Good Luck Nursing Home, Inc. v. Harris

Decision Date20 August 1980
Docket NumberNo. 79-1853,79-1853
Citation636 F.2d 572,204 U.S. App. D.C. 300
PartiesGOOD LUCK NURSING HOME, INC. d/b/a Magnolia Gardens Nursing Home, Appellant, v. Patricia R. HARRIS, Secretary of Health, Education and Welfare.
CourtU.S. Court of Appeals — District of Columbia Circuit

Appeal from the United States District Court for the District of Columbia (D.C.Civil Action No. 78-0863).

Leslie H. Wiesenfelder, Washington, D. C., with whom Bernard J. Long, Jr., Washington, D. C., was on brief, for appellant. Catherine T. Porter, Washington, D. C., also entered an appearance for appellant.

Henry R. Goldberg, Atty., Dept. of Health, Education and Welfare, Washington, D. C., with whom Alice Daniel, Asst. Atty. Gen., and Robert Kopp, Atty., Dept. of Justice, Washington, D. C., were on brief, for appellee.

Before WRIGHT, Chief Judge, and WALD and MIKVA, Circuit Judges.

Opinion for the Court filed by Circuit Judge MIKVA.

Opinion concurring in part filed by Circuit Judge WALD.

MIKVA, Circuit Judge:

Appellant Good Luck Nursing Home, Inc., a provider of health services under the Medicare program, sought reimbursement of certain legal and accounting expenses incurred in connection with that program. When reimbursement was denied by the Department of Health, Education and Welfare-now Health and Human Services 1-the appellant sought review in the United States District Court. At first, the district court granted summary judgment in appellant's favor. After that initial judgment, however, it was revealed that the expenses in question were incurred primarily in defending a civil action against the appellant and others in which Medicare fraud and overpayment had been alleged. In light of that fact, the district court vacated its initial judgment, ruled that no expenses attributable to that litigation could be reimbursed, and remanded the case to the administrative agency for appropriate action. We hold that as a matter of law, a provider of Medicare services is not entitled to reimbursement for legal and related expenses incurred unsuccessfully defending against an action for fraud arising out of its participation in that program. However, because the record on appeal is not adequate for applying that rule to this case, the matter is returned to the agency for reconsideration.

A. The Medicare Program

The Medicare program was enacted by Congress in 1965 as Title XVIII of the Social Security Act. Social Security Act Amendments of 1965, Pub.L. No. 89-97, 79 Stat. 291 (amended and codified at 42 U.S.C. §§ 1395-95pp (1976 & Supp. II 1978)). Under one part of that program, the only part relevant to this appeal, Medicare beneficiaries are insured for the cost of hospital and subsequent convalescent care. 42 U.S.C. § 1395c. Participating health care institutions-the "providers of services"-are paid the "reasonable cost" of Medicare services furnished to beneficiaries. 42 U.S.C. § 1395f(b); 42 C.F.R. § 405.454 (1979). Because Medicare reimburses providers on what is essentially a "cost-plus" basis, problems like those which became apparent in this case arise.

Reimbursement to providers is made at periodic intervals, no less frequently than once a month, in amounts set by the Secretary of Health and Human Services. 42 U.S.C. § 1395g. Subsequent adjustments, if necessary, are made for any overpayments or underpayments that may have occurred. Id. The responsibility for making and monitoring reimbursements to providers can be assigned by the Secretary to other agencies, which serve as fiscal intermediaries of the program. 42 U.S.C. § 1395h. These intermediaries, which are often private insurance companies, also make interim periodic payments to providers. Adjustments, if necessary, come at the end of the accounting year when the intermediary makes a final determination of the total reimbursement due. 42 C.F.R. § 450.405 (1979). A provider dissatisfied with the intermediary's final determination may, subject to certain procedural prerequisites, appeal to the Provider Reimbursement Review Board. 42 U.S.C. § 1395oo. The Review Board has broad authority to "affirm, modify, or reverse" an intermediary's determination and, generally, to make any disposition it deems appropriate. 42 U.S.C. § 1395oo (d). The Secretary may, at his option, review the Board's decision, which is otherwise final. 42 U.S.C. § 1395oo (f). Ultimately, judicial review can be had by filing a civil action in the district court. Id.

