Dr. John T. MacDonald Foundation, Inc. v. Mathews, 75-2966

• Decision Date: 02 July 1976
• Docket Number: No. 75-2966,75-2966
• Citation: 534 F.2d 633
• Parties: DR. JOHN T. MacDONALD FOUNDATION, INC., d/b/a Doctors' Hospital, a Florida Corporation not for profit, Plaintiff-Appellant, v. F. David MATHEWS, Secretary of Health, Education and Welfare, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 633

534 F.2d 633

DR. JOHN T. MacDONALD FOUNDATION, INC., d/b/a Doctors' Hospital, a Florida Corporation not for profit Plaintiff-Appellant, v. F. David MATHEWS, Secretary of Health, Education and Welfare, et al., Defendants-Appellees.

No. 75-2966.

United States Court of Appeals Fifth Circuit.

July 2, 1976.

Aubrey V. Kendall, Charles C. Kline, Miami, Fla., for plaintiff-appellant.

Robert W. Rust, U. S. Atty., John S. Berk, Asst. U. S. Atty., Miami, Fla., Robert E. Kopp, Appellate Sec., Richard A. Olderman, Civil Div., Dept. of Justice, Washington, D. C., for defendants-appellees.

Appeal from the United States District Court for the Southern District of Florida.

Before DYER, CLARK and GEE, Circuit Judges.

GEE, Circuit Judge:

The Dr. John T. MacDonald Foundation, Inc., doing business as Doctors' Hospital, brought this suit for declaratory and injunctive relief to require HEW to reopen and recompute final administrative determinations of the Medicare program reimbursement due the hospital under Title XVIII of the Social Security Act, 42 U.S.C. § 1395, et seq. (1974), for the years 1967 through 1972. During those years, Doctors' Hospital generated between $100,000 and $150,000 annual revenue by leasing its radiology department to a group of radiologists. HEW maintains that the hospital's Medicare reimbursement for those years must be reduced by the revenue from this lease; it relies on regulations set forth in 20 C.F.R. § 405.486(b)(1) (1974). Doctors' Hospital maintains that the radiology department is not one of the departments of the hospital and that profits from its lease ought not reduce allowable costs generated by all other hospital departments. The district court granted summary judgment for defendants. We reverse, finding that HEW has misinterpreted its own regulation.

I. Jurisdiction

We must first determine if the district court had jurisdiction to hear this suit. 42 U.S.C. § 405(h), expressly made applicable to the Medicare program by 42 U.S.C. § 1395ii, 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.

HEW asserts that § 405(h) precludes jurisdiction of the district court under 28 U.S.C. § 1331 and under the Administrative Procedure Act, § 10. The Second Circuit has interpreted § 405(h) to preclude judicial review only if the Medicare Act establishes some procedures for review of the Secretary's decision. Kingsbrook Jewish Medical Center v. Richardson, 486 F.2d 663, 666-68 (2d Cir. 1973); Aquavella v. Richardson, 437 F.2d 397, 402 (2d Cir. 1971); Cappadora v. Celebrezze, 356 F.2d 1 (2d Cir. 1966) (interpreting § 405(h) under the Social Security Act). Our court has adopted this reading of § 405(h):

Where an act provides procedures for judicial review, a court cannot review an agency decision by any other means; where the act does not provide such procedures, however, "nonstatutory" review is still available.

Ortego v. Weinberger, 516 F.2d 1005, 1009 (5th Cir. 1975), citing Aquavella v. Richardson, supra. ¹ It is conceded that the Medicare Act does not provide for judicial review of the order in question in this case. ²

HEW contends that the Supreme Court decision in Weinberger v. Salfi, 422 U.S. 749, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975), nullifies the Ortego view of § 405(h). Salfi found that § 405(h) barred § 1331 jurisdiction of a constitutional challenge to the requirement that a widow and stepchildren must have been related to a wage earner nine months prior to his death to claim survivor benefits under the Social Security Act. ³ This strict interpretation of § 405(h) in Salfi where judicial review was possible under § 405(g) does not overrule our holding in Ortego that where no review procedures are provided jurisdiction exists under § 10 of the APA. ⁴ As we noted in Lejeune v. Mathews, 526 F.2d 950 (5th Cir. 1976), Salfi was considered by the judges who wrote Ortego, ⁵ and we are bound by their construction of Salfi.

