Cambridge Hosp. Ass'n, Inc. v. Bowen

• Decision Date: 04 March 1986
• Docket Number: Civ. No. 4-85-1353.
• Citation: 629 F. Supp. 612
• Parties: CAMBRIDGE HOSPITAL ASSOCIATION, INC., formerly known as Memorial Hospital, Inc., Plaintiff, v. Otis R. BOWEN, Secretary of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Minnesota

629 F. Supp. 612

CAMBRIDGE HOSPITAL ASSOCIATION, INC., formerly known as Memorial Hospital, Inc., Plaintiff, v. Otis R. BOWEN,¹ Secretary of Health and Human Services, Defendant.

Civ. No. 4-85-1353.

United States District Court, D. Minnesota, Fourth Division.

March 4, 1986.

Eric J. Magnuson and Louise A. Dovre, Rider, Bennett, Egan & Arundel, Minneapolis, Minn., for plaintiff.

Francis X. Hermann, U.S. Atty., and Elissa G. Mautner and James Lackner, Asst. U.S. Attys., Minneapolis, Minn., and Donna Morros Weinstein, Regional Atty. and Anita M. Rowe, Asst. Regional Atty., Dept. of Health and Human Services, Chicago, Ill., for defendant.

MEMORANDUM AND ORDER

MacLAUGHLIN, District Judge.

This matter is before the Court on defendant's motion to dismiss or for summary judgment. Defendant's motion to dismiss will be granted.

FACTS

Plaintiff Cambridge Hospital Association, Inc. (Cambridge Hospital), formerly known as Cambridge Memorial Hospital, Inc., is an 86-bed non-profit acute care operating hospital located in Cambridge, Minnesota. Cambridge Hospital is and has been a provider of medical services to Medicare beneficiaries pursuant to Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395f(b), 1395g, and 1395x(v)(1)(a).

Pursuant to the Medicare Act plaintiff applied for operating cost reimbursement from the defendant, Secretary of Health and Human Services, for fiscal years 1980, 1981, and 1982. (Plaintiff's fiscal year ends September 30.) The Medicare Act authorizes provider reimbursement for costs incurred in providing in-patient hospital services to medicare beneficiaries. Following a routine audit, the plaintiff's "fiscal intermediary" (Blue Cross and Blue Shield of Minnesota) for each of the years in question issued a "notice of program reimbursement" disallowing certain expenses claimed by the plaintiff. The amount disallowed was $41,354 in 1980 and $44,753 in 1981.² The basis for the fiscal intermediary's decision to disallow certain of plaintiff's claimed expenses was its finding that plaintiff was not within the geographical borders of the Twin Cities Standard Metropolitan Statistical Area (SMSA).³ Under the Medicare Act, hospitals located within the SMSA are entitled to slightly higher reimbursement for certain incurred expenses. Prior to October, 1983,⁴ Isanti County was designated as a non-SMSA county; however, due to population fluctuations, plaintiff in 1981 requested reclassification as an SMSA hospital.⁵ Plaintiff's request for reclassification was approved by Blue Cross but denied by the Health Care Finance Administration. Accordingly, Blue Cross subsequently disallowed certain expenses calculated by plaintiff based on the Twin Cities SMSA urban wage index for fiscal years 1980 and 1981.

The plaintiff on January 31, 1984 filed notice of appeal from these decisions of the fiscal intermediary with the Provider Reimbursement Review Board (PRRB). Some 18 months later, on August 1, 1985, the PRRB dismissed plaintiff's claims for fiscal years 1980 and 1981 on the ground that they were untimely. Plaintiff subsequently brought this action, seeking review under the Administrative Procedure Act of the PRRB's dismissal of their 1980 and 1981 claims, on the ground that the agency's decision was arbitrary, capricious, and an abuse of discretion.

DISCUSSION

The Medicare Act, Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395 et seq., created a comprehensive system of health care for the elderly and infirm. Athens Community Hospital, Inc. v. Schweiker, 686 F.2d 989, 991 (D.C.Cir. 1982), modified, 743 F.2d 1 (D.C.Cir.1984). Under the Act, certain institutions known as "providers" receive reimbursement for the "reasonable costs"⁶ of services provided to qualified Medicare beneficiaries.⁷ 42 U.S.C. §§ 1395x(v)(1)(A), 1395f(b), 1395x(u), 1395cc. Plaintiff is a "provider" as defined by the Act by virtue of having filed certain agreements with the defendant Secretary of Health and Human Services. 42 U.S.C. § 1395cc(a)(1), 1395x(u). Although the Secretary may directly reimburse a provider, 20 C.F.R. §§ 405.651(a), 405.654, the more common method of reimbursement is for the provider to appoint a "fiscal intermediary" which acts as the Secretary's agent for the purpose of reviewing claims and awarding reimbursement. 42 U.S.C. § 1395h. In the case at bar, Blue Cross and Blue Shield of Minnesota, a private insurance carrier, acts as the fiscal intermediary for the plaintiff.

