Hopewell Nursing Home, Inc. v. Schweiker, 80-1846

• Citation: 666 F.2d 34
• Decision Date: 30 November 1981
• Docket Number: No. 80-1846,80-1846
• Parties: HOPEWELL NURSING HOME, INC. a South Carolina corporation, and William P. Betchman, an individual, on behalf of themselves and all other entities and persons similarly situated, Appellees, v. Richard L. SCHWEIKER, Secretary of Health and Human Services, United States Department of Health; James B. Cardwell, Commissioner of Social Security, United States Department of Health; Frank J. Groschelle, Regional Director, United States Department of Health; and James W. Murray, Regional Commissioner, Social Security Administration, United States Department of Health, Education and Welfare, Region IV, Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

Page 34

666 F.2d 34

HOPEWELL NURSING HOME, INC. a South Carolina corporation,

and William P. Betchman, an individual, on behalf

of themselves and all other entities and persons similarly situated, Appellees, v. Richard L. SCHWEIKER, Secretary of Health and Human

Services, United States Department of Health; James B.

Cardwell, Commissioner of Social Security, United States

Department of Health; Frank J. Groschelle, Regional

Director, United States Department of Health; and James W.

Murray, Regional Commissioner, Social Security

Administration, United States Department of Health,

Education and Welfare, Region IV, Appellants.

No. 80-1846.

United States Court of Appeals, Fourth Circuit.

Argued June 2, 1981.

Decided Nov. 30, 1981.

Leslie L. Clune, Dept. of Health and Human Services, Washington, D. C. (Thomas S. Martin, Acting Asst. Atty. Gen., Washington, D. C., Thomas P. Simpson, U. S. Atty., Columbia, S. C., Juan A. Del Real, Acting Gen. Counsel, Samuel D. Turner, Dept. of Health and Human Services, Washington, D. C., on brief), for appellants.

Eugene Tillman, Washington, D. C. (Thomas C. Fox, Joel M. Hamme, Pierson, Ball & Dowd, Washington, D. C., Harry S. Dent, Harry S. Dent & Associates, Columbia, S. C., on brief), for appellees.

Before WIDENER, HALL and ERVIN, Circuit Judges.

ERVIN, Circuit Judge:

In this appeal, the Secretary of the Department of Health and Human Services (the Secretary) seeks review of the district court's assertion of subject matter jurisdiction under 28 U.S.C. § 1331 over an action brought by Hopewell Nursing Home challenging survey methods used in determining ranges of compensation under the provider reimbursement program of the Medicare Act, 42 U.S.C. § 1395 et seq. ¹ The Secretary's jurisdictional challenge has two bases: first, that the language of section 205(h) of Title II of the Social Security Act, 42 U.S.C. § 405(h), precludes federal question jurisdiction over claims arising under the Medicare Act; and, second, that the only mechanism for the administrative and judicial treatment of provider reimbursement claims is found within the Medicare Act itself at 42 U.S.C. § 1395oo, and Hopewell's failure to exhaust the procedures available under that section presently bars its resort to the courts. ² Finally, the Secretary appeals the district court's determination on the merits that the challenged ranges are invalid.

Because we agree that, by virtue of section 205(h) of the Social Security Act, no subject matter jurisdiction attaches to suits arising under the Medicare Act and that Hopewell was required to resort to the administrative review process of that Act before bringing its cause before the courts, we find it unnecessary to reach the merits of this controversy. We therefore reverse and remand the suit to the district court.

I.

Under the Medicare program, providers of covered services are to be compensated for the lower of the provider's customary rate for the services rendered or the "reasonable cost" of those services 42 U.S.C. § 1395(h). The provider is reimbursed either directly by the Social Security Administration or by a fiscal intermediary, generally a private insurance company, and agrees not to bill eligible patients for covered services. ³ The fiscal intermediary acts as the statutory agent of the Secretary in reviewing claims for reimbursement and in administering payment to providers. 42 U.S.C. § 1395(h).

Prior to June 30, 1973, the Social Security Act did not provide any specific mechanism for review of Medicare provider reimbursement claims. By regulation, however, the Secretary established a provider appeal mechanism administered through the fiscal intermediaries. The subject matter jurisdiction of the intermediary hearing officer was limited from the outset:

A. Nonreviewable Issues-The following issues are beyond the scope of review of an intermediary hearing, and therefore, the hearing officer may not take jurisdiction in any such matter:

....

6. the reasonableness of the ranges of owners' compensation established by the (Bureau of Health Insurance); ⁴

....

11. a dispute as to the constitutionality of the law, regulations or SSA instructions or rulings.

