Hospital San Jorge v. Secretary of Health, Ed. and Welfare

• Decision Date: 20 February 1980
• Docket Number: No. 79-1171,79-1171
• Citation: 616 F.2d 580
• Parties: HOSPITAL SAN JORGE, Plaintiff-Appellant, v. SECRETARY OF HEALTH, EDUCATION AND WELFARE, Defendant-Appellee.
• Court: U.S. Court of Appeals — First Circuit

Page 580

616 F.2d 580

HOSPITAL SAN JORGE, Plaintiff-Appellant, v. SECRETARY OF HEALTH, EDUCATION AND WELFARE, Defendant-Appellee.

No. 79-1171.

United States Court of Appeals, First Circuit.

Argued Nov. 6, 1979.

Decided Feb. 20, 1980.

Eduardo Morales Coll, Hato Rey, P. R., for plaintiff-appellant.

Jaclyn C. Taner, Asst. Regional Atty., with whom Julio Morales Sanchez, U. S. Atty., Alberto Tellechea, Asst. U. S. Atty., San Juan, P. R. and Frank V. Smith, III, Acting Regional Atty., New York City, were on brief, for defendant-appellee.

Before COFFIN, Chief Judge, CAMPBELL, Circuit Judge, WYZANSKI, Senior District Judge. ^*

WYZANSKI, Senior District Judge:

This appeal raises the question whether in seeking reimbursement of its Part A Medicare costs a hospital which has leased its radiology department must apply such portion of the rent which it received from that department as exceeds the hospital's reasonable costs incurred in that department to reduce the hospital's reasonable costs incurred in other departments.

I. STATUTORY BACKGROUND

Title XVIII of the Social Security Act establishes the "Medicare" health insurance program. 42 U.S.C. § 1395 et seq. This program, which provides federal reimbursement for medical care to the aged, has two parts: Part A, providing "hospital insurance" funded out of Social Security taxes, and Part B, a voluntary supplementary medical insurance program primarily covering physicians' services.

A hospital may participate in Part A of the Medicare program as a provider and receive federal payments by filing an agreement with the Secretary of Health, Education, and Welfare (hereafter "the Secretary"). 42 U.S.C. § 1395cc. Sometimes the Secretary, but usually one of his fiscal intermediaries, reimburses providers for services rendered to Medicare beneficiaries, 42 U.S.C. § 1395h.

The provider submits its bills for services to the intermediary for audit and payment. Then at the end of the fiscal year the provider submits its cost report. 42 CFR § 405.486(b). After analyzing the cost report to determine the reasonable costs of the services which the provider has rendered to program beneficiaries, the intermediary informs the provider, through a written Notice of Program Reimbursement, of the amount of Medicare reimbursement. 42 CFR § 405.1803. If the provider is dissatisfied with the intermediary's decision, and if the amount in controversy is $10,000 or more, it may request a hearing before the Departmental Provider Reimbursement Review Board, 42 U.S.C. § 1395oo (a); 42 CFR § 405.1835.

Within 60 days after a Board decision, the Secretary, on his own motion, may reverse, affirm or modify that decision. 42 U.S.C. § 1395oo (f)(1). Upon timely appeal, the district court has jurisdiction to review the final decision of the Board or of the Secretary. Id.

Part B is a voluntary health insurance program. An eligible individual may enroll in the program and agree to pay a monthly premium established by the Secretary. The premiums, together with amounts contributed by the federal government, are deposited in the Federal Supplementary Medical Insurance Trust Fund, (hereafter "FSMIT Fund"). After payment of a deductible by the beneficiary, the fund pays 80 percent of the reasonable charge for program services, most of which are rendered by physicians.

Regulations set forth in 42 CFR § 405.840 to § 405.488 govern the source and amount of reimbursement when a hospital-based physician, such as a radiologist, performs services for patients covered by Medicare A or B or both. Of those regulations the one applied by the Secretary in this case is codified as 42 CFR § 405.486 ¹ which the Secretary interpreted in HEW's Provider Reimbursement Manual, HIM-15, (hereafter "the Manual") § 2108.5A.1 and 2. ²

II. FACTS ³ IN 77-1062 AND PROCEEDINGS

Plaintiff San Jorge Hospital, a private proprietary corporation, is a 91-bed general, short-term, acute-care medical facility. It is a "provider of services" under Part A of the Medicare program.

In 1965, the hospital and Dr. Nelson Lugo Rigau, a physician-radiologist, entered into a five-year lease, subsequently renewed on a month-to-month basis, for the operation of the hospital's radiology department. Under the lease the hospital's obligations are to provide space for a radiology department, related utilities and janitorial services, specified equipment, and billing for radiology services provided to inpatients without health insurance. The physician's obligations are to provide the other necessary equipment and supplies, to employ all professional and nonprofessional personnel, to bill all outpatients and those inpatients with health insurance, and to assume all other costs relevant to the operation of the radiology department. The physician pays as rent a percentage of gross revenues from diagnostic services.

