Bedford County Memorial Hosp. v. Heckler, Civ. A. No. 83-0386-R.

Decision Date28 March 1984
Docket NumberCiv. A. No. 83-0386-R.
Citation583 F. Supp. 367
PartiesBEDFORD COUNTY MEMORIAL HOSPITAL, et al., Plaintiffs, v. Margaret M. HECKLER, Secretary of Health and Human Services, Defendant.
CourtU.S. District Court — Western District of Virginia

Daniel S. Brown, Roanoke, Va., Leonard C. Homer, Baltimore, Md., for plaintiffs.

Karen Breeding Peters, Asst. U.S. Atty., Roanoke, Va., Elise D. Smith, Dept. of Health & Human Serivces, Washington, D.C., for defendant.


TURK, Chief Judge.

This case is before the court on cross-motions for summary judgment. Plaintiffs are hospitals and other health care facilities licensed by the Commonwealth of Virginia and certified by the Social Security Act as "providers" of health care services. As certified "providers" they qualify for reimbursement for the "reasonable cost"1 of services provided to Medicare beneficiaries. 42 U.S.C. § 1395x(u). Plaintiffs are challenging the procedural and substantive validity of a regulatory amendment promulgated by the Department of Health and Human Services (HHS).2 They seek declaratory and injunctive relief and sums due under 42 U.S.C. § 1395 et seq., the Medicare statute; 5 U.S.C. § 553 of the Administrative Procedure Act; and, 28 U.S.C. § 2201, the Declaratory Judgment Act.

On March 15, 1979 the Secretary of HHS announced an anticipated change in Medicare reimbursement policy through a notice of proposed rulemaking. 44 Fed.Reg. 15744. The final regulation, published on June 1, 1979, effective on June 30, 1979, dramatically changed the method of calculating reimbursement3 for malpractice insurance costs (or self-insurance fund contributions) incurred by qualified providers servicing Medicare patients. Prior to adoption of this regulation, providers pooled medical malpractice insurance costs with other indirect administrative and general (A & G) costs. Reimbursement from Medicare funds for A & G costs was based on the percentage of services utilized by Medicare patients (a medicare utilization rate). That is, if Medicare patients utilized 50% of a provider's services, Medicare would reimburse that provider for 50% of its A & G costs, including 50% of its medical malpractice insurance premiums. The Medicare utilization rates for plaintiffs in this case range from approximately 27% to 60% for the cost years at issue here.

The challenged regulation takes medical malpractice insurance premiums out of the A & G category and directly apportions them between Medicare and non-Medicare patients as follows:

For cost reporting periods beginning on or after July 1, 1979, costs of malpractice insurance premiums and self-insurance fund contributions must be separately accumulated and directly apportioned to Medicare. The apportionment must be based on the dollar ratio of the provider's Medicare paid malpractice losses to its total paid malpractice losses for the current cost reporting period and the preceding 4-year period. If a provider has no malpractice loss experience for the 5-year period, the costs of malpractice insurance premiums or self-insurance fund contributions must be apportioned to Medicare based on the national ratio of malpractice awards paid to Medicare beneficiaries to malpractice awards paid to all patients. The Health Care financing Administration will calculate this ratio periodically based on the most recent departmental closed claim study. If a provider pays allowable uninsured malpractice losses incurred by Medicare beneficiaries, either through allowable deductible or coinsurance provisions, or as a result of an award in excess of reasonable coverage limits, or as a governmental provider, such losses and related direct costs must be directly assigned to Medicare for reimbursement.4

For the years ending in 1980 and 1981 plaintiffs were reimbursed according to the regulation's direct apportionment method rather than on the basis of Medicare utilization. Those plaintiffs with no paid malpractice losses were reimbursed 5.1% according to the regulation's "national ratio."

Plaintiffs sought to challenge this reimbursement method before the Provider Reimbursement Review Board, but were notified that the Board lacked authority to determine the validity of the regulation. They then instituted this suit in federal district court pursuant to 42 U.S.C. § 1395 oo(f)(1). Before reaching the merits of the case, the court must address the threshold question of subject matter jurisdiction. Section 1395oo(f)(1) states in pertinent part:

Providers shall have the right to obtain judicial review of any final decision of the Board, or of any reversal, affirmance, or modification by the Secretary, by a civil action commenced within 60 days of the date on which notice of any final decision by the Board or of any reversal, affirmance, or modification by the Secretary is received. Providers shall also have the right to obtain judicial review of any action of the fiscal intermediary which involves a question of law or regulations relevant to the matters in controversy whenever the Board determines (on its motion or at the request of a provider of services as described in the following sentence) that it is without authority to decide the question, by a civil action commenced within 60 days of the date on which such determination is rendered.