Medicare Intermediary Manual, HIM-13 (Part 2), § 2614.7, reprinted in (1980) 2 Medicare & Medicaid Guide P 13,510 at 5463-64.

Congress then amended the Medicare Act specifically to allow for both administrative and judicial review of provider claims. Pub.L.No.92-603, 86 Stat. 1420 (1972). The Provider Reimbursement Review Board (the Board) was created by 42 U.S.C. § 1395oo and it became the forum for review of claims for cost reporting years after June 30, 1973, if the amount in controversy was $10,000 or more. The section provides in relevant part:

A decision of the Board shall be final unless the Secretary, on his own motion, and within 60 days after the provider of services is notified of the Board's decision, reverses, affirms, or modifies the Board's decision. Providers shall have the right to obtain judicial review of any final decision of the Board, or of any reversal, affirmance, or modification by the Secretary, by a civil action commenced within 60 days of the date on which notice of any final decision by the Board or of any reversal, affirmance, or modification by the Secretary is received.

42 U.S.C. § 1395oo(f)(1).

The Board was given broader subject matter jurisdiction than were the intermediary hearing officers, but its jurisdiction is nonetheless restricted:

Although the Board's authority to review reimbursement disputes is extensive, it will not attach jurisdiction to nor render a decision on any matter dealing with:

....

10. A dispute as to the constitutionality of the law, regulations, or SSA instructions or rulings(.)

Medicare Intermediary Manual, HIM-13 (Part 2), § 2624.5, reprinted in (1980) 2 Medicare & Medicaid Guide P 7514.25.

Under the current scheme, then, for cost reporting years on or after June 30, 1973, if a provider disagrees with the fiscal intermediary's determination of the appropriate reimbursement amount, and the amount in controversy is $10,000 or more, it may request an administrative hearing before the Board. For cost reporting years prior to June 30, 1973, if the amount is $1,000 or more, and for cost years ending on or after June 30, 1973, if the amount is $1,000 or more, but less than $10,000, the intermediary hearing is available. No provision is made for administrative review of claims for less than $1,000.

The procedures employed by fiscal intermediaries in Region IV of the Department of Health and Human Services ⁵ to establish owner-administrator compensation ranges ⁶ became the object of this class action, filed in September 1975 by Hopewell Nursing Home, a South Carolina skilled nursing facility, and William P. Betchman, half owner and full time administrator of Hopewell (collectively, Hopewell or the providers). Hopewell alleged that the ranges for certain years were invalid because they had not been promulgated in accordance with the Secretary's instructions; that the manner of establishment, as well as the use of the ranges, was arbitrary and capricious; that the Secretary's promulgation of the procedures used to develop the ranges and the adoption of the ranges themselves were substantive rulemaking and hence invalid because the Administrative Procedure Act, 5 U.S.C. § 551 et seq., had not been complied with; that the ranges denied owner-administrators due process and equal protection of the laws; and that the defendants' destruction of the background data for the 1971 ranges violated the Federal Records Act of 1950, 44 U.S.C. §§ 3101 et seq. The complaint sought declaratory and injunctive relief and damages. ⁷ Hopewell had sought no administrative review of these claims or of specific reimbursement claims prior to instituting this action in district court. After denying the Secretary's motion to dismiss for lack of subject matter jurisdiction, the district court granted the providers' motion for summary judgment, holding that the 1971 and 1974 ranges were invalid and that all reimbursements made in accordance with those ranges had to be recomputed. Following the court's denial of his motion for reconsideration, the Secretary filed notice of appeal with this court.

II.

We first turn to the Secretary's argument that federal question jurisdiction under 28 U.S.C. § 1331(a) is barred by section 205(h), which reads:

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 1331 or 1346 of Title 28 to recover on any claim arising under this subchapter. (emphasis added).

Because section 205(h) has been incorporated by reference in the Medicare Act "to the same extent as (it is) applicable with respect to" Title II of the Social Security Act, 42 U.S.C. § 1395ii, it is necessary at the outset to observe its effect on jurisdiction in the Title II setting. The Supreme Court has addressed the issue, interpreting section 205(h) to preclude section 1331 federal question jurisdiction over claims arising under Title II, the retirement, survivors, and disability insurance provisions of the Social Security Act. See Weinberger v. Salfi, 422 U.S. 749, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975). The specific challenge in Salfi was to the constitutionality of duration of relationship eligibility requirements which exclude from eligibility for Social Security insurance benefits surviving wives and stepchildren whose relationships to the deceased wage earner have endured for less than nine months prior to death. The Court held that the third sentence of section 205(h) is more than mere codification of the exhaustion of remedies...