The Act mandates that health care providers be reimbursed fully for the Medicare costs they incur, including both the direct and indirect costs of caring for program beneficiaries. 42 U.S.C. § 1395x(v)(1)(A). The statutory objective is to ensure that the Medicare program bears the full and actual cost of providing care for its beneficiaries but none of the cost of providing health care to anyone else. Id. Therefore, when a provider, like the appellant here, serves both patients who are covered by Medicare and patients who are not, the indirect but allowable costs of patient care must be apportioned between these two groups. According to the regulatory formula for effecting that apportionment, general administrative costs are only partially reimbursed. See 42 C.F.R. §§ 405.451-.453 (1979). Although not the issue before this court, the original impetus for this case was whether certain legal and accounting expenses should be included in the general administrative account-in which case they would be only partially reimbursed-or treated as a direct cost of the Medicare program-in which case they would be reimbursed in full.

B. The Proceedings Below

At issue in this suit are approximately $42,000 of legal and accounting expenses incurred by the appellant after it had stopped participating in the Medicare program. The appellant's fiscal intermediary had determined that these expenses should be included in the category of administrative and general expenses, subject to apportionment and only partial reimbursement. Dissatisfied with that determination, the appellant pursued its right to administrative review.

The Provider Reimbursement Review Board accepted the appellant's contention that the expenses in question were incurred "solely as a direct result of, and in connection with, its participation in the Medicare program." Good Luck Nursing Home, Inc. v. Mutual of Omaha Ins. Co., No. 76-145, slip op. at 2 (P.R.R.B. March 17, 1978). The Board, nevertheless, sustained the intermediary's determination on the ground that Medicare allocates all allowable legal expenses to the general administrative account, without regard to their propinquity to a provider's program participation. After the Board's decision had become final, the appellant sought review in the district court.

Based on the factual stipulations of the parties, the district court granted summary judgment for the appellant. About three months after that judgment, however, the Government moved for relief from judgment under rule 60(b) of the Federal Rules of Civil Procedure, claiming that a fact previously undisclosed to the district court affected the propriety of its initial judgment. The fact was the purpose for which the legal and accounting fees had been incurred.

The bulk of the fees in question related to the appellant's legal defense in the case of United States v. Leon R. Levitsky, Civ. No. T-74-1389 (D.Md., filed Dec. 19, 1974), a civil action against the appellant corporation, some of its managing physicians, and others associated with them. Alleging that almost $10,000 in overpayments had been procured through a fraudulent scheme to obtain Medicare reimbursement for non-allowable costs, the Government in Levitsky sought recovery of double the alleged overpayment plus over $250,000 in penalties. Although pending while the case under review here was winding its way through the administrative process, neither the existence of the Levitsky suit nor its possible relationship to the appellant's claim for reimbursement was ever raised before the agency Review Board. On June 30, 1978-after the Board's decision in this case but before the district court's initial judgment-the Levitsky suit was settled by a payment of $19,500. None of this had been disclosed to the district court until after its initial decision was handed down.

In light of this new information, the district court concluded that its initial decision had been based on a "fundamental misconception of the facts." Good Luck Nursing Home, Inc. v. Califano, Civ. No. 78-863, slip op. 1 at 2 (D.D.C. June 22, 1979). Accordingly, the district court granted the Government's motion for relief from judgment pursuant to rule 60(b)(6). It then entered an order, (1) vacating the prior judgment and nullifying its accompanying memorandum of law, (2) directing that expenses connected in any way with the Levitsky litigation could not be reimbursed, and (3) remanding the case to the agency for a de novo consideration of the appellant's request for reimbursement. 2


By a series of twists and turns this case has become something different from what it was at the start. The dispute began with the question of whether certain allowable Medicare costs should be reimbursed in full or in part. The central issue now on appeal, however, is whether those expenses may be reimbursed at all. The secondary issue concerns just how broadly the disqualification for litigation-related expenses should be drawn.

A. Relief from Judgment under Rule 60(b)(6)

Before addressing the merits of the order under review, we must address the procedural question of whether the district court correctly applied rule 60(b) (6) in granting the Government's motion for relief from the initial judgment. Although this form of relief should be only sparingly used, 3 we conclude that its application here was correct.

Rule 60(b) was intended to preserve "the delicate balance between the sanctity of final...

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