Homewood Professional Care Center, Ltd. v. Heckler

• Decision Date: 12 August 1985
• Docket Number: No. 83-3301,83-3301
• Citation: 764 F.2d 1242
• Parties: , 10 Soc.Sec.Rep.Ser. 98, Medicare&Medicaid Gu 34,671, Medicare&Medicaid Gu 34,876 HOMEWOOD PROFESSIONAL CARE CENTER, LTD., Plaintiff-Appellant, v. Margaret A. HECKLER, in her official capacity as Secretary of the United States Department of Health and Human Services, Certain Unknown Officials and Agents of the United States Department of Health and Human Services, in their official and individual capacities, and Jerome Howard, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1242

764 F.2d 1242

54 USLW 2016, 10 Soc.Sec.Rep.Ser. 98,

Medicare&Medicaid Gu 34,671,

Medicare&Medicaid Gu 34,876

HOMEWOOD PROFESSIONAL CARE CENTER, LTD., Plaintiff-Appellant, v. Margaret A. HECKLER, in her official capacity as Secretary of the United States Department of Health and Human Services, Certain Unknown Officials and Agents of the United States Department of Health and Human Services, in their official and individual capacities, and Jerome Howard Defendants-Appellees.

No. 83-3301.

United States Court of Appeals Seventh Circuit.

Argued Dec. 4, 1984.

Decided June 12, 1985.

As Amended Aug. 12, 1985.

David E. Bennett, Chadwell & Kayser, Ltd., Chicago, Ill., for plaintiff-appellant.

Thomas P. Walsh, Asst. U.S. Atty., Dan K. Webb, U.S. Atty., Chicago, Ill., for defendants-appellees.

Before CUDAHY, COFFEY and FLAUM, Circuit Judges.

COFFEY, Circuit Judge.

The plaintiff, Homewood Professional Care Center, Ltd. ("Homewood"), operated a nursing home as a participant in the Medicare program from 1975 through 1977. After Homewood voluntarily withdrew from the Medicare program, it submitted reimbursement claims to the Department of Health and Human Services for services provided to Medicare recipients during two separate accounting periods. While the claims were pending before a review board within the Department of Health and Human Services, Homewood filed a separate suit for declaratory judgment, mandamus, injunctive relief and damages in Federal court. The district court dismissed Homewood's complaint for lack of subject matter jurisdiction. We affirm.

I.

According to the allegations in the complaint, Homewood operated a nursing home as a provider of services under the Medicare program from April 1975 through August 1977. ¹ This appeal concerns two of Homewood's purportedly timely and proper cost reports that Homewood submitted to a fiscal intermediary. ² Payment for Medicare services are made directly to the hospital or other "provider" of the services. Rather than having to reimburse the provider for Medicare services on a claim-by-claim basis, the intermediary advances payments to the provider to cover the estimated cost of all services furnished to Medicare beneficiaries during a specific accounting period. At the end of the accounting period, after the provider has submitted a "cost report" establishing that its total audited costs are allocated properly between Medicare and non-Medicare patients in accordance with the Secretary's rules and regulations, a final settlement of the actual amount due for all such services is made. 42 U.S.C. Sec. 1395g(a); 42 C.F.R. 405.403, 405.405, 405.414 et seq. The cost reports submitted by Homewood to the intermediary were for payment of services not covered in the interim payments previously received. In its first cost report, Homewood claimed $373,059 as underpayments during the fiscal year of April 1, 1976 through March 31, 1977. After auditing the first cost report, the intermediary found that Homewood was due $67,800. The second cost report submitted by Homewood to the intermediary covered the period from April 1, 1977 through August 31, 1977, the date on which Homewood voluntarily terminated its participation in the Medicare program. Homewood claimed that it was entitled to $274,420 for the Medicare services provided during this period.

On May 17, 1979, defendant Jerome Howard, a disgruntled part-owner of Homewood, informed the Secretary and the intermediary that the cost reports submitted by Homewood contained gross misrepresentations and might very well be fraudulent. Based upon this information, the intermediary suspended settlement negotiations with Homewood pursuant to 42 C.F.R. Sec. 405.371(b). This section of the Code of Federal Regulations provides for the suspension of payments when the intermediary has reliable evidence that the payments to be made may not be correct and the circumstances giving rise to the need for a suspension involve possible fraud or willful misrepresentation. During the audit of Homewood's records supporting the second cost report, a dispute arose between the intermediary and Homewood as to whether Homewood was, in fact, in a position to substantiate its claim for the $274,420. On August 3, 1981, the intermediary advised Homewood that the suspension was withdrawn after a review as the audits failed to uncover fraud or intentional misrepresentation. Some three weeks later, on August 24, 1981, the intermediary notified Homewood that because it had not provided the intermediary with sufficient financial records to substantiate the second cost report's claim for $274,420, it was classifying the entire $234,183 interim payments made by the Department during the second cost period to be overpayments. The intermediary further notified Homewood that it had reexamined the first cost report and was now of the opinion that Homewood was entitled to $79,430 rather than the $67,800 previously certified for payment. The intermediary applied the $79,430 underpayment from the first cost report to the $234,183 deemed overpayment from the second cost report, thus reducing the amount Homewood now owed the Medicare program to $154,753, rather than the $234,183 previously determined. Homewood appealed the intermediary's determination of the underpayment on the first cost report and the overpayment on the second cost report to the Provider Reimbursement Review Board (hereinafter "Board").

