Hazelwood Chronic & Convalescent Hospital, Inc. v. Weinberger

• Decision Date: 23 September 1976
• Docket Number: No. 74-2210,74-2210
• Citation: 543 F.2d 703
• Parties: HAZELWOOD CHRONIC & CONVALESCENT HOSPITAL, INC., dba Kearney Street Convalescent Center, Plaintiff-Appellee, v. Caspar WEINBERGER, Secretary of Health, Education, and Welfare, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 703

543 F.2d 703

HAZELWOOD CHRONIC & CONVALESCENT HOSPITAL, INC., dba Kearney Street Convalescent Center, Plaintiff-Appellee, v. Caspar WEINBERGER, Secretary of Health, Education, and Welfare, et al., Defendants-Appellants.

No. 74-2210.

United States Court of Appeals Ninth Circuit.

Sept. 23, 1976.

David M. Cohen, Atty. (argued), Dept. of Justice, Washington, D.C., for defendants-appellants.

Michael J. Gentry (argued), Portland, Or., for plaintiff-appellee.

Before WALLACE and KENNEDY, Circuit Judges, and FERGUSON, ^* District Judge.

ANTHONY M. KENNEDY, Circuit Judge:

In this case we consider the effect of 42 U.S.C. § 405(h) in precluding district court jurisdiction to review a decision of the Secretary of Health, Education, and Welfare regarding payments to a hospital under the Health Insurance for the Aged (Medicare) Act. The district court held that the Secretary's regulation for recapture of accelerated depreciation charges, 20 C.F.R. § 405.415(a)(3) (1975), was unconstitutional as applied retroactively to the plaintiff. We hold that the district court had jurisdiction to review the Secretary's action, but reverse on the merits.

I. FACTS

Under the Medicare Act, hospitals and similar institutions are reimbursed for providing services to eligible patients. Such "providers of services" are paid for their "reasonable costs," as defined in the statute and subject to regulations adopted by the Secretary. 42 U.S.C. § 1395x(v) (1970), as amended (Supp. IV, 1974). ¹

In 1967, Hazelwood Hospital began providing services under the Medicare program. The regulations then in effect allowed depreciation charges as an item of reasonable cost and provided that such charges could be computed by either a straight-line or an accelerated method.

On February 8, 1970, the Secretary announced a new regulation on depreciation. 35 Fed.Reg. 2593, codified at 20 C.F.R. § 405.415(d)(3) (1975). Effective August 1970, new providers were no longer allowed to claim accelerated depreciation. Old providers who remained in the Medicare program could continue to use the accelerated depreciation method. Upon a provider's withdrawal from the program, however, the Secretary could recapture prior payments to the extent they were attributable to accelerated depreciation costs in excess of what would have been allowed under the straight-line method. ²

In December 1971, Hazelwood voluntarily withdrew from the Medicare program. Its excess costs attributable to accelerated depreciation were $18,054 from 1967 through 1970, and $6,624 in 1970-71. Hazelwood rejoined the Medicare program in July 1972, and its subsequent reimbursements were reduced by a total of $24,678 to recapture the excess depreciation.

Hazelwood brought this suit in the district court, alleging federal question jurisdiction and claiming that 20 C.F.R. § 405.415(d)(3) could not be applied retroactively to recapture depreciation charges claimed for the years preceding its promulgation. The district court held that such application violated the due process clause of the fifth amendment. It enjoined the Secretary from applying the regulation to recapture depreciation costs claimed by Hazelwood prior to January 1, 1970, and awarded Hazelwood a judgment for $18,054.

II. JURISDICTION

A. The Medicare Statute and 28 U.S.C. § 1331

The Medicare Act authorizes an individual beneficiary to obtain an administrative hearing and judicial review of a final decision, regarding either his eligibility or amount of benefits. 42 U.S.C. § 1395ff(b) (1970), incorporating 42 U.S.C. § 405(b), (g), as amended, (Supp. IV, 1974). At the time this action arose, however, a provider of services (such as Hazelwood Hospital) was authorized to obtain review only of eligibility determinations. 42 U.S.C. § 1395ff(c) (1970). No provision was made for review of the level of payments allowed to an institution under the "reasonable cost" standard. ³

The Medicare Act is not unusual in providing specifically for judicial review of some but not all of the agency's decisions. In such cases the specific review provision is normally held to be the exclusive means of obtaining judicial review of the decisions for which it is available. The mere existence of such a mechanism for some matters, however, does not itself provide clear evidence of a congressional intent to preclude judicial review of the matters not covered. Thus such questions are normally subject to "non-statutory" review by a court having jurisdiction of the matter under one of the general provisions of title 28. See Note, Jurisdiction to Review Federal Administrative Action: District Court or Court of Appeals, 88 Harv.L.Rev. 980, 981-84 (1975).

