Binghamton General Hosp. v. Shalala

• Decision Date: 22 June 1994
• Docket Number: No. 93 Civ. 284 (LBS).,93 Civ. 284 (LBS).
• Parties: BINGHAMTON GENERAL HOSPITAL, Cortland Memorial Hospital, Horton Memorial Hospital, Long Island Jewish Medical Center, Mercy Community Hospital, New Rochelle Hospital, Phelps Memorial Hospital, St. Mary's Hospital at Amsterdam, the Brookdale Hospital Medical Center, the Catholic Medical Center of Brooklyn and Queens, Inc., the University Hospital of New York University Medical Center — Tisch Hospital, United Hospital Medical Center, Victory Memorial Hospital, White Plains Hospital Center, Yonkers General Hospital, Plaintiffs, v. Donna E. SHALALA, Secretary, United States Department of Health and Human Services, and Empire Blue Cross Blue Shield, Defendants.
• Court: U.S. District Court — Southern District of New York

856 F. Supp. 786

BINGHAMTON GENERAL HOSPITAL, Cortland Memorial Hospital, Horton Memorial Hospital, Long Island Jewish Medical Center, Mercy Community Hospital, New Rochelle Hospital, Phelps Memorial Hospital, St. Mary's Hospital at Amsterdam, the Brookdale Hospital Medical Center, the Catholic Medical Center of Brooklyn and Queens, Inc., the University Hospital of New York University Medical Center — Tisch Hospital, United Hospital Medical Center, Victory Memorial Hospital, White Plains Hospital Center, Yonkers General Hospital, Plaintiffs, v. Donna E. SHALALA, Secretary, United States Department of Health and Human Services, and Empire Blue Cross Blue Shield, Defendants.

No. 93 Civ. 284 (LBS).

United States District Court, S.D. New York.

June 22, 1994.

COPYRIGHT MATERIAL OMITTED

Epstein Becker & Green, P.C., New York City (Robert P. Borsody, Esq. of counsel), for plaintiffs.

Mary Jo White, U.S. Atty. for the S.D. of New York, New York City (Aimee B. Wolfson, Asst. U.S. Atty., of counsel), for defendants.

OPINION

SAND, J.

This action presents us with an issue arising under the Medicare statute which has not previously been addressed by the courts of this circuit, and on which other circuits are split: whether the refusal of a "fiscal intermediary" to reopen a Medicare service provider's cost report is judicially or administratively reviewable.¹ We hold that it is not.

The action is brought by fifteen New York hospitals (the "hospitals") that provide services under the Medicare program against the Secretary of Health and Human Services (the "Secretary") and Empire Blue Cross and Blue Shield ("Empire"). The hospitals seek additional reimbursement from Empire for services they provided under the Medicare program for the years 1980, 1981, and 1982. They rely on the fact that the courts have since overturned particular regulations on which they relied in preparing their cost reports for those years (the "cost reports") and have ordered that provider hospitals be compensated more generously. The Secretary does not contest plaintiffs' right to additional reimbursement under the substituted regulations, but argues instead that plaintiffs' attempt to reopen their cost reports is untimely and that this Court lacks jurisdiction to consider its merits.

This action arose after plaintiffs petitioned Empire in 1991 to reopen their cost reports and Empire denied their request on the ground that it was untimely. The hospitals appealed Empire's decision to the agency charged with overseeing the Medicare reimbursement process, the Provider Reimbursement Review Board (the "PRRB" or the "Board"), which ruled that it lacked jurisdiction under the Medicare regulations to consider plaintiffs' appeal. Plaintiffs then brought this action, asking this Court to enter judgment: (1) directing the Board to exercise its jurisdiction to review Empire's refusal to reopen the cost reports; (2) reversing Empire's refusal to reopen the cost reports; and (3) declaring that plaintiffs are entitled to the requested modification of their cost reports, which would increase plaintiffs' compensation from Medicare for the 1980, 1981, and 1982 years.

Defendants have moved to dismiss the action pursuant to Rules 12(b)(1) and 12(b)(6) or, in the alternative, for summary judgment pursuant to Rule 56(c) of the Federal Rules of Civil Procedure. For the reasons set forth below, we grant defendants' motion dismissing this case as a matter of law.

Before we turn to the facts underlying this dispute, we briefly review the relevant statutory and regulatory framework, as an understanding of that framework is essential to the discussion which follows.

I. BACKGROUND

A. Statutory and Regulatory Framework

This action arises under Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395 to 1395ccc (1988) (the "Medicare statute"), which establishes the Medicare health insurance program for the elderly and disabled. Medicare is divided into two main parts: Part A, which provides insurance for inpatient institutional services, home health services, and post-hospital services, id. §§ 1395c to 1395i-4; and Part B, which covers physician, outpatient hospital, and various other health services, id. §§ 1395j to 1395w-4. Hospitals and skilled nursing facilities may participate in Part A of the Medicare program by entering into a "provider agreement" with the Secretary. Id. § 1395h. Under these agreements, participating hospitals ("providers"), such as plaintiffs, provide care to persons covered by Medicare and seek reimbursement from private insurance companies ("fiscal intermediaries"), in this case Empire; the insurance companies, acting as agents of the Secretary, are in turn reimbursed by the Health Care Financing Administration ("HCFA"), the agency entrusted by the Secretary with management of the Medicare program. Id.; 42 C.F.R. part 421 (1993).

