Chelsea Community Hospital, SNF v. Michigan Blue Cross Ass'n

• Decision Date: 25 September 1980
• Docket Number: No. 77-1752,77-1752
• Citation: 630 F.2d 1131
• Parties: CHELSEA COMMUNITY HOSPITAL, SNF, and Chelsea Community Hospital, a Michigan Nonprofit Corporation, Plaintiffs-Appellants, v. MICHIGAN BLUE CROSS ASSOCIATION, Blue Cross Association, and F. David Mathews, Secretary of Health, Education and Welfare, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1131

630 F.2d 1131

CHELSEA COMMUNITY HOSPITAL, SNF, and Chelsea Community Hospital, a Michigan Nonprofit Corporation Plaintiffs-Appellants, v. MICHIGAN BLUE CROSS ASSOCIATION, Blue Cross Association, and F. David Mathews, Secretary of Health, Education and Welfare, Defendants-Appellees.

No. 77-1752.

United States Court of Appeals Sixth Circuit.

Argued Feb. 4, 1980.

Decided Sept. 25, 1980.

Alan G. Gilchrist, Paul M. Shirilla, Frimet, Goren & Bellamy, Southfield, Mich., for plaintiffs-appellants.

James K. Robinson, U. S. Atty., Detroit, Mich., William Z. Elliott, Robert E. Kopp, Barbara Allen Babcock, Atty., General Litigation Sec., Civil Division, Dept. of Justice, Washington, D. C., for defendants-appellees.

Before EDWARDS, Chief Judge, MERRITT, Circuit Judge, and PECK, Senior Circuit Judge.

JOHN W. PECK, Senior Circuit Judge.

This case raises the vexing question whether Congress in 1965 intended to preclude judicial review of the procedures adopted by the Secretary of Health, Education and Welfare (the Secretary) for reimbursing providers of Medicare services for their costs incurred. We hold that Congress did not so intend, and that it was therefore error for the district court to dismiss appellants' action for lack of jurisdiction.

Appellants are Chelsea Community Hospital and Chelsea Community Hospital, SNF ("skilled nursing facility"). At the times material to this action, Chelsea Medical Center, a Michigan co-partnership, was the legal owner of the land and buildings occupied by the two health-care institutions.

Under Part A of the Medicare Act, 42 U.S.C. § 1395c et seq., eligible health-care institutions ("providers" in the language of the Act) may agree not to charge Medicare beneficiaries for services rendered, but rather to receive payment from the Medicare trust fund directly. 42 U.S.C. §§ 1395d & 1395cc (1976). Such providers may recoup only the "reasonable costs" actually incurred in furnishing services to beneficiaries. 42 U.S.C. §§ 1395f(b)(2) & 1395x(v)(1) (1976). A provider may agree with the Secretary to have this reimbursement process handled by a fiscal intermediary acting as the Secretary's agent. 42 U.S.C. § 1395h (1976) (later amended). Appellees Blue Cross Association of Michigan (MBCA) and Blue Cross Association (BCA) are such fiscal intermediaries, empowered through their agreements with the Secretary to determine the amounts of reimbursements to providers which are proper under the Act and under the regulations promulgated pursuant to the Act.

In the spring of 1972, Michigan Blue Cross determined that appellants and Chelsea Medical Center (appellants' landlord) were "related organizations" in part or all of the years 1970, 1971, and 1972. This meant that under HEW regulations, only the Medical Center's cost of owning the providers' land and buildings could be allocated to the reasonable costs of health care for Medicare beneficiaries; the providers' considerably higher cost of leasing these premises from the Medical Center would not be so allocable. The purpose of this regulation, obviously, was to prevent providers from inflating their "actual costs" by renting their property from legal alter-egos.

Appellants contested both Michigan Blue Cross's finding that appellants and the Medical Center were under common control and Blue Cross's interpretation of HEW's regulations concerning related organizations. In February of 1975 appellants aired their objections to MBC's determinations in an administrative hearing held before a BCA hearing officer. The hearing officer's findings and conclusions were adverse to the providers, who brought an action in the district court seeking review of this administrative decision.

The providers' complaint based jurisdiction on 28 U.S.C. § 1331 (federal question) and 5 U.S.C. § 702 (Administrative Procedures Act). The district court held that neither statute granted district-court jurisdiction of Medicare-provider reimbursement disputes; appellees' motion for summary judgment was granted. Since we hold today that the district court did have jurisdiction of appellants' action, we reverse without reaching the merits of the constitutional arguments raised by appellants both here and in the district court. It is enough to note now that these arguments are not frivolous; appellants have raised the very thorny question whether the Secretary may delegate final adjudicatory power to a private body, particularly if exercise of that power is not subject to substantive judicial review. This is at best an area where "(t)he case law has not crystallized any consistent principles, either in the federal courts or in the state courts." 1 K. Davis, Administrative Law Treatise 193 (2d ed. 1978). We therefore find colorable appellants' claim that such a delegation deprives them of the legal process which they are due.

