17

In 1975, the Secretary published a notice proposing a revised schedule of limits on hospital in-patient general routine service costs for cost-reporting periods beginning on or after July 1, 1975. 18 The notice indicated that location within standard metropolitan statistical areas had replaced state location as the principal geographical classification factor for urban areas although state location remained key for nonurban hospital. 19 The schedule grouped statistical areas and states according to per capita income, and continued to subclassify hospitals by number of beds. 20 It was published in final form in May 1975, unchanged in essential detail. 21

Appellant is an association of nearly 400 medical schools and their affiliated hospitals, 22 all providers of Medicare services. 23 In the District Court appellant complained that routine costs of a grossly disproportionate number of its members would automatically become presumptively unreasonable under the schedule as finally formulated. This result was attributed to the Secretary's asserted failure to accord appropriate weight to inter-hospital variations in patient mix and scope of provided services, and to the Secretary's reliance instead on bed-count as an index of reasonable cost. Appellant characterized this alleged omission as contrary to statute, arbitrary and capricious, and an abuse of discretion. Appellant sought a judgment declaratory of the schedule's invalidity, an injunction against recourse to it, and mandamus to require promulgation of substitute regulations.

The District Court assumed subject-matter jurisdiction pursuant to Section 10 of the Administrative Procedure Act 24 and 28 U.S.C. § 1331(a). 25 On the merits, the court concluded that, in promulgating the schedule at issue, the Secretary did consider all relevant factors 26 and that the Secretary's reliance on an administrative exceptions-process for treatment of atypical educational costs incurred by teaching hospitals was permissible. 27 This appeal followed.

II

While the appeal was pending, the Supreme Court held in Califano v. Sanders 28 that Section 10 of the Administrative Procedure Act is not an independent source of federal subject-matter jurisdiction. 29 Appellant asserts, however, that the District Court had federal-question jurisdiction under Section 1331(a). 30 Because of the ban imposed upon such jurisdiction by Section 205(h) of the Social Security Act, 31 which now is incorporated in the Medicare Act, 32 we reject appellant's invocation of federal-question jurisdiction.

Section 205(h) is directly applicable to claims arising under Title II of the Social Security Act. 33 It provides that the Secretary's findings and decisions "after a hearing" on such a claim shall be binding upon the parties to the hearing. 34 It specifies further that "(n)o findings of fact or decision of the Secretary shall be reviewed by any . . . tribunal . . . except as herein provided," 35 and nowhere in the Social Security Act 36 is there any provision relieving Section 1331(a) from this prohibition. Section 205(h) also ordains that "(n)o 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 (Title II)." 37 Since Section 1331(a)'s jurisdictional grant was derived wholly from a long-standing predecessor the Section 41 spoken of 38 it would follow that Section 205(h), if a jurisdictional barrier rather than an exhaustion-of-remedies requirement, 39 denies federal-question jurisdiction of Title II Social Security claims. 40 This is important because by a provision in the Medicare legislation, 41 codified as Section 1395ii, 42 Section 205(h) was incorporated into the Medicare Act "to the same extent . . . applicable with respect to (Title II)." 43

Because, however, Section 205(h) refers to "findings and decisions of the Secretary after a hearing," to "findings of fact or decisions of the Secretary" and to "any claim arising under this subchapter," 44 appellant maintains that the section applies only to formal adjudications of claims for statutory benefits and does not inhibit federal-question jurisdiction over a broad attack on an administrative regulation. Appellant insists that the issues becoming relevant when a regulation is challenged can no better be resolved at an administrative hearing than in a judicial proceeding, and asserts that in the present case resort to the administrative process would in any event have been futile because the administrative tribunal, the Provider Reimbursement Review Board, 45 was powerless to invalidate a Medicare regulation. If appellant's theory were correct, jurisdiction would lie pursuant to Section 1331(a).

We believe, however, that appellant's argument is foreclosed by the Supreme Court's decision in Weinberger v. Salfi. 46 There the Court held that Section 205(h) precluded federal-question jurisdiction under Section 1331(a) of a challenge to the duration-of-relationship requirements of the Social Security Act excluding from eligibility for Social Security insurance benefits surviving wives and step-children whose respective relationships to a deceased wage earner have endured for less than nine months prior to his death. 47 A district court had ruled in favor of Section 1331(a) jurisdiction, concluding that Section 205(h) was merely a codification of the doctrine of exhaustion of administrative remedies. 48 The Supreme Court disagreed:

That the third sentence of § (2)05(h) 49 is more than a codified requirement of administrative exhaustion is plain from its own language, which is sweeping and direct and which states that no action shall be brought under § 1331, not merely that only those actions shall be brought in which administrative remedies have been exhausted. 50

Moreover, the Salfi Court held that the reach of Section 205(h) "extends to any 'action' seeking 'to recover on any (Title II Social Security) claim 51 irrespective of whether resort to judicial processes is necessitated by discretionary decisions of the Secretary or by his nondiscretionary application of allegedly unconstitutional statutory...

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