In fiscal year 1973 the hospital received from the radiology department $64,671 rent and "incurred x-ray operating costs in the amount of $19,210. . . . (The hospital) initially charged (those) expenses directly to the x-ray department." (A. 9). In fiscal year 1974 the rent was $63,725, the operating costs were $23,319, and the hospital reported in the same way as it had in 1973.

Upon auditing the hospital's costs reports for 1973 and 1974, Blue Cross of Florida (BCF), acting as fiscal intermediary, used for the 1973 accounting the $64,671 rent to offset the $19,210 x-ray department costs, and then used the $45,461 balance to offset part of the hospital's general service department costs. The same procedure was adopted with respect to the 1974 accounting the relevant figures being $63,725 rent, $23,319 x-ray department costs, and $40,406 balance applied to general service department costs. Those adjustments reduced the hospital's reimbursements under the Part A Medicare program by $12,514 for 1973 and by $11,789 for 1974.

The hospital sought review of the intermediary's decision with respect to its 1973 and 1974 cost reports before the Departmental Provider Reimbursement Review Board (the Board). The Board reversed the intermediary's adjustment, finding that the portion of the hospital's rent that exceeded the hospital's share of the costs of the x-ray department could not be offset against the other allowable costs of the hospital.

The Administrator of the Health Care Financing Administration, to whom the Secretary of HEW delegated authority to review Board determinations, reversed the Board's decision on May 20, 1977. He concluded that, under 42 CFR § 405.486(b)(1), the rental payments made by the radiologist must be used to eliminate the hospital's share of the costs of the x-ray department and then to reduce the hospital's total allowable costs reimbursable through the Part A Medicare program.

On July 22, 1977 the hospital filed a complaint (Civil Action No. 77-1062) in the United States District Court for the District of Puerto Rico, praying that the Secretary's May 20, 1977 final decision with respect to its 1973 and 1974 cost reports be reversed.

On February 21, 1978 the Secretary moved for summary judgment in that case.

III. ALLEGATIONS AND PROCEEDINGS IN 78-1593

On August 18, 1978 the hospital filed in the Puerto Rico District Court another complaint (Civil Action No. 78-1593). The complaint alleged facts with respect to the hospital and the lease which parallel the findings in 77-1062. It then alleged that in adjusting the hospital's 1976 allowable costs to determine its rights to reimbursement under the Medicare A program, the Blue Cross of Florida, as fiscal intermediary, had offset $35,338 of the 1976 rental income which the hospital had received from its leased x-ray department against the hospital's general service department costs. However, the complaint did not allege that the hospital had sought review of this adjustment before the Board. Nonetheless, the complaint prayed for a judicial order declaring the adjustment of its 1976 allowable costs to be illegal.

On November 21, 1978 the Secretary moved to dismiss the complaint in Civil Action No. 78-1593 for want of subject matter jurisdiction.

On December 14, 1978 the District Court granted the hospital's motion for consolidation of Civil Action No. 78-1593 with Civil Action No. 77-1062.

IV. THE DISTRICT COURT'S OPINION AND JUDGMENTS

Being of opinion that in 78-1593 the hospital had not satisfied the statutory prerequisites for judicial review under 42 U.S.C. § 1395oo (f), and that in 77-1062 the hospital's claim must be denied on the merits because the Secretary's decision was warranted by what is now 42 CFR § 405.486(b)(1), the District Court entered on February 23, 1979 judgment for the defendant in both Civil Action No. 77-1062 and Civil Action No. 78-1593. ⁴ March 19, 1979 plaintiff hospital filed its notice of appeal to this court. ⁵

V. THE JURISDICTIONAL ISSUE IN 78-1593

We affirm the District Court's judgment dismissing the complaint in 78-1593 for the reason given by that court. The relevant portion of 42 U.S.C. § 1395oo (f) provides:

A decision of the Board (Provider Reimbursement Review Board) shall be final unless the Secretary (of Health, Education and Welfare), on his own motion, and within 60 days after the provider of services is notified of the Board's decision, reverses or modifies (adversely to such provider) the Board's decision. In any case where such a reversal or modification occurs the provider of services may obtain a review of such decision by a civil action commenced within 60 days of the date he is notified of the Secretary's reversal or modification. . . .

In 78-1593 the complaint does not allege that there has been any decision by either the Provider Reimbursement Review Board or the Secretary of HEW. It does not even allege that plaintiff ever presented to the Board or the Secretary any claim with reference to the hospital's cost reporting for the only period covered by the complaint the year 1976.

The District Court correctly...