The claim presented in this case is clearly not one for which the Medicare Act specifically authorizes judicial review. However, the plaintiff alleged and the district court presumably found federal question jurisdiction, 28 U.S.C. § 1331. While such jurisdiction would ordinarily be available for a question not reviewable under the special statutory procedure, the Medicare Act has incorporated the following additional provision of the Social Security Act:

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 (28 U.S.C. § 1331, inter alia ) to recover on any claim arising under this subchapter.

42 U.S.C. § 405(h), incorporated under 42 U.S.C. § 1395ii. In Weinberger v. Salfi, 422 U.S. 749, 761, 95 S.Ct. 2457, 2464, 45 L.Ed.2d 522 (1975), the Court held that "the third sentence of § 405(h) precludes resort to federal question jurisdiction" for a constitutional challenge to a denial of benefits under the Social Security Act. We conclude that this same language, incorporated into the Medicare Act, similarly precludes federal question jurisdiction in the instant case.

However, this conclusion does not end our inquiry. It is appropriate to consider other possible bases for jurisdiction, even though not pleaded by the plaintiff or relied upon by the district court. Smith v. United States, 502 F.2d 512, 519-20 (5th Cir. 1974); Zimmerman v. United States, 422 F.2d 326, 330 (3d Cir.), cert. denied, 399 U.S. 911, 90 S.Ct. 2200, 26 L.Ed.2d 565 (1970); see Williams v. United States, 405 F.2d 951 (9th Cir. 1969).

B. The Administrative Procedure Act

We have previously held that the judicial review provisions of the APA, 5 U.S.C. §§ 701-06, confer subject matter jurisdiction for district court review of reasonable cost determinations by the Secretary under the Medicare Act, 42 U.S.C. § 1395x(v). Rothman v. Hospital Service, 510 F.2d 956, 958-59 (9th Cir. 1975). ⁴ Thus we are bound to find jurisdiction in the present case unless our holding in Rothman is affected by the Supreme Court's decision in Weinberger v. Salfi, supra.

The Salfi Court primarily construed the third sentence of section 405(h), which mentions only certain jurisdictional grants in title 28 and thus does not expressly include the APA, which is located in title 5. ⁵ At least three circuits have thus treated Salfi as irrelevant to the question of APA jurisdiction, interpreting its holding as limited to the effect of section 405(h) in precluding federal question jurisdiction. Hunt v. Weinberger, 527 F.2d 544, 546-47 (6th Cir. 1975); Lejeune v. Mathews, 526 F.2d 950, 952-53 & n.2 (5th Cir. 1976); Sanders v. Weinberger, 522 F.2d 1167, 1171 (7th Cir. 1975).

However, we do not think this a proper basis for distinguishing the Court's decision. The plaintiffs in Salfi (unlike the instant plaintiff) expressly alleged jurisdiction under the APA. Appendix at 7, Weinberger v. Salfi, supra; see Brief for Appellees at 42-43. And, in ordering dismissal on the class of unnamed plaintiffs who had not complied with the jurisdictional prerequisites of section 405(g), the Court held that "(o)ther sources of jurisdiction (are) foreclosed by § 405(h)." 422 U.S. at 764, 95 S.Ct. at 2466. Thus the Court must have regarded APA jurisdiction as either precluded by section 405(h) ⁶ or unavailable for some other reason. ⁷

There is, however, a well supported and important distinction between Salfi and the instant case. There the Social Security Act authorized district court review of all final decisions of the Secretary under the procedures specified in section 405(g). Thus judicial review was potentially available to the class of unnamed plaintiffs, and the Court's holding did not have the effect of totally precluding judicial review of the sort of claim they raised. Additionally, the Court qualified its holding in a respect that is important in distinguishing this case. The Court noted that where a constitutional claim is presented, statutes are not likely to be interpreted to preclude judicial review altogether. 422 U.S. at 762-63, 95 S.Ct. 2457.

In contrast to the Social Security Act interpreted in Salfi, the Medicare Act (prior to 1972) did not authorize judicial review of provider payment claims. Then, interpreting section 405(h) to preclude all review outside of the Act, would foreclose any judicial inquiry even in cases containing significant constitutional questions, such as the hospital's claim in this case. Under these circumstances, we conclude that Salfi does not control the present case and follow our decision in Rothman. Thus we regard the district court as having jurisdiction by virtue of the judicial review provisions of the APA.

III. STATUTORY AUTHORITY

The district court made no express ruling on the plaintiff's contention that the Secretary lacked statutory authority to promulgate the regulation here in question. We assume, however, that it would not have reached the constitutional issues in this case if the regulation could...