Any language in the Salfi majority opinion which seems to characterize § 405(g) as an exclusive source of jurisdiction over Social Security cases must be read in the proper context. The claims over which review was sought in Salfi were ones which could be reviewed judicially, after proper procedures were followed within the agency, under § 405(g). Decisions of the Secretary which can be reviewed judicially under § 405(g) can be reviewed judicially only under § 405(g). § 405(g) affords no jurisdiction over the Secretary's refusal, without a hearing, to reopen on the basis of new evidence a determination of ineligibility. Salfi did not discuss decisions of this type, and, as stated in Ortego, Salfi "gave no consideration to review of 'final agency action' pursuant to the terms of Section 10 of the Administrative Procedure Act." 516 F.2d at 1011 n. 4. See also Sanders v. Weinberger, supra, 522 F.2d at 1171. Salfi does not require us to hold that a refusal to reopen is a decision irretrievably committed to agency discretion. Ortego, decided after Salfi, requires us to hold otherwise.

Lejeune v. Mathews, 526 F.2d 950, 953 n. 2 (5th Cir. 1976). The law of this circuit, then, is that § 405(h) is not an absolute bar to jurisdiction under the APA to review refusals of the Secretary to reopen decisions otherwise unreviewable. ⁶ Relying on Ortego and Lejeune, we find the district court had jurisdiction under § 10 of the APA to hear this action.

II. Reimbursement

When an individual covered by Medicare is hospitalized, the hospital insurance program pays to the hospital the reasonable cost of its services, and the medical insurance program pays the attending physician the reasonable charges for his services. When a "hospital-based physician" leases space from the hospital and assumes the costs of operation of a certain department of the hospital, Medicare should not pay twice for the same hospital services once to the hospital and again to the physician, whose fees will now include the operating costs of the hospital department. 20 C.F.R. § 405.486(a) establishes that in the case of a "hospital-based physician" payment for hospital services will be made only to the doctor through the medical insurance program. 20 C.F.R. §§ 405.486(b)(1) and (2) both deal with how to calculate reasonable charges of the hospital-based physician; the stated objective is to "bring about as little change as possible (in the normal case) in the compensation the physician receives for his services in the hospital." 20 C.F.R. § 405.486(b)(1) (1974).

Doctors' Hospital leased out its radiology department, providing certain services (i. e., operating costs), such as utilities and janitorial services. The radiology department handled its own billing. The amount paid by the radiologists to the hospital exceeded operating expenses, netting the hospital a profit of $100,000 to $150,000 in each year from 1967 to 1972. ⁷ The Secretary of HEW relied on the following portion of 20 C.F.R § 485.486(b)(1) ⁸ to claim that reimbursement due the hospital for services provided by its other departments should be reduced by the profit from the radiology department:

Where, however, a hospital initially pays some or all of the operating expenses of a hospital department (e. g., pays the salaries of nonprofessional personnel and purchases supplies and equipment), even though subsequently those items and services for which it pays the operating expenses are furnished for the use of the physician in return for an agreed upon payment by the physician to the hospital, such operating costs are reimbursable under the hospital insurance program as hospital costs, and are not to be reflected in reasonable charges of the physician. Any payments received by the hospital under such an arrangement shall be treated as a reduction of allowable costs of the hospital reimbursable through the hospital insurance program.

This regulation exists to insure that Medicare does not pay twice for the same operating costs. But this is not a case where Medicare paid twice. The hospital was never reimbursed for any operating expenses of the radiology department. Therefore, we cannot agree with HEW that § 405.486(b)(1) should be applied to reduce Medicare payments due to Doctors' Hospital. We read "initially pays" in the regulation to describe an outlay by the hospital that predates a "subsequent" leasing arrangement through which the physician assumes the operating costs. Such an initial outlay is a cost for which the hospital is reimbursed by Medicare; then if a subsequent lease payment by the physician reimburses the hospital for the same costs, that payment must be deducted from the hospital's allowable costs under the hospital insurance program. Such a deduction properly avoids double reimbursement to the hospital, once by Medicare and again by the physician. But Doctors' Hospital was never reimbursed for any operating costs of the radiology department and should not have to deduct any lease payments made by the physicians. This is the only interpretation of the language relied upon by HEW that meshes with the earlier portion of § 405.486(b)(1):

Where the physician bills the patient directly, costs of operating the hospital department which are borne by the physician will be reflected in his reasonable charges which are compensable under the supplementary medical insurance program; the hospital will receive reimbursement through the hospital insurance program for those costs, if any, which it incurs.

Medicare paid only the reasonable charges of the radiologists, although these charges were calculated to include the...