Humana of South Carolina, Inc. v. Califano, Nos. 76-1953

CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)
Writing for the CourtBefore ROBINSON, ROBB and WILKEY; SPOTTSWOOD W. ROBINSON, III
Citation590 F.2d 1070,191 U.S.App.D.C. 368
PartiesHUMANA OF SOUTH CAROLINA, INC., doing business as Coleman-Aimar Hospital, a Corporation, Appellee, v. Joseph A. CALIFANO, Jr., Secretary of Health, Education and Welfare, Appellant. HUMANA OF SOUTH CAROLINA, INC., doing business as Coleman-Aimar Hospital, Appellant, v. Joseph A. CALIFANO, Jr., Secretary of Health, Education and Welfare, Appellee.
Decision Date29 December 1978
Docket Number76-2125,Nos. 76-1953

Page 1070

590 F.2d 1070
191 U.S.App.D.C. 368
HUMANA OF SOUTH CAROLINA, INC., doing business as
Coleman-Aimar Hospital, a Corporation, Appellee,
v.
Joseph A. CALIFANO, Jr., Secretary of Health, Education and
Welfare, Appellant.
HUMANA OF SOUTH CAROLINA, INC., doing business as
Coleman-Aimar Hospital, Appellant,
v.
Joseph A. CALIFANO, Jr., Secretary of Health, Education and
Welfare, Appellee.
Nos. 76-1953, 76-2125.
United States Court of Appeals,
District of Columbia Circuit.
Argued Jan. 23, 1978.
Decided Sept. 18, 1978.
Rehearing Denied Dec. 29, 1978.

Alfred G. Lowe, James C. Pyles, Attys., Dept. of Health, Ed. and Welfare, Baltimore, Md., with whom Rex E. Lee and Barbara Allen Babcock, Asst. U. S. Attys. Gen., Earl J. Silbert, U. S. Atty., and John A. Terry, Asst. U. S. Atty., Washington, D. C., were on the brief, for appellant in No. 76-1953 and appellee in No. 76-2125. Joseph Guerrieri, Asst. U. S. Atty., and Morton Hollander, Atty., Dept. of Justice, Washington, D. C., entered appearances for appellant in No. 76-1953 and appellee in No. 76-2125.

John M. Bray, Washington, D. C., with whom Joseph E. Casson and Marc L. Fleischaker, Washington, D. C., were on the brief, for appellee in No. 76-2125 and appellant in No. 76-1953.

Before ROBINSON, ROBB and WILKEY, Circuit Judges.

Opinion for the Court filed by Circuit Judge SPOTTSWOOD W. ROBINSON, III.

SPOTTSWOOD W. ROBINSON, III, Circuit Judge:

Humana of South Carolina, Inc., a proprietary hospital, asserts procedural, statutory and constitutional challenges to a regulation promulgated by the Secretary of Health, Education and Welfare limiting the rate of return on equity capital recoverable as a cost item by providers of services under the Medicare Act. 1 The District Court assumed jurisdiction, rejected Humana's procedural objection, ruled in its favor on the statutory ground and accordingly declined to reach its constitutional arguments. 2 We hold that the court lacked power to entertain the statutory contentions because Humana failed to pursue available administrative procedures furnishing the exclusive approach to judicial review of claims such as these. We affirm the District Court's disposition in all other respects.

I

In 1965, Congress adopted the Medicare program to extend federal subsidization of

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medical care to the aged. 3 Hospital insurance coverage under Part A of the Medicare Act ordinarily is effected through cost-reimbursement directly to providers of services rather than to beneficiaries. 4 Generally, reimbursement is handled by private organizations acting as fiscal intermediaries pursuant to contract with the Secretary. 5 Amounts paid are dictated by the "reasonable cost" of covered services or the provider's "customary charge" therefor, whichever is less. 6

As originally enacted, the Medicare legislation made no provision for a return on equity capital to proprietary facilities. By virtue of his authority to promulgate regulations governing payment of "reasonable cost(s)," 7 however, the Secretary undertook to afford a "bonus factor" an allowance of two percent above costs otherwise recoverable to all participating institutions. 8 In 1966, Congress amended the Act by adding Section 1395x(v)(1)(B), which expressly recognized return on equity capital to proprietary skilled nursing facilities. 9 In its report on the amending bill, the House Ways and Means Committee urged the Secretary to fashion regulations enabling a return for proprietary hospitals, 10 the rate therefor to be determined by resort to principles "comparable" to those underlying Section 1395x(v)(1)(B), which in terms related only to skilled nursing facilities. 11 The Secretary issued a regulation to that end, incorporating for proprietary hospitals the maximum rate authorized in Section 1395x(v)(1)(B) for nursing institutions. 12