I. DISTRICT COURT JURISDICTION

The question whether the Administrative Procedures Act conferred jurisdiction on the district court can be resolved with comparative ease. Under the Supreme Court's holding in Califano v. Sanders, 430 U.S. 99, 97 S.Ct. 980, 51 L.Ed.2d 192 (1977), and under our own rule as stated in Bramblett v. Desobry, 490 F.2d 405 (6th Cir. 1974) (per curiam), the APA is not an independent basis for jurisdiction. The present jurisdictional question, therefore, is solely whether the district court had "federal-question" jurisdiction under 28 U.S.C. § 1331. The district court, in holding that it did not, relied on 42 U.S.C. § 405(h) (1970), which provides:

The findings and decisions of the Secretary after a hearing shall be binding upon all individuals who were parties to such hearing. No findings of fact or decision of the Secretary shall be reviewed by any person, tribunal, or governmental agency except as herein provided. No 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 this subchapter. ¹

This subsection, part of the Social Security Act, is adopted in the Medicare Act "to the same extent as (it is) applicable." 42 U.S.C. § 1395ii (1976). How far § 405(h) is applicable to Medicare-provider reimbursement disputes is a tortured question. Section 405(h) purports to bar judicial review of the Secretary's actions "except as herein provided." Prior to 1972, the Medicare Act's numerous review provisions did not explicitly establish procedures for reviewing provider reimbursements. ² Therefore, if literally construed, § 405(h) barred all judicial review of the provider-reimbursement decisions which are the subjects of this action.

The central question of this case is whether such a literal construction comports with Congressional intent, insofar as that intent can be divined. It is settled that "only upon a showing of 'clear and convincing evidence' of a contrary legislative intent should the courts restrict access to judicial review." Abbott Laboratories v. Gardner, 387 U.S. 136, 141, 87 S.Ct. 1507, 1511, 18 L.Ed.2d 681 (1967) (quoting Rusk v. Cort, 369 U.S. 367, 380, 82 S.Ct. 787, 794, 7 L.Ed.2d 809 (1962)). See also Association of Data Processing Service Orgs. v. Camp, 397 U.S. 150, 157, 90 S.Ct. 827, 831, 25 L.Ed.2d 184 (1970) ("There is no presumption against judicial review and in favor of administrative absolutism . . . unless that purpose is fairly discernible in the statutory scheme.").

Subsection 405(h) is part of two statutory schemes-the Social Security Act and, by reference, the Medicare Act. The subsection's purpose within the Social Security Act was considered in Weinberger v. Salfi, 422 U.S. 749, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975). In Salfi, Justice Rehnquist wrote:

That the third sentence of § 405(h) 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.

422 U.S. at 757, 95 S.Ct. at 2463. Yet in holding that § 405(h) precluded exercise of federal-question jurisdiction of social security cases, the Court was careful to distinguish Johnson v. Robison, 415 U.S. 361, 94 S.Ct. 1160, 39 L.Ed.2d 389 (1974). Robison held that a statutory provision very similar to § 405(h) did not preclude judicial review of the actions of the Veterans' Administrator; the Court found Robison inapposite largely because

(Robison) was expressly based, at least in part on the fact that if (the provision challenged in Robison) reached constitutional challenges to statutory limitations, then absolutely no judicial consideration of the issue would be available. Not only would such a restriction have been extraordinary, such that "clear and convincing" evidence would be required before we would ascribe such intent to Congress, 415 U.S., at 373, 94 S.Ct., at 1168, but it would have raised a serious constitutional question of the validity of the statute as so construed. Id. at 366-367, 94 S.Ct., at 1165. In the present case, the Social Security Act itself provides jurisdiction for constitutional challenges to its provisions. Thus the plain words of the third sentence of § 405(h) do not preclude constitutional challenges. They simply require that they be brought under jurisdictional grants contained in the Act, and thus in conformity with the same standards which are applicable to nonconstitutional claims arising under the Act.

422 U.S. at 762, 95 S.Ct. at 2465.

We believe that availability of judicial review under the Social Security Act was crucial to the Court's interpretation of § 405(h) in Salfi. As Justice Powell later wrote, Salfi "merely adhered to the well-established principle that when constitutional questions are in issue, the availability of judicial review is presumed . . . ." Califano v. Sanders, supra, 430 U.S. at 109, 97 S.Ct. at 986. It is similarly the...