Hospital Ass'n of Rhode Island v. Secretary of Health and Human Services

• Decision Date: 08 June 1987
• Docket Number: 86-1952,Nos. 86-1891,s. 86-1891
• Citation: 820 F.2d 533
• Parties: , Medicare&Medicaid Gu 36,348 HOSPITAL ASSOCIATION OF RHODE ISLAND, et al., Plaintiffs, Appellees, v. SECRETARY OF HEALTH AND HUMAN SERVICES, Defendant, Appellant. HOSPITAL ASSOCIATION OF RHODE ISLAND, et al., Plaintiffs, Appellants, v. SECRETARY OF HEALTH AND HUMAN SERVICES, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

Page 533

820 F.2d 533

18 Soc.Sec.Rep.Ser. 32, Medicare&Medicaid Gu 36,348

HOSPITAL ASSOCIATION OF RHODE ISLAND, et al., Plaintiffs, Appellees, v. SECRETARY OF HEALTH AND HUMAN SERVICES, Defendant, Appellant.

HOSPITAL ASSOCIATION OF RHODE ISLAND, et al., Plaintiffs, Appellants, v. SECRETARY OF HEALTH AND HUMAN SERVICES, Defendant, Appellee.

Nos. 86-1891, 86-1952.

United States Court of Appeals, First Circuit.

Argued April 8, 1987.

Decided June 8, 1987.

Joel W. Nomkin, with whom Richard K. Willard, Asst. Atty. Gen., Washington, D.C., Lincoln C. Almond, U.S. Atty., Providence, R.I., and Anthony J. Steinmeyer, Washington, D.C., were on brief, for Secretary of Health and Human Services.

Howard E. Walker, with whom Hinckley, Allen, Tobin & Silverstein, Providence, R.I., was on brief, for Hosp. Ass'n of Rhode Island.

Before COFFIN and TORRUELLA, Circuit Judges, and MALETZ, ^* Senior Judge.

MALETZ, Senior Judge.

This action concerns the amount of Medicare reimbursement owed to appellee hospitals, providers of services to Medicare beneficiaries, for the cost of malpractice insurance premiums in cost years 1980 through 1982. ¹ The district court found that the 1979 regulation used by the Secretary of Health and Human Services ("Secretary") to calculate that reimbursement was invalid, and awarded relief based on the regulation in effect prior to 1979. The Secretary appeals from that judgment; the hospitals cross-appeal from the dismissal of one count of their complaint. We vacate the judgment and remand to the district court, and dismiss the cross-appeal.

I. Background

The Medicare Act, Title XVIII of the Social Security Act, 42 U.S.C. Sec. 1395, et seq., provides for reimbursement to Medicare providers of the "reasonable cost" of treating Medicare patients. Id. Sec. 1395f(b)(1) (1982). The Secretary issues regulations establishing the methodologies by which the "reasonable cost" will be calculated. Id. Sec. 1395x(v)(1)(A) (Supp. III 1985). In turn, a fiscal intermediary initially determines the amount of reimbursement due, setting forth that amount in a written notice for each cost period. See id. Secs. 1395h(a), 1395g (1982); 42 C.F.R. Sec. 405.1803 (1986).

Pursuant to a regulation in effect prior to 1979, a provider was reimbursed for the cost of its general overhead expenses, including malpractice insurance premiums, in proportion to Medicare patients' utilization of the provider's services during the cost year. See 42 C.F.R. Sec. 405.452(b)(1) (1978). ² Under a regulation promulgated in 1979, however, malpractice insurance costs were no longer considered as part of general overhead expenses, and hospitals were reimbursed for only that proportion of premium costs which corresponded to the malpractice awards paid to Medicare patients during the year. 42 C.F.R. Sec. 405.452(a)(1)(ii) (1985) ("1979 rule"). ³ The effect of this new methodology was to reduce the amount of reimbursement made to most hospitals for malpractice insurance costs. See Abington Memorial Hospital v. Heckler, 576 F.Supp. 1081, 1083 (E.D.Pa.1983), aff'd, 750 F.2d 242 (3d Cir.1984), cert. denied, --- U.S. ----, 106 S.Ct. 180, 88 L.Ed.2d 149 (1985).

In the present action, the appellee hospitals challenged the amount of their Medicare reimbursement for the cost of malpractice insurance premiums in the cost years 1980-82, and the validity of the 1979 regulation used to compute that amount. On a motion for summary judgment by the Secretary, the district court found the 1979 rule invalid, noting that numerous circuit courts had reached the same conclusion. ⁴ Specifically, the court determined that the rule was arbitrary and capricious and in conflict with the statutory prohibition against shifting Medicare costs to non-Medicare patients. See 42 U.S.C. Sec. 1395x(v)(1)(A)(i) (Supp. III 1985). It also determined that in promulgating the rule the Secretary failed to comply with the notice and comment requirements of the Administrative Procedure Act. The court entered judgment for the hospitals, and awarded relief based on the methodology in effect prior to promulgation of the 1979 rule, reasoning that prior regulations remain valid until replaced by a valid regulation or invalidated by a court. See Cumberland Medical Center v. Secretary of Health and Human Services, 781 F.2d 536, 538 (6th Cir.1986); Menorah Medical Center v. Heckler, 768 F.2d 292, 297 (8th Cir.1985).

