Metropolitan Medical Center and Extended Care Facility v. Harris, s. 81-2401

Decision Date22 November 1982
Docket Number82-1014,Nos. 81-2401,s. 81-2401
Citation693 F.2d 775
PartiesMETROPOLITAN MEDICAL CENTER AND EXTENDED CARE FACILITY, Appellee, v. Patricia HARRIS, Secretary of the Department of Health and Human Services; the United States of America; and Blue Cross and Blue Shield of Minnesota, Appellants, METROPOLITAN MEDICAL CENTER AND EXTENDED CARE FACILITY, Appellant, v. Patricia HARRIS, Secretary of the Department of Health and Human Services; the United States of America; and Blue Cross and Blue Shield of Minnesota, Appellees.
CourtU.S. Court of Appeals — Eighth Circuit

J. Paul McGrath, Asst. Atty. Gen., James M. Rosenbaum, U.S. Atty., Anthony J. Steinmeyer, John F. Cordes, Attys., Dept. of Justice, Civ. Div., Washington, D.C., for Harris, et al.

Richard I. Diamond, John R. Beattie, Larkin, Hoffman, Daly & Lindgren, Ltd., Mark G. Mishek, Director of Legal Services, Minneapolis, Minn., for Metropolitan Medical Center and Extended Care Facility.

Patricia S. Hofstra, Chicago, Ill., for amicus curiae American Hosp. Ass'n; Leonard C. Homer, Ober, Grimes & Shriver, Baltimore, Md., of counsel.

James D. Kemper, Brenda S. Horn, Ice, Miller, Donadio & Ryan, Indianapolis, Ind., for amicus curiae Missouri Hosp. Ass'n.

William J. Keppel, Dorsey, Windhorst, Hannaford, Whitney & Halladay, Minneapolis, Minn., for amicus curiae Minnesota Hosp. Ass'n.

Before HEANEY, Circuit Judge, MILLER, * Judge, and COLLINSON, ** Senior District Judge.

HEANEY, Circuit Judge.

Metropolitan Medical Center and Extended Care Facility (Metro) received a grant, interest subsidy and loan guaranty under the Hill-Burton Act, 42 U.S.C. Secs. 291 et seq. As a statutory condition of receiving that Hill-Burton aid, Metro agreed: (1) to make its facilities available to all persons residing in its territorial area--its community service assurance, and (2) to provide a reasonable volume of free medical care to indigents--its free care assurance. Metro also is a provider of medical services under the federal medicare program. 42 U.S.C. Secs. 1395 et seq. That program reimburses providers for their "reasonable cost" incurred in treating medicare patients. Metro sought reimbursement from the medicare program for its Hill-Burton free care and community service costs. The Secretary of Health and Human Services (Secretary) denied Metro's claims. The district court 1 reversed in part, holding that Hill-Burton free care costs are a reimbursable expense under the medicare program. The Secretary filed a timely notice of appeal. Metro cross-appealed from the district court's denial of its community service claim. We hold that the Secretary properly construed the Hill-Burton and Medicare Acts in denying Metro's claims for medicare reimbursement for both its Hill-Burton free care and community service costs. The district court's judgment is reversed in part, affirmed in part, and remanded for a determination of whether Metro is entitled to Medicare reimbursement of its community service costs on grounds not considered below. 2


Neither the Hill-Burton Act nor the Medicare Act expressly addresses the question of whether a health service provider may receive reimbursement from the medicare program for costs incurred in fulfilling its Hill-Burton obligation to provide free care to indigents and community service. We thus review both Acts to determine whether such reimbursement is permissible.

The Hill-Burton Act was passed in 1946 to help remedy the shortage and inadequacy of hospital facilities in the United States. It authorizes grants, loan guarantees and interest subsidies for hospital construction and modernization. 42 U.S.C. Sec. 291a. The Act requires that health care institutions, as a condition of receiving federal funds, "furnish needed services for persons unable to The Medicare Act, enacted in 1965, provides funding for hospitals' insurance benefits for the aged and disabled. Social Security taxes fund the medicare program, and payments are made out of the Federal Hospital Insurance Trust Fund. 42 U.S.C. Sec. 1395g. Health service providers participating in the program receive reimbursement from the trust fund for the "reasonable cost"--including both direct and indirect expenses--of covered services. 42 U.S.C. Sec. 1395x(v)(1)(A). "Reasonable cost" is "determined in accordance with regulations" promulgated by the Secretary. Id.

