Athens Community Hospital, Inc. v. Schweiker, Civ. A. No. 79-0616
| Decision Date | 29 May 1981 |
| Docket Number | Civ. A. No. 79-0616,80-1553. |
| Citation | 514 F. Supp. 1336 |
| Parties | ATHENS COMMUNITY HOSPITAL, INC., et al., Plaintiffs, v. Richard S. SCHWEIKER, Defendant. HOSPITAL CORPORATION OF AMERICA, Plaintiff, v. Richard S. SCHWEIKER, et al., Defendants. |
| Court | U.S. District Court — District of Columbia |
James C. Pyles, Robert A. Klein, Weissburg & Aronson, Inc., Washington, D. C., Karl L. Ecker, Robert O. Johnston, Shulman, Rogers, Gandel & Tobin, P.A., Silver Spring, Md., for plaintiffs.
Pending before the Court are the parties' cross-motions for summary judgment in Civil Action No. 79-0616. Plaintiffs are subsidiaries of the Hospital Corporation of America ("HCA"),1 a Tennessee corporation, operating in eleven states as providers of hospital services. The plaintiff hospitals participate in the Medicare program, codified at 42 U.S.C. § 1395 et seq., which offers elderly and disabled Americans free hospital and ancillary services, see id. §§ 1395d-1395f, and the option of low cost supplemental services such as physician visits if a monthly premium is paid, see id. §§ 1395j-1395s. Under Medicare, a provider of services is often reimbursed through a fiscal intermediary, such as Blue Cross, for its costs in offering free hospital and other services or its expenses in participating in the supplemental program.
Defendant initially filed a motion to dismiss for lack of subject matter jurisdiction or in the alternative, for summary judgment. In its reply memorandum, however, the defendants withdrew the motion to dismiss on the grounds that "recent formulations of agency policy" provided that district courts had jurisdiction in actions where providers challenge a decision of the Provider Reimbursement Review Board ("PRRB"), the arm of the Medicare program that attempts to resolve disputes between providers and fiscal intermediaries. See Cleveland Memorial Hospital, Inc. v. Califano, 444 F.Supp. 125 (E.D.N.C.1978), aff'd, 594 F.2d 993 (4th Cir. 1979). Indeed, under 42 U.S.C. § 1395oo(f)(1),2 subject matter jurisdiction vests over this action.3
To effectuate the Medicare program of reimbursing the providers of services through the fiscal intermediaries, government regulations require providers to file an annual cost report which sets forth the providers' expenses. In cases such as the instant ones where numerous providers belong to a single corporation, as the plaintiff hospitals are subsidiaries of HCA, the providers are reimbursed for costs incurred in operating the "home office." The providers may seek to amend their previously submitted cost reports to reflect some change in the calculation of expenses, see 42 U.S.C. § 1395x(v)(1)(A). In these cases, the gravamen of plaintiffs' complaints revolves around the refusal of the fiscal intermediary to supplement a cost report to reflect additional expenses for which the providers were seeking reimbursement and the decision of the PRRB that it lacked jurisdiction to review the intermediary's refusal to allow supplementation of the cost report.
During 1973 and 1974, HCA incurred costs in paying federal income tax assessments and in funding its employee stock option program, and pursuant to Medicare guidelines, HCA allocated these expenses to the plaintiff hospitals. In filing their cost reports for 1973 and 1974, the plaintiff hospitals did not seek to be reimbursed for the amount of federal income taxes actually paid or the costs of the employee stock option plan charged to them by HCA. After receiving notification of the audit on their 1973 filing, HCA on March 26, 1978 requested that the fiscal intermediary reopen the 1973 and 1974 cost reports to permit HCA to seek reimbursement for the stock option and tax expenses. The intermediary on June 30, 1978 notified HCA of its refusal to open the home office cost statements and permit HCA to claim the omitted costs. This determination, entitled "Notice of Refusal to Reopen," contains an extensive analysis of the issues presented by the claim of reimbursement for the stock option plan and income taxes. See Pl. Exhibit A.
Plaintiffs requested a hearing on the intermediary's action with the PRRB on September 27, 1978. By letter dated December 22, 1978, the PRRB declined to review the intermediary's decision not to reopen the home office cost statement. The PRRB denied plaintiffs' request for a hearing on the ground that it had no jurisdiction over the intermediary's action because the intermediary merely refused to reopen the cost reports, and did not make any adjustments or amendments on the reports. Plaintiffs contend that this refusal to exercise jurisdiction violates applicable statutes and regulations as well as one fundamental policy of the Medicare Act, that is, to reimburse providers for their expenses.
Some background as to the statutes and regulations affecting the instant controversy is important to a full understanding of the issues presented. The jurisdiction of the PRRB is established by 42 U.S.C. § 1395 oo, which states, in pertinent part:
Regulations establish the procedures for reopening a determination or decision. 42 C.F.R. § 405.1885 provides:
Id. (emphasis added.)5
The plaintiffs argue that the intermediary's decision not to reopen is not a "finding on a matter at issue" because the question of reimbursement for stock option plan and income tax expenses was never presented initially to the intermediary for resolution. Under plaintiffs' view, the submission of the issue to the intermediary was for an initial decision, not an attempt to alter a prior action. Rejecting this approach as too narrow, the government maintains that the "matter in issue" clause is read generally to encompass the entire 1973 and 1974 cost audits, and that the providers were seeking to reopen the prior findings as to the amount of total reimbursement. Pursuant to sub-section (c), under the government's view, only the intermediary had jurisdiction to consider the request and the PRRB was without authority to review the decision. The question presented then is whether the action by the intermediary was a refusal to reopen a previously decided matter or a rejection of a cost claim at the initial stage.
It is necessary to forge deeper into the administration of the Medicare program to reach an equitable resolution of this dispute. The decision of an intermediary on whether to reopen a prior matter is governed by the Health Insurance Manual, Part 2, published by the Health Care Financing Administration. In section 2631, the Manual defines "reopening" as "an affirmative action taken by an intermediary, an intermediary hearing officer, the PRRB, the Social Security Administration, or the Secretary, to reexamine or question the correctness of a determination of decision otherwise final." The Manual offers the example of a provider submitting an amended cost report as a request to reopen.
In contrast to "reopen," the Manual defines a "correction" to include "a revision (adjustment) in an intermediary's reasonable cost determination or intermediary hearing officer decision, Board hearing decision, or Secretary decision, otherwise final, which is made after a proper reopening." The mode of correction is left to the discretion of the intermediary, e. g., it may itself make the adjustment of a report or it may require the provider to file an amended cost report.
The intermediary's decision as to whether or not to reopen a decision is governed by Section 2631.2 of the Manual:
Whether or not the intermediary will reopen a determination, otherwise final, will depend upon whether new and material evidence has been submitted, or a clear and obvious error was made, or the determination is found to be inconsistent with the law, regulations and rulings, or general instructions. Information submitted in support of an amended cost report or the audit findings on a previously unaudited cost report would provide new and material evidence on...
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Athens Community Hosp., Inc. v. Schweiker
...providers' claims to reimbursement for employee stock option plan costs and federal income tax expenses. Athens Community Hospital, Inc. v. Schweiker, 514 F.Supp. 1336 (D.D.C.1981). In so ruling, the court held that "where the intermediary is presented with a new question, whether it is wit......