The Provider Reimbursement Review Board, whose primary responsibility is to resolve accounting disputes, see H.Rep. No. 92-231, 92nd Cong., 2d Sess., reprinted in 1972 U.S.Code Cong. & Ad.News 4989, 5094, reviews disputes between providers and intermediaries if the amount in controversy is greater than $10,000. 42 U.S.C. Sec. 1395oo (a); 42 C.F.R. Sec. 405.1835. In addition, the provider may likewise request a hearing before the Board if the claim is in excess of $10,000 and the intermediary fails to make a final determination as to the amount the provider should be reimbursed for providing goods and services to Medicare patients on a timely basis provided that the delay "was not occasioned by the fault of the provider." 42 C.F.R. Sec. 405.1835(c); 42 U.S.C. Sec. 1395oo (a)(1)(B), (C). A provider dissatisfied with the final decision of the Board may obtain judicial review of its decision with the filing of a civil action in Federal district court within 60 days of the Secretary's final decision. 42 U.S.C. Sec. 1395oo (f)(1).

While its appeal was pending before the Board, Homewood filed suit in the Federal district court for the Northern District of Illinois seeking a declaratory judgment, a writ of mandamus, injunctive relief, and damages as a result of the "wrongful conduct of the defendants ... acting individually and in concert ... which resulted in a deprivation of Homewood's property without due process of law." Specifically, Homewood points to five violations of its due process rights:

"a. Wrongful suspension of all audit and settlement activities concerning Homewood without proper cause;

"b. Failure to grant Homewood at least a post-suspension hearing as required by the Medicare Act, 42 U.S.C. Sec. 1395y(d)(3);

"c. Failure by the Secretary to issue regulations requiring a post-suspension hearing in cases where a suspension is imposed on the grounds of alleged fraud and misrepresentation as required by the Medicare Act, 42 U.S.C. Sec. 1395y(d)(3);

"d. Wrongfully refusing to process properly Homewood's cost report for the period ending August 31, 1977 [second cost report]; and

"e. Continuing to withhold funds due to Homewood for services previously rendered to Medicare beneficiaries without just cause."

Homewood alleged in the motion for declaratory judgment "that the actions of the defendants ... are violative of plaintiff's rights under the United States Constitution and the statutes and regulations which [sic] make up the Medicare Program." Homewood requested that the court "declare that plaintiff has no adequate administrative remedy." Further, Homewood requested a "Writ of Mandamus compelling defendant [Secretary] to pay to plaintiff those sums owed to plaintiff for services provided under the Medicare Program." In addition, Homewood sought as compensatory damages "those sums claimed by plaintiff as due and owing for services provided under the Medicare Program." Finally, Homewood claimed $1,000,000 "as punitive damages suffered as a result of the bad faith, malicious and unauthorized conduct of the defendants."

The defendants filed a motion to dismiss Homewood's complaint, arguing that the district court lacked subject matter jurisdiction because the Secretary had not as of that date issued a final decision pursuant to 42 U.S.C. Sec. 405(h) as incorporated in the Medicare Act by Sec. 1395 and Sec. 1395oo (f)(1). The district court granted the defendants' motion to dismiss on the basis that the "plaintiff has not satisfied the requirements of 42 U.S.C. Sec. 405(h) which requires that 'no findings of fact or decision of the Secretary shall be reviewed by any person, tribunal, or governmental agency except as herein provided.' Plaintiff has not found any basis for circumventing this provision which, under Sec. 1395oo requires the administrative review [of the payment dispute by the Board]." The district court further ruled that Homewood was not entitled to mandamus relief because it failed to demonstrate "a plainly defined and peremptory duty on the part of the defendant to do the act in question" and because it had an adequate remedy in the United States Court of Claims. On appeal, Homewood contends that the Federal district court has subject matter jurisdiction under 28 U.S.C. Sec. 1331, 42 U.S.C. Sec. 1395y(d), 28 U.S.C. Sec. 1361 and 42 U.S.C. Sec. 1395oo.

II.

A. 28 U.S.C. Sec. 1331--FEDERAL QUESTION JURISDICTION.

Homewood advances two grounds in support of federal question jurisdiction; a procedural due process theory and a...