Michael Reese Hosp. and Medical Center v. Thompson

• Citation: 427 F.3d 436
• Decision Date: 14 October 2005
• Docket Number: No. 04-2839.,04-2839.
• Parties: MICHAEL REESE HOSPITAL AND MEDICAL CENTER, also known as Michael Reese Health Trust, and Strategic Reimbursement, Incorporated, Plaintiffs-Appellants, v. Tommy G. THOMPSON, not individually but in his capacity as Secretary of the United States Department of Health and Human Services, and AdminaStar Federal, Incorporated, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

427 F.3d 436

MICHAEL REESE HOSPITAL AND MEDICAL CENTER, also known as Michael Reese Health Trust, and Strategic Reimbursement, Incorporated, Plaintiffs-Appellants, v. Tommy G. THOMPSON, not individually but in his capacity as Secretary of the United States Department of Health and Human Services, and AdminaStar Federal, Incorporated, Defendants-Appellees.

No. 04-2839.

United States Court of Appeals, Seventh Circuit.

Argued January 5, 2005.

Decided October 14, 2005.

Arthur L. Klein (argued), Arnstein & Lehr, Chicago, IL, Charles G.F. Mackelvie, The Mackelvie Law Firm, Chicago, IL, for Plaintiffs-Appellants.

Kathryn Ann Kelly, Miranda B. Jones (argued), Thomas P. Walsh, Office of the United States Attorney, Chicago, IL, for Defendants-Appellees.

Before KANNE, ROVNER, and SYKES, Circuit Judges.

ROVNER, Circuit Judge.

This case concerns a dispute between plaintiff, Michael Reese Hospital and Medical Center ("Michael Reese")¹ and the administrators of the federal Medicare program. Some background concerning that program is necessary in order to understand the context of this appeal. The Medicare program is a federally-subsidized health insurance program primarily for elderly and disabled individuals. The Secretary of the Department of Health and Human Services ("Secretary") administers the Medicare program through the Centers for Medicare and Medicaid Services ("CMS"), formerly known as the Health Care Financing Administration ("HCFA"). This appeal concerns Part A of that Medicare program, which is a hospital insurance program that covered payments for the costs of inpatient hospital services, including costs incurred in connection with training and instructing residents in approved graduate medical education programs by hospitals. Much of the administration of Part A is handled by private contractors, called fiscal intermediaries, pursuant to contracts with the Secretary. Those intermediaries determine the amount of payments due to providers of services.

Until 1983, the costs of educational activities and of inpatient hospital services were reimbursed by Medicare based upon a provider's reasonable costs. In an effort to control spending, however, Congress in 1983 adopted a prospective payment system, whereby hospitals were paid a standardized rate based on the diagnostic classification for the services rendered. At that time, costs incurred in connection with graduate medical education ("GME") were still reimbursed separately on a reasonable cost basis. In April 1986, however, Congress changed the method for calculating reimbursable GME costs. Rather than reimbursing hospitals for annual reasonable costs incurred in such GME programs, Congress designated a base year, 1984, for cost determinations. GME costs recognized as reasonable for that year would serve as the base figure to calculate GME reimbursements for all subsequent years. The GME Amendment directed the Secretary to determine a per resident amount by dividing each provider's 1984 GME costs recognized as reasonable, by the number of full-time equivalent residents working for the provider in 1984. That per-resident amount would then be used in subsequent years to calculate the provider reimbursement amount. Specifically, in subsequent years the provider reimbursement amount would be determined by taking the 1984 Base Year Per Resident Amount (hereinafter "Base Year Amount"), adjusting it for inflation by applying the Consumer Price Index for all Urban Consumers ("CPI-U"), and multiplying it by the hospital's weighted number of full-time equivalent residents and the hospital's Medicare patient load for the particular year. 42 U.S.C. § 1395ww(h)(3).

It was not until September 1989 that the Secretary promulgated regulations to implement that GME Amendment. In those regulations, the Secretary sought to ensure that the 1984 Base Year Amount actually reflected legitimate GME costs because that figure would be used for all future years. Therefore, the Secretary authorized Medicare contractors to re-audit and re-verify each hospital's Base Year GME costs and exclude non-allowable or misclassified costs. 42 C.F.R. §§ 413.86(e)(1)(ii). The rule permitted recoupment of Medicare overpayments based on the redetermined Base Year Amount only for years in which GME payments had not become final — those which were still within the three-year reopening period. Moreover, providers could appeal the intermediary's revised base year determinations to the Provider Reimbursement Review Board ("PRRB") within 180 days of their receipt of notice of the new determination. 42 C.F.R. § 413.86(e)(1)(v). The PRRB's decision was final unless within 60 days, the Secretary, acting through the CMS Administrator, reversed, affirmed, or modified the decision. 42 C.F.R. §§ 405.1871(b), 405.1875(a). Providers could obtain judicial review of any final decision of the PRRB or the Secretary. 42 U.S.C. § 1395oo(f)(1).

