Kingsbrook Jewish Medical Center v. Richardson, 143

• Decision Date: 15 October 1973
• Docket Number: Docket 73-1552.,No. 143,143
• Citation: 486 F.2d 663
• Parties: KINGSBROOK JEWISH MEDICAL CENTER, Plaintiff-Appellant, v. Elliot L. RICHARDSON, Secretary of Health, Education and Welfare, and Associated Hospital Service of New York (Blue Cross), Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

486 F.2d 663 (1973)

KINGSBROOK JEWISH MEDICAL CENTER, Plaintiff-Appellant, v. Elliot L. RICHARDSON, Secretary of Health, Education and Welfare, and Associated Hospital Service of New York (Blue Cross), Defendants-Appellees.

No. 143, Docket 73-1552.

United States Court of Appeals, Second Circuit.

Argued September 20, 1973.

Decided October 15, 1973.

John M. Bray, Washington, D. C. (Arent, Fox, Kintner, Plotkin & Kahn, Washington, D. C., Edward A. Woolley, Bernard Zucker, Malcolm A. Hoffmann, New York City, of counsel), for plaintiff-appellant.

Harlington Wood, Jr., Asst. Atty. Gen. (Robert Morse, U. S. Atty., E. D. N. Y., Robert E. Kopp, Robert M. Feinson, Dept. of Justice, of counsel), for defendants-appellees.

Before KAUFMAN, Chief Judge, and SMITH and MULLIGAN, Circuit Judges.

KAUFMAN, Chief Judge:

The well-intentioned statutes enacted in the days of the Great Society are often characterized by a linguistic imprecision which inevitably breeds dispute. The Medicare Act is no exception. Fortunately, resolution here does not require us to achieve clarification at the expense of possible confusion, since the section that we ultimately interpret speaks in words of plain and common sense.

Plaintiff Kingsbrook Jewish Medical Center, a charitable organization, is a multiple facility hospital complex located in Brooklyn, New York. It has been a participating "provider of services" under the Medicare Act, 42 U.S.C. §§ 1395-1395pp,¹ from the program's birth on July 1, 1966. From that date until December 31, 1967, Kingsbrook contends that it received inadequate reimbursement for services furnished to Medicare beneficiaries and that the Secretary of Health, Education and Welfare has admitted as much but has refused to remedy the error despite a specific statutory directive to do so. The district court, 355 F.Supp. 965, dismissed the complaint, claiming lack of power to review the Secretary's decision. Kingsbrook appeals to this Court for resolution of this conflict.

To understand the origin of the controversy before us, a brief description of the Act's framework is in order. Section 1395cc requires a "provider of services" to agree with the Secretary of Health, Education and Welfare not to charge Medicare benefit recipients directly for services provided under the Act. Rather, a provider is reimbursed by the Secretary or by certain private organizations, designated fiscal intermediaries, under contract with HEW.² In this case, appellee Associated Hospital Service of New York acts in that capacity and Kingsbrook receives reimbursement through Associated.

In addition to establishing the source of reimbursement, the Medicare Act prescribes the manner of payment and the method of determining the aggregate reimbursement to which a provider is entitled. Section 1395g provides that the Secretary or his designate shall make periodic reimbursement, not less often than monthly, based on unaudited interim cost reports submitted by providers and subject to adjustment following audit. The total amount to be paid to a provider pursuant to section 1395f(b) shall be "the reasonable cost" of services rendered to Medicare beneficiaries, as determined under section 1395x(v). That section in turn requires the Secretary to determine "reasonable cost" by issuing regulations establishing permissible methods of cost calculation as well as provision for "suitable retroactive corrective adjustments where, for a provider of services for any fiscal period, the aggregate reimbursement produced by the methods of determining costs proves to be either inadequate or excessive."

Upon the enactment of the Act, Kingsbrook was operating two separate facilities—an acute division and a chronic division. Although one division treated a greater number of Medicare patients than the other and the divisions operated at disparate levels of per patient cost, HEW refused to accept the dual cost calculation proffered by Kingsbrook. Instead, the Secretary established a method of determining "reasonable cost" under which each provider was considered as a single unit, with reimbursement to be based on the product of the average per patient cost times the total number of patients treated by the provider.