Plaintiffs filed this suit sixty-four days from the date the PRRB determined it lacked jurisdiction to decide the validity of the regulation. Defendant's claim that the case was not, therefore, timely filed is premised on the latter part of § 1395oo(f)(1) which requires filing within sixty days from the date on which the PRRB renders its determination. Defendants argue that § 1395oo(f)(1) sets forth a jurisdictional prerequisite which must be strictly adhered to before a provider can obtain judicial review. Since plaintiffs did not meet the sixty day time limit, the defendants maintain the court lacks subject matter jurisdiction. The court does not agree.

This case arises under the Medicare provisions of the Social Security Act, set forth under Title XVIII of the Act, 42 U.S.C. § 1395 et seq. The question of jurisdiction over claims arising under the Social Security Act is most frequently litigated in the context of benefits in the Old Age, Survivors, and Disability Insurance Program, Title II of the Act, 42 U.S.C. § 401 et seq. It is well established, and the parties do not deny, that the jurisdictional analysis for provider claims in the Medicare Program is controlled by the principals and precedents developed in the context of Title II litigation. This is so because the key jurisdictional provisions in Title II, 42 U.S.C. § 405, have been incorporated by reference into the Medicare Statute (Title XVIII).5 Moreover, the programs established under Title II and Title XVIII have parallel appeal mechanisms: Under Title XVIII, 42 U.S.C. § 1395oo(f)(1) provides the means for judicial review. Under 42 U.S.C. § 405(g), the requirements for judicial review for matters arising under Title II are set forth as follows:

(1) a final decision of the Secretary made after a hearing;
(2) commencement of a civil action within 60 days after the mailing of notice of such decision (or within such time as the Secretary may allow);
(3) filing of the action in an appropriate district court

The Court of Appeals for the Eleventh Circuit recently held the Medicare judicial review provision, 42 U.S.C. § 1395oo(f)(1), to be the "functional equivalent" of the Title II jurisdictional provision 42 U.S.C. § 405(g). VNA of Greater Tift County, Inc., v. Heckler, 711 F.2d 1020, 1025, n. 7 (1983). As a result, analysis under Title XVIII should track case law construing the parallel provision of Title II.

The leading cases in this area are Matthews v. Eldridge, 424 U.S. 319, 96 S.Ct. 893, 47 L.Ed.2d 18, (1976) and Weinberger v. Salfi, 422 U.S. 749, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975). In Weinberger, the Court, in considering whether the plaintiffs had satisfied the prerequisites of § 405(g), specifically held: "the second and third ... requirements of that section, i.e., the sixty-day time limit and the designation of the appropriate place of filing specify respectively, a statute of limitations, and appropriate venue. As such, they are waivable by the parties .... We interpret the first requirement, however, to be central to the requisite grant of subject matter jurisdiction."

Accordingly, the court finds this compelling authority for viewing the 60 day time limit of § 1395oo(f)(1) as a statute of limitations as well. It is clear that a statute of limitations is an affirmative defense which must be raised in a responsive pleading, and if not, it is deemed waived. 8(c) Fed.R. Civ.P.

The instant case was filed on April 22, 1983. Responsive pleadings and oral argument have been received relative to the merits of the case. Indeed, the court has considered the case to be ready for decision and had proceeded to a preliminary draft several weeks prior to the receipt of defendant's motion to dismiss, which was filed on March 7, 1984. In light of this sequence and considering the analysis set forth above, the court must conclude that even if the plaintiff did not meet the 60 day filing requirement of U.S.C. § 1395oo(f)(1), the statute merely creates an affirmative defense which has been effectively waived by the defendant. Accordingly, inasmuch as the court must conclude that subject matter jurisdiction is properly vested, the court proceeds to consideration of the merits.

The substance of plaintiffs's complaint involves three challenges to the regulation. First, they maintain that the regulation is procedurally defective because it was promulgated in violation of the rulemaking requirements of the Administrative Procedure Act (APA), 5 U.S.C. § 553. Second, they argue that the Secretary's action in promulgating the regulation has no rational basis and is, therefore, arbitrary and capricious and an abuse of discretion under the APA, 5...

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