Delaware County Memorial Hosp. v. Sullivan

• Decision Date: 27 June 1991
• Docket Number: Civ. A. No. 89-7151.
• Citation: 836 F. Supp. 238
• Parties: DELAWARE COUNTY MEMORIAL HOSPITAL v. Louis W. SULLIVAN, M.D., Secretary of Health and Human Services, et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

836 F. Supp. 238

DELAWARE COUNTY MEMORIAL HOSPITAL v. Louis W. SULLIVAN, M.D., Secretary of Health and Human Services, et al.

Civ. A. No. 89-7151.

United States District Court, E.D. Pennsylvania.

June 27, 1991.

COPYRIGHT MATERIAL OMITTED

Diane G. Wiener, Duane, Morris & Heckscher, Philadelphia, PA, for plaintiff.

Linda L. Shafer, U.S. Dept. of Justice, Philadelphia, PA, Linda A. Ruiz, Office of General Counsel/Health Care Financing Div., Dept. of Health & Human Services, Baltimore, MD, Marilyn May, U.S. Attorney's Office, Philadelphia, PA, for defendants.

MEMORANDUM and ORDER

SHAPIRO, District Judge.

I. INTRODUCTION

Before the court are cross-motions for summary judgment. Plaintiff Delaware County Memorial Hospital ("DCMH") filed a complaint for declaratory relief and money allegedly due under the health costs reimbursement program established under Title XVIII of the Social Security Act ("Medicare"). 42 U.S.C. § 1395 et seq. In 1979-80, plaintiff settled uninsured malpractice claims for $1 million; plaintiff seeks reimbursement for a portion of the settlement ($464,000), plus interest, attorney's fees and costs. Defendants, in their cross-motion for summary judgment, contend that this court should affirm the administrative board's denial of jurisdiction over plaintiff's claim for failure to file a timely administrative appeal and dismiss plaintiff's complaint. In the alternative, defendants request that the court remand the action to the administrative board for a hearing on the merits.

For the reasons stated below, the court affirms the administrative board's denial of jurisdiction over plaintiff's claim as untimely filed and dismisses the complaint.

II. STATUTORY AND REGULATORY BACKGROUND

Under the Medicare program, health care providers such as DCMH may obtain reimbursement for costs of treating Medicare patients. After the close of its fiscal year, a health care provider submits a cost report showing costs incurred during the year and the portion of those costs properly allocated to Medicare under the governing rules and regulations.

The cost report is submitted to a fiscal intermediary, an agent of the Secretary of the Department of Health and Human Services ("the Secretary"). The fiscal intermediary audits the cost report to determine the amount of Medicare reimbursement for the year, then provides a Notice of Amount of Program Reimbursement ("NPR"). See 42 U.S.C. § 1395h; 42 C.F.R. §§ 421.103; 413.20; 413.60; 405.1803. The fiscal intermediary is bound by the Secretary's regulations and instructions issued by the Health Care Financing Administration ("HCFA"). See 42 C.F.R. § 421.100(h); see also Bethesda Hospital Assoc. v. Bowen, 485 U.S. 399, 108 S.Ct. 1255, 99 L.Ed.2d 460 (1988).

A provider dissatisfied with the NPR may appeal to the Provider Reimbursement Review Board ("PRRB" or "the Board"), within 180 days if the amount in controversy is $10,000 or more. 42 U.S.C. § 1395oo (a). The PRRB may affirm, modify or reverse a final determination of the fiscal intermediary and may "make any other revisions on matters covered by such cost report (including revisions adverse to the provider of services) even though such matters were not considered by the intermediary in making such final determination." § 1395oo (d). See also 42 C.F.R. § 405.1841. The PRRB decision is final unless the Secretary reverses, affirms or modifies the decision. 42 U.S.C. § 1395oo (f)(1).

An NPR "may be reopened with respect to findings on matters at issue in such determination or decision" on motion of the provider, the fiscal intermediary, PRRB or Secretary. See 42 C.F.R. § 405.1885(a). A request for reopening must be made within three years. Where a revision is made pursuant to a reopening, "such revision shall be considered a separate and distinct determination or decision." 42 C.F.R. § 405.1889 (citing to 42 C.F.R. §§ 405.1811, 1835, 1875 and 1877).

A provider can obtain judicial review of "any final decision of the PRRB or Secretary ... by a civil action filed within 60 days of receipt of notice" of the final decision. A provider also can seek judicial review of any action of a fiscal intermediary involving a question of law or challenge to a regulation whenever the PRRB determines, on its own motion or by motion of the provider, that the PRRB is without authority to decide the question. 42 U.S.C. § 1395oo (f)(1).

III. FACTS

DCMH is a general hospital, licensed and approved to provide health care service by the Commonwealth of Pennsylvania, and qualified to provide service to Medicare patients under Part A of the Medicare program. DCMH's fiscal year (or cost reporting year) is from July 1 to June 30. Its fiscal intermediary is Aetna Life & Casualty ("Aetna"), of Fort Washington, Pennsylvania.