In order to receive reimbursement from the Medicare program, a provider must file an annual cost report with its fiscal intermediary, detailing the services rendered to Medicare patients during the year. 42 C.F.R. § 413.20. The intermediary analyzes the cost report and issues a "notice of program reimbursement" ("NPR"), which sets forth the total amount of reimbursement due the provider and lists the individual expenses allowed and disallowed. Id. § 405.1803.

If a provider is dissatisfied with the NPR, it may request a hearing before the PRRB within 180 days of issuance of the NPR. 42 U.S.C. § 1395oo(a), (b). The PRRB may affirm, modify, or reverse the decision of the intermediary. Id. § 1395oo(d). The Secretary, either on her own motion or at the request of the provider, may then review the matter within sixty days. Id. § 1395oo(f)(1). If the provider remains dissatisfied, it may seek judicial review in the appropriate United States district court within 60 days of issuance of the final decision, whether that decision comes from the PRRB or the Secretary. Id.

Generally, the administrative appeal and judicial review process established by § 1395oo ends further inquiry into a provider's Medicare reimbursement for a given year; if the provider does not appeal the final cost report determination in an NPR to the PRRB within 180 days (pursuant to subsections (a) or (b)), and appeal the subsequent PRRB ruling or modification by the Secretary within 60 days (pursuant to subsection (f)), the cost report is closed and the amount of reimbursement is not subject to further review.

The Medicare regulations, however, permit one exception to this administrative timetable, an exception that is central to the dispute before us: A provider may ask an intermediary to "reopen" an NPR for revision after the timetable set by § 1395oo has run. 42 C.F.R. § 405.1885 to .1889. Any such request to reopen must be made within three years of the intermediary's decision, although this three-year limit is waived if it is established that the decision "was procured by fraud or similar fault of any party." Id. § 405.1885(a), (d). The Medicare regulations provide no express mechanism for appealing decisions denying a reopening request, and it is this lack of express authorization for such an appeal that is at the center of the controversy before us.

B. Setting the Stage: Medicare Reimbursement of Malpractice Insurance

Plaintiffs in this case seek a reopening of their 1980, 1981, and 1982 cost reports in order to increase the amount of reimbursement for their malpractice insurance expenses. The basis for their claim arises from a series of interrelated regulatory changes and court decisions, of which only a cursory summary is necessary.

Prior to October 1, 1983 (the period relevant to this case), the Medicare program reimbursed Part A providers on the basis of the provider's "reasonable cost" of furnishing covered services to beneficiaries, or the provider's customary charge for a particular service, whichever was lower. See 42 U.S.C. § 1395f(b)(1). Before 1979, one particular methodology (the "pre-1979 utilization method") was employed to calculate hospitals' malpractice insurance reimbursements. In 1979, the Secretary promulgated a new rule (the "1979 malpractice rule") which changed the method of calculating reimbursement for malpractice insurance costs in a manner which significantly reduced hospitals' reimbursement. The 1979 rule, however, was invalidated by the courts. See, e.g., Tallahassee Mem. Regional Med. Ctr. v. Bowen, 815 F.2d 1435 (11th Cir.1987) (invalidating 1979 malpractice rule), cert. denied, 485 U.S. 1020, 108 S.Ct. 1573, 99 L.Ed.2d 888 (1988). In response to this judicial invalidation, as well as to new data, the Secretary published a new rule, effective May 1, 1986 (the "1986 malpractice rule"). This 1986 rule replaced the 1979 rule with a new methodology for calculating hospital malpractice insurance costs, one which significantly increased hospitals' reimbursement for their malpractice insurance costs, but not to the level of pre-1979 reimbursement.

As first published, the 1986 malpractice rule applied retroactively to cost-reporting periods beginning July 1, 1979. See 51 Fed. Reg. 11142 (1986). The rule's retroactive effect, however, was overturned by the Supreme Court in 1988. Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 109 S.Ct. 468, 102 L.Ed.2d 493 (1988). In response, the Secretary discontinued the retroactive application of the 1986 rule and determined that claims for cost-reporting periods predating the 1986 rule would be reimbursed under the earlier, pre-1979 reimbursement method. HCFA Ruling 89-1, Medicare & Medicaid Guide (CCH) ¶ 6139 (Jan. 26, 1989) at 2061-16. The Secretary agreed to settle all pending unsettled claims challenging reimbursement under the 1979 and 1986 rules, using the pre-1979 reimbursement method. See HHS Settlement Offer, Medicare & Medicaid Guide (CCH) ¶ 6139 (May 11, 1988) at 2061-5.

C. Procedural History

Plaintiffs, who had filed timely cost reports with Empire for 1980, 198...