Humana commenced suit in May 1975, predicating jurisdiction on the federal questions presented, 13 the Administrative Procedure Act 14 and two other statutory provisions. 15 Its complaint sought an injunction against enforcement of the Secretary's return-on-equity regulation for proprietary hospitals, a declaration of the regulation's incompatibility with the governing statute, and retroactive corrective adjustments in amounts theretofore paid under the regulation. Humana alleged that reimbursement authorized by the regulation was so low as to contravene statutory principles mandating reimbursement of "reasonable costs" 16 and proscribing subsidization by non-Medicare patients of hospitalization costs 17 of Medicare beneficiaries. Inadequate reimbursement was said also to constitute a taking of property without just compensation in violation of the Fifth Amendment. Humana challenged the Secretary's regulation on procedural grounds as well, asserting that it had been promulgated without required adherence to procedures set forth in the Administrative Procedure Act. 18

Page 1074

The District Court took jurisdiction of all counts. 19 It held that administrative prescriptions of the sort in issue are exempt from the procedural demands of the Administrative Procedure Act, 20 but that Humana had shown prima facie that the Secretary's regulation, in tying the maximum rate for proprietary hospitals to that statutorily set for proprietary skilled nursing facilities, operated to keep reimbursement 21 unreasonably low. The court granted a summary judgment for Humana on the statutory ground without reaching the constitutional contentions 22 and ordered the Secretary to conduct a study to determine a rate of return on equity capital for proprietary hospitals consonant with the principles undergirding the rate that Congress fixed for proprietary skilled nursing facilities. 23

The Secretary appeals from the rulings on jurisdiction and statutory entitlement. In turn, Humana cross-appeals the determination on applicability of the Administrative Procedure Act to the contested regulation. We hold that the District Court lacked power to entertain Humana's substantive claims because of its failure to resort preliminarily to the administrative process erected by the Medicare Act. We reach a contrary conclusion in regard to Humana's procedural challenge, and on that issue we affirm the District Court on the merits.

II

Jurisdiction of Humana's suit hangs on the interplay of several provisions of the Social Security Act. Section 205(h), directly applicable to Title II of the Act, ordains that the "findings and decisions of the Secretary after a hearing shall be binding" upon all participants therein. 24 It further specifies:

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 41 of Title 28 to recover on any claim arising under this subchapter. 25

In Weinberger v. Salfi, 26 the Supreme Court construed Section 205(h) to intercept jurisdiction under 28 U.S.C. § 1331(a) the successor to the Section mentioned 27 over a constitutional assault on a duration-of-relationship requirement of the Social Security Act limiting eligibility of surviving wives and step-children for Social Security disability insurance benefits. 28 The Court noted that the language of Section 205(h) is "sweeping and direct," 29 precluding general federal-question jurisdiction under Section 1331(a) "irrespective of whether resort to judicial processes is necessitated by discretionary decisions of the Secretary or by his nondiscretionary application of allegedly unconstitutional statutory restrictions." 30 By operation of Section 205(h), the sole avenue to judicial review is that provided in Title II of the Social Security Act itself Section 205(g), 31 which exacts as a "jurisdictional prerequisite" a "final decision" of the

Page 1075

Secretary. 32 Since that requirement, the Court added, is "something more than simply a codification of the judicially developed doctrine of exhaustion" it could "not be dispensed with merely by a judicial conclusion of futility." 33

Section 205(h) and consequently Salfi has bearing on the litigation before us because it was incorporated into the Medicare Act by Section 1395ii "to the same extent . . . applicable . . . to (Title II)." 34 Section 205(g), however, was borrowed only for limited purposes not here pertinent; 35 the review procedure applicable to provider-reimbursement disputes is found in Section 1395Oo. 36 Under that provision, administrative review must be obtained before the Provider Reimbursement Review Board when a provider is displeased with the total amount of reimbursement approved by its fiscal intermediary. 37 Following a "final decision" by the Board or a "reversal, affirmance, or modification" thereof by the Secretary, a provider can press its claims in a federal court. 38

In Association of American Medical Colleges v. Califano, 39 we construed Section 205(h), in light of Salfi, to foreclose jurisdiction under Section 1331(a) and to direct litigation through Section 1395Oo in a suit challenging an administrative regulation limiting allowable reimbursement as inconsistent with the statutory mandate to recompense "reasonable costs." 40 We further

Page 1076

held that Section 205(h), in order to preserve the integrity of the statutory review process, shuts off all alternative routes to court "when the Act's review procedures . . . allow judicial consideration of the particular action." 41 In such cases, "before a suitor may obtain judicial consideration of a claim" 42 "seeking eventual realization of provider-cost reimbursement under the Medicare Act," 43 "he must first present the claim to the Provider Reimbursement Review Board and obtain a 'final decision' by it." 44 Humana endeavors to distinguish the present case from our decision in American Medical Colleges on several grounds, each of which we consider in turn. ...