In the 1979-80 fiscal year, DCMH settled for $1 million a malpractice action brought on behalf of three patients born in 1957, 1959 and 1967, respectively, for injuries suffered at birth ("the $1 million uninsured settlement"). DCMH had no malpractice insurance for the injuries suffered by the patients born in 1957 and 1959 because charitable institutions were then immune from liability. In 1967, DCMH had insurance coverage in an amount that was reasonable at that time but insufficient to cover its liability in 1980. It is unclear when the malpractice action was filed, but it is undisputed that the settlement amount was paid to non-Medicare patients.

In submitting its 1980 cost report, DCMH informed Aetna that it used the "utilization method" to calculate the reimbursement due for its malpractice insurance premium of $336,070 and the $1 million uninsured settlement. See Letter of October 23, 1980, the Administrative Record ("A.R.") at 14. The "utilization method" reimburses a health care provider according to the percentage of total patient bed-days used by Medicare patients during the fiscal year.

On July 1, 1979, a new regulation for allocating malpractice costs took effect. Under this regulation, Medicare would reimburse malpractice insurance costs according to the percentage of total malpractice claims paid which are paid to Medicare patients ("the 1979 Malpractice Rule"). A non-insured claim or claim in excess of insurance coverage limits would be paid only if the claim actually arose from treatment of a Medicare patient. See 42 C.F.R. § 405.452(a)(1)(ii) (1984) (repealed). In its letter of October 23, 1980, DCMH informed Aetna that it sought reimbursement under the former utilization method "in order to preserve our right to appeal" and challenge the 1979 Malpractice Rule. A.R. at 14.

Aetna, applying the 1979 Malpractice Rule, disallowed DCMH's calculation of reimbursement for both the malpractice premium and the $1 million uninsured settlement in the NPR dated March 20, 1981 (the "1981 NPR"). See A.R. at 26, 36, 47. DCMH appealed the 1981 NPR to the PRRB within 180 days by joining other health care providers in a group appeal, under 42 U.S.C. § 1395oo (b), challenging the 1979 Malpractice Rule as applied to reimbursement for malpractice insurance costs. In that group appeal, DCMH claimed reimbursement of $141,295, that portion of its malpractice insurance premium to which it was entitled under the utilization method. See A.R. at 45. In the group appeal, DCMH did not claim reimbursement for any portion of the $1 million uninsured settlement.

The PRRB certified that it lacked the authority to decide whether the 1979 Malpractice Rule was valid, and directed expedited judicial review under 42 U.S.C. § 1395oo (f)(1). The Court of Appeals for the Third Circuit, affirming and adopting the opinion of the district court, held invalid the application of the 1979 Malpractice Rule to reimbursement for malpractice insurance costs. See Abington Memorial Hospital v. Heckler, 576 F.Supp. 1081 (E.D.Pa.1983), aff'd., 750 F.2d 242 (3d Cir.1984), cert. denied, 474 U.S. 863, 106 S.Ct. 180, 88 L.Ed.2d 149 (1985).

The Court of Appeals recognized that the Medicare statute removes jurisdiction from the federal courts over claims for reimbursement arising under the statute except as allowed by 42 U.S.C. § 1395oo (f). Section 1395oo requires exhaustion of administrative remedies before court review. Accordingly, the Court of Appeals limited relief "to the individual claims of appellees for reimbursement that were considered by the PRRB," i.e., "malpractice insurance costs incurred during the fiscal year ending June 30, 1980." The Court of Appeals remanded to the PRRB to award the appellees "reimbursement in accordance with our decision." 750 F.2d at 244.

Aetna then sent DCMH a "Notice of Reopening," dated October 16, 1986. "To reimburse malpractice insurance costs as an administrative cost as per the Federal Court Order on the Abington Memorial Hospital cost issue." See A.R. at 16. Aetna informed DCMH that the reopening was pursuant to 42 C.F.R. § 405.1887 (providing for notice to a provider of a reopening). That same date, Aetna sent DCMH a revised NPR recalculating the reimbursement for the malpractice insurance premium. See A.R. at 60. The revised NPR left unchanged that part of the 1981 NPR denying reimbursement for any portion of the $1 million uninsured settlement.

On April 8, 1987, DCMH filed a request for a PRRB hearing on the revised NPR's denial of reimbursement for the $1 million uninsured settlement. See A.R. at 19-22. On August 3, 1989, the PRRB denied jurisdiction because the appeal was untimely filed. See A.R. at 1-2. Plaintiff filed this action on October 4, 1989.

IV. STANDARD OF REVIEW

Review of a decision of the PRRB is in accordance with the Administrative Procedure Act, 5 U.S.C. § 702, et seq., and based on the administrative record. 42 U.S.C. § 1395oo (f)(1). Because the material facts are not in dispute, the sole issue to be determined is whether the decision of the PRRB to refuse jurisdiction was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A...