                pay therefor."    42 U.S.C. Sec. 291c(e). 3   Pursuant to the Act, the Secretary has issued regulations requiring subsidized hospitals to provide certain levels of "uncompensated care" to indigents.  42 C.F.R. Sec. 53.111. 4   The regulations provide several alternative means for hospitals to fulfill their free care obligation, including state approval of the uncompensated services level, "presumptive compliance" through an open door policy and satisfaction of a mathematical formula.  42 C.F.R. Sec. 53.111(d) & (h).  The Secretary also has promulgated regulations requiring subsidized hospitals "to give a community service assurance," but unlike the free care regulations, no quantitative compliance provisions have been established

There are several steps in the medicare reimbursement process. To participate in the medicare program, a health service provider must file an agreement with the Secretary. 42 U.S.C. Sec. 1395cc. The provider is usually reimbursed through a fiscal intermediary, which is generally a private third party payer. The intermediary has entered into an agreement with the Secretary pursuant to 42 U.S.C. Sec. 1395h, and is a statutorily authorized agent of the Secretary. Id.

The primary duty of the fiscal intermediary is to make payment of funds to providers in accordance with the Medicare Act and its regulations. Because payment after any necessary audit would result in a lengthy delay between the date services were rendered and the date of payment, estimated payments are made to providers at least monthly, with a subsequent adjustment for any overpayment or underpayment. 42 U.S.C. Secs. 1395g & 1395x(v)(1)(A)(ii); 42 C.F.R. Secs. 405.402(b)(1) & (2) & 405.454. The intermediary makes a final determination of the proper amount of reimbursable cost at the close of the provider's fiscal year. 42 C.F.R. Sec. 405.406(b). The final determination is based upon a "cost report" which the provider is required to file with the intermediary. Id.

If the provider disagrees with the intermediary's decisions, it may request a hearing before the Provider Reimbursement Review Board (PRRB) when the amount in controversy is $10,000 or more. 42 U.S.C. Sec. 1395oo(a). The Secretary, through the Administrator of the Health Care Financing Administration (HCFA), may review, on his own motion, the decision of the PRRB. 42 U.S.C. Sec. 1395oo(f)(1). If the final administrative decision is adverse to the provider, it may obtain judicial review in the appropriate federal district court. Id.


Metro is a 736-bed hospital created in 1970 through the consolidation of two other facilities. The predecessor hospitals had received Hill-Burton grants of $911,663 and $432,000 in 1968 and 1969. Metro received an additional $1,456,869 Hill-Burton grant in 1973, making the total grant approximately $2.8 million. In 1973, Metro also received a Hill-Burton loan guaranty and interest subsidy on a loan of $16,765,294. In return for the Hill-Burton aid, it obligated itself to provide some $450,000 in free Metro submitted its $530,521 free care claim and $199,419 community service claim as "administrative and general expenses" in its 1977 cost report, and sought reimbursement for medicare patients' proportionate share of these Hill-Burton expenses. The intermediary, Blue Cross, disallowed both claims. Metro appealed, and the PRRB affirmed the intermediary's decision. Finally, the Secretary, through the HCFA administrator, reviewed the PRRB decision and determined that the intermediary had correctly disallowed Metro's Hill-Burton claim.

care to indigents during the one-year cost reporting period ending September 30, 1977. Metro claims that it provided $530,521 in free care during this period.

Metro challenged the Secretary's final decision in the district court. On cross-motions for summary judgment, the district court overturned the Secretary's decision concerning the free care obligation. It held that Metro's Hill-Burton free care obligation was a reimbursable "reasonable cost" of the medicare program because hospital construction financed by Hill-Burton aid benefited medicare patients. It rejected the Secretary's contentions that Hill-Burton free care was unreimbursable "charity" under the Medicare Act regulations and that such reimbursement would contravene the purpose of the Hill-Burton Act. The district court, however, affirmed the Secretary's decision concerning Metro's community service claim.

The Secretary appeals from the district court's judgment for Metro on the Hill-Burton free care issue. Metro cross-appeals from the district court's denial of its claim for medicare reimbursement for its community service costs.


The issues presented here arise from the interrelationship between the Medicare Act and the Hill-Burton Act. The two statutes must be construed consistently "to produce a symmetrical whole." Panhandle Eastern Pipe Line Co. v. Federal Power Commission, 359 F.2d 675, 679 (8th Cir.1966).

Issues of statutory construction, of course, are questions of law. An agency's construction of the statute it is charged with administering is entitled to deference by the courts. Medical Center of Independence v. Harris, 628 F.2d 1113, 1117-1118 (8th Cir.1980); Blue Cross Association v. Harris, 622 F.2d 972, 978-979 (8th Cir.1980). Nonetheless, courts are the final authorities on such issues of statutory construction. Medical Center of Independence v. Harris, supra, 628 F.2d at 1117. They remain free to set aside an agency's construction of a statute if it does...

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