The procedure for obtaining reimbursement under the Act is as follows. At the end of its fiscal year the provider submits to the intermediary a cost report.⁸ Following an audit, the intermediary determines and awards the appropriate reimbursement. The award is made in the form of a "notice of program reimbursement" (NPR) which is issued to the provider by the intermediary and which sets forth the basis for and amount of the reimbursement award. 42 C.F.R. § 405.1803. If dissatisfied with the NPR award, the provider may appeal to the PRRB, provided that three jurisdictional prerequisites are satisfied: (1) the provider has filed a timely cost report, (2) the amount in controversy is $10,000 or more, and (3) the appeal is filed within 180 days of the date of the NPR.⁹ 42 U.S.C. § 1395oo(a); 42 C.F.R. part 405, sub. R. By regulation, the PRRB may take jurisdiction of late-filed appeals "for good cause shown." 42 C.F.R. §§ 405.1835 and 405.1841(b). Following review by the PRRB, the Secretary may then review the decision and reverse, affirm or modify. 42 U.S.C. § 1395oo(f)(1).¹⁰ If a provider is dissatisfied with a final decision of the Board or of the Secretary, it may seek review by filing suit in federal district court. 42 U.S.C. § 1395oo(f)(1).

In the case at bar, plaintiff filed appeals with the PRRB for fiscal years 1980, 1981, and 1982. The appeal was filed January 31, 1984. The NPR's appealed from were mailed:

FY 1980: February 18, 1982

FY 1981: March 29, 1983

The plaintiff's 1980 and 1981 appeals were concededly filed more than 180 days following the NPR's appealed from, and the PRRB dismissed the appeals on this basis. The PRRB also declined to grant plaintiff a good cause extension as authorized by 42 C.F.R. § 405.1841(b). Plaintiff then filed this suit, seeking to obtain judicial review of the PRRB's decision to dismiss. Defendant's motion to dismiss plaintiff's suit is based on three alternative grounds: (1) the Court lacks subject matter jurisdiction by virtue of the fact that plaintiff's appeal to the PRRB was untimely, consequently, no "final decision" on which federal court jurisdiction may be based was ever entered by the PRRB; (2) the PRRB's decision to deny plaintiff a good faith extension of time to appeal is judicially nonreviewable because it is one committed to agency discretion by law;¹¹ and (3) should the Court determine that federal jurisdiction does obtain, defendant in the alternative moves for summary judgment in its favor, on the ground that the PRRB's decision to dismiss plaintiff's 1980 and 1981 claims was not arbitrary, capricious, or an abuse of discretion.

Subject Matter Jurisdiction

The Medicare Act provides for judicial review of a "final decision" of the PRRB. 42 U.S.C. § 1395oo(f)(1). Virtually every court which has considered the question has held that a PRRB decision to dismiss a provider's appeal on timeliness grounds is not a "final decision" subject to judicial review.¹²See John Muir Memorial Hospital, Inc. v. Califano, 457 F.Supp. 848 (N.D. Cal.1978); St. Joseph's Hospital of Kansas City v. Heckler, No. 84-0385CV-W-8 (W.D. Mo. Sept. 24, 1984); Levering Hospital and Depaul Community Hospital v. Heckler, et al., Medicare & Medicaid Guide (CCH) ¶ 34,483 (E.D.Mo. Mar. 15, 1985); Western Medical Enterprises, Inc. v. Heckler, No. 84-0741-RPA (N.D.Cal. Sept. 24, 1984); University of Chicago Hospitals and Clinics v. Heckler, 605 F.Supp. 585 (N.D.Ill.1985). The courts have stated that "any grievance respecting the amount of cost reimbursement due a provider must first be submitted for ... administrative processing available under the Medicare Act," Humana of South Carolina, Inc. v. Califano, 590 F.2d 1070, 1078 (D.C.Cir.1978), and that, accordingly, where the provider has failed to file a timely appeal with the PRRB, there is not a final decision on which to base jurisdiction. See, e.g., Levering Hospital, Medicare Guide at 9409.¹³

The fountainhead for this line of caselaw is a 1979 Eighth Circuit decision, Sheehan v. Secretary of Health, Education and Welfare, 593 F.2d 323 (8th Cir.1979), construing the disability benefits provisions of the Social Security Act, 42 U.S.C. § 423.¹⁴ Because the Social Security Act and Medicare Act share a high degree of schematic similitude, many courts have stated that cases construing the former are of precedential value in interpreting the latter.¹⁵ In Sheehan, the Eighth Circuit was asked to review a decision of the Social Security Appeals Council denying to a disability benefits claimant a good cause extension of time to appeal an adverse benefits decision. Finding that a timely appeal was a "jurisdictional prerequisite" to judicial review, the court "reluctantly" determined that it lacked subject matter jurisdiction of the case, on the ground that no "final decision" had been entered by the Appeals Council. Sheehan, 593 F.2d at 325-27. In so doing the court relied on the following policy rationale:

Exhaustion is generally required as a matter of preventing premature interference with agency processes, so that the agency may function efficiently and so that it may have an opportunity to correct its own errors, to afford the parties and the courts the benefits of its experience and expertise, and to compile a record which is adequate for judicial review.

Sheehan, 593 F.2d at 326, quoting Weinberger v. Salfi, 422 U.S. 749, 766-67, 95 S.Ct. 2457, 2467-68, 45 L.Ed.2d 522 (1975). Sheehan has been widely followed by courts construing the disability...