Harper-Grace Hospitals v. Schweiker

• Decision Date: 22 October 1982
• Docket Number: HARPER-GRACE,No. 81-1305,81-1305
• Citation: 691 F.2d 808
• Parties: HOSPITALS, a Michigan Corporation, Plaintiff-Appellant, v. Richard S. SCHWEIKER, Secretary of the Department of Health and Human Services, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 808

691 F.2d 808

HARPER-GRACE HOSPITALS, a Michigan Corporation, Plaintiff-Appellant, v. Richard S. SCHWEIKER, Secretary of the Department of Health and Human Services, Defendant-Appellee.

No. 81-1305.

United States Court of Appeals Sixth Circuit.

Argued Aug. 24, 1982.

Decided Oct. 22, 1982.

John A. Entenman, Nancy Garlock Edmunds, Detroit, Mich., Leonard C. Homer, Baltimore, Md., for plaintiff-appellant.

Richard A. Rossman, U. S. Atty., Geneva S. Halliday, Detroit, Mich., David A. Gerard, U. S. Dept. of Health and Human Services, Chicago, Ill., for defendant-appellee.

Patricia S. Hofstra, American Hosp. Ass'n., Chicago, Ill., amicus curiae.

Before LIVELY and KRUPANSKY, Circuit Judges, and BROWN, Senior Circuit Judge.

BAILEY BROWN, Senior Circuit Judge.

This is an appeal by plaintiff-appellant, Harper-Grace Hospitals (Harper-Grace), from a district court decision granting summary judgment in favor of defendant-appellee, Health and Human Services Secretary Schweiker (Secretary). The district court's decision granting summary judgment affirmed prior administrative decisions which had held that the hospital was not entitled to reimbursement under the Medicare Act, 42 U.S.C. §§ 1395 et seq., for a percentage of the costs which it incurred pursuant to the Hill-Burton Act, 42 U.S.C. §§ 291 et seq. For the reasons stated herein, we affirm.

Harper-Grace is a Michigan corporation located in Detroit, Michigan. Harper Hospital Division (Harper), one of two hospital facilities operated by Harper-Grace, is a "provider of services" as defined by the Medicare statute. 42 U.S.C. § 1395x(u). During 1976, 36% of Harper's patients were Medicare patients.

In January, 1970, the Secretary approved Harper's application for a $1,000,000 construction grant under the Hill-Burton Act, 42 U.S.C. §§ 291 et seq. This federal financial assistance was received in installments by Harper from November, 1970 until August, 1974. The purpose of the Hill-Burton Act was outlined in Johnson County Memorial Hospital v. Schweiker, 527 F.Supp. 1134, 1136 (S.D.Ind.1981):

The Hill-Burton Act, 42 U.S.C. § 291, et seq., was passed in 1946 to provide federal money for the construction and modernization of hospitals in order to assure adequate hospital services to all. 42 U.S.C. § 291. In order to receive this federal aid, hospitals are required to provide a reasonable amount of free care to people unable to pay for such care. 42 U.S.C. § 291c(e)(2). Until 1972, the amount of free care that would be considered reasonable was not specified. In 1972, the Department of Health and Human Services specified that a reasonable amount of free service was an amount equal to: (1) 10% of the federal aid given; (2) 3% of operating costs; or (3) care to all indigents appearing at the hospital in need of care (the open door policy). 42 CFR § 53.111(d).

Harper chose the 10% formula which, under the existing regulations, meant it was required to provide $100,000 of free care for each of the next twenty years, or a total expense of $2,000,000.

Harper accounted for the $1,000,000 grant and the related uncompensated service obligation as a long-term debt with interest. On its 1976 Medicare cost reimbursement form, Harper did not claim reimbursement for the services it provided to indigents, which exceeded $100,000. Instead, it ascertained an interest rate of 73/4% per annum by using the known factors-i.e., a $1,000,000 loan with a $2,000,000 liability spread equally over twenty years. Using the 73/4% interest rate, the portion of the $100,000 free care expense for 1976 deemed to be interest was $75,756. That figure was included in Harper's 1976 Medicare cost form. With its 36% Medicare loan, this would have increased Harper's Medicare reimbursement by about $26,000. This amount was disallowed, however, by Harper's intermediary, Blue Cross and Blue Shield of Michigan.

On December 7, 1978, Harper appealed the reimbursement denial to the Provider Reimbursement Review Board (PRRB) which, by a 2-1 vote, affirmed the denial. The PRRB decision was then appealed to the Health Care Financing Administration (HCFA) which also affirmed the denial. Having exhausted its administrative remedies, Harper appealed to the U.S. District Court for the Eastern District of Michigan which affirmed the administrative rulings, finding they were not arbitrary, capricious or contrary to law.

We were thus presented on appeal with the issue of whether Harper was entitled to reimbursement under the Medicare Act for a percentage of the costs which it incurred because of its Hill-Burton obligations. While both parties had thoroughly briefed and argued their respective interpretations of the pertinent statutes and regulations, it was brought to our attention for the first time at oral argument that on August 17, 1982, both houses of Congress passed H.R. 4961, which amended the Medicare Act to specifically exclude Hill-Burton expenses from Medicare reimbursement. 42 U.S.C. § 1395x(v)(1). On September 3, 1982, the President signed H.R. 4961 into law, and because this new law resolves the present dispute, we affirm the district court's order on this basis.

As the law existed prior to this amendment, some courts had construed the Medicare and Hill-Burton statutes and regulations to allow reimbursement of Hill-Burton expenses by Medicare, Presbyterian Hospital of Dallas v. Harris, 638 F.2d 1381 (5th Cir.), cert. denied, 454 U.S. 940, 102 S.Ct. 476, 70 L.Ed.2d 248 (1981); Iredell Memorial Hospital, Inc. v. Schweiker, 535 F.Supp. 795 (W.D.N.C.1982); St. James Hospital v. Harris, 535 F.Supp. 751 (N.D.Ill.1981), Metropolitan Medical Hospital v. Harris, 524 F.Supp. 630 (D.Minn.1981); Rapides General Hospital v. Matthews, 435 F.Supp. 384 (W.D.La.1977), vacated and reversed on other grounds, No. 77-3125 (5th Cir. 1978); Johnson County Memorial Hospital v. Schweiker, 527 F.Supp. 1134 (D.Minn.1981), while others had not, Saint Mary of Nazareth Hospital Center v. Department of Health and Human Services, 531 F.Supp. 419 (N.D.Ill.1982). In fact, in two recent decisions, the PRRB reversed itself and found that the costs of uncompensated Hill-Burton services are reimbursable by Medicare. John Muir Memorial Hospital v. Harris, 4 Medicare and Medicaid Guide (CCH 31492 (PRRB 1981)) and Gaston Memorial Hospital, Inc. v. Blue Cross Association, 4 Medicare and Medicade Guide (CCH 31545 (PRRB 1981)).

The amendment to 42 U.S.C. § 1395x(v)(1) is set forth in Section 106 of H.R. 4961 as follows:

Sec. 106. (a) Section 1861(v)(1) of the Social Security Act is amended by adding at the end the following new subparagraph:

"(M) Such regulations shall...