On December 13, 1967, however, HEW reversed its position on the propriety of the dual cost calculation. The Bureau of Health Insurance, a division of the Social Security Administration, the arm of HEW responsible for establishing acceptable methods of cost determination, issued Intermediary Letter No. 295 which read, in pertinent part:

Although suitable from a certification point of view, this practice (single unit calculation) created difficulties in formulating methods for making equitable reimbursement for services rendered in each component facility of the complex. Where the cost of services rendered by each facility differs, or where there are significant differences in their various operating costs, the treating of all facilities as one entity for cost reimbursement purposes could mean an underpayment or overpayment for services rendered to beneficiaries. . . . Treating each facility as a separate cost entity, moreover, more accurately satisfies the provisions of Section 1861(v) (1) (presently codified as section 1395x(v) (1)) which stipulate that the costs with respect to individuals covered by title XVIII (Medicare) will not be borne by individuals not so covered, and vice versa. (Emphasis added)

Learning of this change in the approved method of cost calculation, Kingsbrook sought its retroactive application, as provided by section 1395x(v) (1) of the Medicare Act, to the period during which the erroneous single unit calculation had prevailed—July 1, 1966 to December 31, 1967. Two meetings were held with Bureau of Health Insurance officials and a third with an Assistant General Counsel of HEW. None proved fruitful for Kingsbrook, HEW's irresolute stance being prospective application only.³

Having exhausted existing administrative remedies,⁴ Kingsbrook, on November 13, 1972, filed its complaint in the United States District Court for the Eastern District of New York alleging that the Secretary of HEW had erred in refusing to initiate a retroactive corrective adjustment of the aggregate reimbursement improperly determined under the single unit method from July 1, 1966 to December 31, 1967. Kingsbrook asked for monetary damages in the amount of $394,392 as well as injunctive relief and a declaratory judgment ordering such retroactive adjustment. Following cross-motions for summary judgment and appellees' motion to dismiss, Judge Travia dismissed the complaint on the grounds that the Medicare Act impliedly precluded judicial review of the Secretary's decision under the Administrative Procedure Act (APA), 5 U.S.C. §§ 701-706.⁵ Finding dismissal irreconcilable with our decision in Aquavella v. Richardson, 437 F.2d 397 (2d Cir. 1971), we reverse.

I.

In Aquavella, we held that a provider could obtain judicial review of the Secretary's decision to suspend reimbursement payments, although the Medicare Act did not expressly provide for judicial review of that category of decision,⁶ by recourse to "nonstatutory" review under the APA. Id. at 402. Subject matter jurisdiction to entertain this claim, we found, properly rested on general federal question jurisdiction, 28 U.S.C. § 1331, provided, of course, the amount in controversy exceeded $10,000. Id. at 400 n. 9. In so holding, we necessarily met and resolved the contention urged by the Secretary that section 405(h)⁷ of the Social Security Act, incorporated into the Medicare Act by section 1395ii, expressly precluded judicial review of any decision by the Secretary unless such review was provided by the Medicare Act itself. After a thorough examination of the relevant legislative history as well as a prior interpretation of section 405(h) by this Court in Cappadora v. Celebrezze, 356 F.2d 1 (2d Cir. 1966), we construed the limitations of section 405(h) to apply only where a litigant sought to by-pass the judicial review procedures provided by the Medicare Act. We clearly noted:

Where the Medicare Act establishes procedures for review of the Secretary\'s decision, a court may not review that decision by any other means. However, where the Act does not provide such procedures, section 405(h) does not preclude review. Aquavella, supra, 437 F.2d at 402.

In this case, all parties agree that the Medicare Act includes no express provision for judicial review of the Secretary's refusal to make a retroactive corrective adjustment of a previous, inaccurate reimbursement. Although Aquavella would seem to foreclose any argument that section 405(h) presents a barrier to "non-statutory" judicial review, the Secretary unpersuasively attempts to distinguish that decision.

Appellees contend that the jurisdictional limitation contained in the third sentence of section 405(h) was not brought to the court's attention in Aquavella.⁸ Accordingly, the argument proceeds, the applicability of the jurisdictional preclusion embodied in section 405(h) is a matter of first impression and this Court, therefore, should ignore Aquavella and heed the allegedly plain statutory language. This reasoning is simply untenable. It strains credulity to suggest that this Court, squarely focusing on a statutory section containing three sentences, would overlook the third and final sentence. Moreover, it would have been fundamentally inconsistent for us to have held that while judicial review per se is not precluded by section 405(h), the whole question of review is mooted at the outset by the absence of jurisdiction. Rather, our decision in Aquavella stands for the proposition that, because of considerations of due process, all of the restraints on judicial action included in section 405(h) are inapplicable where the Medicare Act provides no procedure for judicial review. Consequently, we find jurisdiction to hear Kingsbrook's claim under 28...