In July 1993, pursuant to that Final Rule, the intermediary Blue Cross and Blue Shield of Illinois a/k/a The Health Care Service Corporation ("HCSC") recalculated Michael Reese's Base Year Amount and issued Notices of Reopening and Amended Notices of Program Reimbursement ("NPRs") for fiscal years 1986, 1987, 1988, 1989, 1990, and 1991. Michael Reese challenged those NPRs within the 180-day appeal window, filing timely appeals in December 1993, with the PRRB disputing HCSC's Base Year Determination and the Amended NPRs for FY 1986-91. The challenge to the 1991 determination was resolved separately, and is not an issue in this appeal.

That same month a settlement, or administrative resolution, was reached regarding the Base Year Amount, which adjusted the Base Year Amount in Michael Reese's favor. In accordance with that administrative resolution, Michael Reese withdrew its challenge to the Base Year Amount, and the HCSC issued a Notice of Revised Average Per Resident Amount ("NAPRA") which incorporated the administratively-resolved amount. The NAPRA also informed Michael Reese of its right to appeal the determination to the PRRB within 180 days if it was dissatisfied with the amount. The NAPRA also included a schedule showing the revised per resident amount updated by the CPI-U through the cost report periods ending August 1991, which thus included new amounts for FY 1986-90. Satisfied with that resolution, Michael Reese did not appeal from the NAPRA, and that decision became final.

Despite the schedule showing adjusted amounts for FY 1986-90, however, Michael Reese never received any repayment from the Secretary of the amount that it presumably overpaid — an amount totaling approximately $1.5 million.² In May, 1996, the PRRB sent "reminder letters" to Michael Reese concerning the appeals for FY 1986-90. The reminder letters stated that the hearings on the PRRB appeals for the 1986-90 fiscal years were tentatively set for August 1997, and that the parties' position papers concerning the appeal were due in January and April of 1997. The letters further informed Michael Reese that if it failed to submit position papers, its appeals would be dismissed. The position papers were to address any issue not settled or withdrawn, even if a settlement was pending, and the failure to address an issue would result in the dismissal of that issue. The reminder letter also set forth the procedure to follow if all issues had been settled:

If all issues have been resolved, the Provider should withdraw the appeal. If the issues have been resolved but the Provider has not yet received payment, it should notify the Board. The Board will close the case but will permit the appeal to be reinstated at the end of one year if the Provider has not been paid.

Michael Reese did not respond to that letter from the PRRB in any way, neither filing position papers nor informing the PRRB that the issues had been settled and withdrawing the appeal. Accordingly, the PRRB dismissed those appeals.

Nothing further happened concerning the matter until June 1998, when Michael Reese wrote HCSC requesting that it implement the administrative resolution and revised NAPRA. Michael Reese followed up that letter with a letter in November 1999 to AdminaStar, which had succeeded HCSC in September 1997 as intermediary, again requesting implementation of the administrative resolution and revised NAPRA. In August 2001, AdminaStar denied Michael Reese's request to reopen the cost reports for FY 1986-90. Finally, in April 2003, counsel for Michael Reese wrote to CMS and requested that CMS order AdminaStar to reopen the cost reports for FY 1986-90 to implement the Resolution and revised NAPRA. CMS affirmed AdminaStar's refusal to reopen, stating that the request was filed after the 3-year period for reopening a cost report.

Michael Reese subsequently filed this action in the district court seeking enforcement of the administrative resolution. Michael Reese based jurisdiction on the Medicare Act and the Administrative Procedure Act ("APA"), on diversity of parties, and on the mandamus statute. On defendants' motion, the district court dismissed the claim for lack of subject matter jurisdiction.

On appeal, Michael Reese asserts that the district court erred in dismissing the case, and that it has established both federal question jurisdiction and jurisdiction under the federal mandamus statute. Both of those claims of jurisdiction, however, ultimately rest upon Michael Reese's contention that it exhausted its administrative remedies. Because we agree with the district court that Michael Reese failed to exhaust those remedies, we affirm the district court's dismissal for lack of subject matter jurisdiction.

I.

In asserting federal question jurisdiction, Michael Reese relies on the APA, which provides a cause of action for "[a] person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute." 5 U.S.C. § 702. As Michael Reese recognizes,...