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110 practice notes
  • Ellis v. Blum, No. 354
    • United States
    • U.S. Court of Appeals — Second Circuit
    • February 18, 1981
    ...therefore be grounded on § 1331. See, e. g., St. Louis University v. Blue Cross Hospital Service, supra; Humana of South Carolina, Inc., 590 F.2d 1070, 1080-81 (D.C.Cir.1978). But see Trinity Memorial Hospital of Cudahy, Inc. v. Associated Hospital Service, Inc., 570 F.2d 660, 667 (7 Cir. 1......
  • Perdue v. Crocker National Bank, S.F. 24591
    • United States
    • United States State Supreme Court (California)
    • July 18, 1985
    ...5 U.S.C. § 553(b)(3)(A). This exemption, like the others, is to be narrowly construed. Humana of South Carolina, Inc. v. Califano, 590 F.2d 1070, 1082 (D.C.Cir.1978)." (Credit Union National Association v. National Credit Union Administration Board (D.D.C.1983) 573 F.Supp. 586, Consequently......
  • Alexander v. Schweicker, No. H-80-2.
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Connecticut)
    • March 23, 1981
    ...Services voluntarily waived the benefits of this exception, see 36 Fed.Reg. 2532 (1971); Humana of South Carolina, Inc. v. Califano, 590 F.2d 1070, 1084 & n.103 (D.C.Cir. 1978). However, it is not contested that the relevant provisions of the Manual were issued by the Secretary of the Depar......
  • Starnes v. Schweiker, No. 82-1543
    • United States
    • United States Courts of Appeals. United States Court of Appeals (4th Circuit)
    • August 16, 1983
    ...932 (D.C.Cir.1982); Daniel Freeman Memorial Hosp. v. Schweiker, 656 F.2d 473 (9 Cir.1981); Humana of South Carolina, Inc. v. Califano, 590 F.2d 1070, 1080 (D.C.Cir.1978); St. Louis Univ. v. Blue Cross Hosp. Serv., 537 F.2d 283, 291-294 (8 Cir.); cert. den. sub nom. Faith Hosp. Ass'n v. Blue......
  • Request a trial to view additional results
110 cases
  • Ellis v. Blum, No. 354
    • United States
    • U.S. Court of Appeals — Second Circuit
    • February 18, 1981
    ...therefore be grounded on § 1331. See, e. g., St. Louis University v. Blue Cross Hospital Service, supra; Humana of South Carolina, Inc., 590 F.2d 1070, 1080-81 (D.C.Cir.1978). But see Trinity Memorial Hospital of Cudahy, Inc. v. Associated Hospital Service, Inc., 570 F.2d 660, 667 (7 Cir. 1......
  • Perdue v. Crocker National Bank, S.F. 24591
    • United States
    • United States State Supreme Court (California)
    • July 18, 1985
    ...5 U.S.C. § 553(b)(3)(A). This exemption, like the others, is to be narrowly construed. Humana of South Carolina, Inc. v. Califano, 590 F.2d 1070, 1082 (D.C.Cir.1978)." (Credit Union National Association v. National Credit Union Administration Board (D.D.C.1983) 573 F.Supp. 586, Consequently......
  • Alexander v. Schweicker, No. H-80-2.
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Connecticut)
    • March 23, 1981
    ...Services voluntarily waived the benefits of this exception, see 36 Fed.Reg. 2532 (1971); Humana of South Carolina, Inc. v. Califano, 590 F.2d 1070, 1084 & n.103 (D.C.Cir. 1978). However, it is not contested that the relevant provisions of the Manual were issued by the Secretary of the Depar......
  • Starnes v. Schweiker, No. 82-1543
    • United States
    • United States Courts of Appeals. United States Court of Appeals (4th Circuit)
    • August 16, 1983
    ...932 (D.C.Cir.1982); Daniel Freeman Memorial Hosp. v. Schweiker, 656 F.2d 473 (9 Cir.1981); Humana of South Carolina, Inc. v. Califano, 590 F.2d 1070, 1080 (D.C.Cir.1978); St. Louis Univ. v. Blue Cross Hosp. Serv., 537 F.2d 283, 291-294 (8 Cir.); cert. den. sub nom. Faith Hosp. Ass'n v. Blue......
  • Request a trial to view additional results

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