Although the district court found for the hospitals on those counts of their complaint pertaining to cost years 1980-82, it dismissed Count IV of the complaint, in which the hospitals had sought relief for cost years 1983-86. Because the hospitals had not obtained final administrative decisions on their claims for those years, the court held that it lacked subject matter jurisdiction. See 42 U.S.C. Sec. 1395oo (f)(1) (Supp. III 1985).

In April 1986, a few days after the district court's decision, the Secretary promulgated a new regulation setting forth yet another methodology for reimbursing the cost of malpractice insurance premiums. 51 Fed.Reg. 11,142 (April 1, 1986) (interim final rule); see 52 Fed.Reg. 9833 (March 27 1987) (confirmation of final rule) ("1986 rule"). ⁵ By its terms, the 1986 rule applies to hospital cost years beginning on or after July 1, 1979, thus including the years here in issue. After promulgation of the 1986 rule, the Secretary moved that the district court strike that portion of its opinion holding that the hospitals should be reimbursed under pre-1979 methodology, and remand the case to the Secretary for computation under the new rule. The motion was denied, following which the court entered a final judgment in conformity with its earlier decision. The Secretary filed this appeal, contending that this court should dismiss for mootness and lack of subject matter jurisdiction, or that, in the alternative, the action should be remanded to the Secretary for recalculation under the new 1986 rule. ⁶ The hospitals respond that the 1986 rule should not be applied to their claims, on the basis that it is arbitrary and capricious, improperly promulgated, and, in any event, should not be retroactively applied. The hospitals also cross-appeal, seeking reversal of the judgment dismissing Count IV of their complaint.

II.

1. Mootness

The hospitals, in their complaint, challenged as invalid the 1979 rule, which had been used to calculate the amount of reimbursement due the hospitals for malpractice insurance premium costs. The Secretary maintains that the validity of the 1979 rule was thus the only legal issue raised by the complaint and that since the 1979 rule is now superseded by the 1986 rule, the case is moot.

We do not agree. The "matter in controversy" as to which the hospitals sought judicial review, see 42 U.S.C. Sec. 1395oo (f)(1), is not the 1979 rule as such but rather the amount owed as reimbursement of malpractice insurance costs under the Medicare Act, which provides for reimbursement of "reasonable cost." See 42 U.S.C. Secs. 1395f(b), 1395x(v)(1)(A). The hospitals' contention that they are entitled to a specific sum of money, as calculated under the pre-1979 reimbursement rule, remains a live issue and one in which the hospitals have a legally cognizable interest. See Powell v. McCormack, 395 U.S. 486, 496, 89 S.Ct. 1944, 1950, 23 L.Ed.2d 491 (1969) (case is moot where issues no longer "live" or parties lack legally cognizable interest in outcome). "A dispute involving a monetary judgment constitutes a concrete interest in the outcome of the litigation and precludes a finding of mootness based on subsequent events." Bethesda Hospital v. Secretary of Health and Human Services, 810 F.2d 558, 560 (6th Cir.1987) (promulgation of 1986 rule subsequent to lower court decision did not moot action on claim originally determined under 1979 rule); accord Tallahassee Memorial Regional Medical Center v. Bowen, 815 F.2d 1435, 1448 (11th Cir.1987); see Ellis v. Brotherhood of Railway, Airline & Steamship Clerks, Freight Handlers, Express & Station Employees, 466 U.S. 435, 442, 104 S.Ct. 1883, 1889, 80 L.Ed.2d 428 (1984) (issue not moot where claim for money damages remained in case); New York Transit Authority v. Beazer, 440 U.S. 568, 580-81, 99 S.Ct. 1355, 1362, 59 L.Ed.2d 587 (1979) (same). ⁷

2. Jurisdictional Statute

The Secretary contends that we must dismiss for lack of subject matter jurisdiction under the relevant statute, 42 U.S.C. Sec. 1395oo (f)(1). ⁸ He argues in particular that the statute's requirement of a "final decision" is not satisfied because the hospitals never received a final decision of the Secretary regarding application of the 1986 rule to their claim for reimbursement.

The prerequisites for judicial review of an intermediary's determination on a Medicare Act claim are straightforward. Under section 1395 oo, a provider which has filed a cost report with its fiscal intermediary has a right to a hearing before the Provider Reimbursement Review Board ("Board") if dissatisfied with the intermediary's "final determination" of "the amount of total program reimbursement due." 42 U.S.C. Sec. 1395oo (a)(1)(A)(i) (Supp. III 1985). ⁹ Following a final decision by the Board, ¹⁰ the provider may seek judicial review. Id. Sec. 1395oo (f)(1). In the alternative, the provider may obtain expedited judicial review by first requesting a hearing but then obtaining a determination from the Board that it does not have authority to decide a question of law or regulations "relevant to the matters in controversy." Id. Sec. 1395oo (f)(1). ¹¹ There is a right to judicial review following such a determination. Id. Sec. 1395oo (f)(1); see 42 C.F.R. Sec. 405.1842 (1986).

All of these prerequisites to judicial review have been met. The hospitals were dissatisfied with the amount of reimbursement determined to be owing by the intermediary and sought and obtained a determination that the Board was without authority to resolve questions of law relevant to the...