Pasadena Hospital Ass'n, Ltd. v. United States

• Decision Date: 19 March 1980
• Docket Number: No. 317-77.,317-77.
• Citation: 618 F.2d 728
• Parties: PASADENA HOSPITAL ASSOCIATION, LTD. v. The UNITED STATES.
• Court: U.S. Claims Court

618 F.2d 728

PASADENA HOSPITAL ASSOCIATION, LTD. v. The UNITED STATES.

No. 317-77.

United States Court of Claims.

March 19, 1980.

Robert A. Klein, Washington, D. C., attorney of record, for plaintiff. Weissburg & Aronson, Inc., Washington, D. C., of counsel.

Lynn J. Bush, Alexandria, Va., with whom was Asst. Atty. Gen. Alice Daniel, Washington, D.C., for defendant. Leila H. Carp, Dept. of H.E.W., Washington, D. C., of counsel.

Before KASHIWA, KUNZIG and BENNETT, Judges.

ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT

BENNETT, Judge:

This is a Medicare suit involving a claim by a provider that it has not been fully reimbursed for its costs in providing services to Medicare patients. The case is before us on cross-motions for summary judgment. There is no genuine dispute as to material issues of fact. We hold for defendant.

Plaintiff, a nonprofit corporation operating a hospital, entered into an agreement in July 1966 with defendant through the Secretary of Health, Education and Welfare (the Secretary) to provide hospital services to beneficiaries of the Medicare Act. 42 U.S.C. §§ 1395 et seq. Plaintiff nominated Blue Cross Association to be its fiscal intermediary for Medicare purposes. As fiscal intermediary, Blue Cross acts as defendant's agent, assumes responsibility for auditing plaintiff's cost reports in order to determine allowable costs under the Medicare program, and reimburses plaintiff for such services from funds provided directly to Blue Cross by the Secretary. See 42 U.S.C. § 1395u. Plaintiff receives interim payments for services provided to Medicare patients, which payments are thereafter adjusted upon the intermediary's audit of the annual cost reports. This case involves two instances where Blue Cross made such adjustments for what it claimed were large overpayments to plaintiff.

Plaintiff appealed both adjustments to the intermediary itself through the Blue Cross Association Provider Appeal Procedures. The Blue Cross hearing officer denied both of plaintiff's claims. Plaintiff has exhausted its administrative remedies, see Ulman v. United States, 214 Ct.Cl. 308, 558 F.2d 1 (1977), and now seeks review of the administrative decision here.

Before turning to the merits, it is proper to examine our jurisdiction in this case and the proper scope of review. We have jurisdiction based on our general jurisdictional statute, 28 U.S.C. § 1491, for these money claims based on the Medicare statutes and plaintiff's contract with defendant. Overlook Nursing Home, Inc. v. United States, 214 Ct.Cl. 60, 556 F.2d 500 (1977); Whitecliff, Inc. v. United States, 210 Ct.Cl. 53, 536 F.2d 347 (1976), cert. denied, 430 U.S. 969, 97 S.Ct. 1652, 57 L.Ed.2d 361 (1977); Goldstein v. United States, 201 Ct.Cl. 888, cert. denied, 414 U.S. 974, 94 S.Ct. 287, 38 L.Ed.2d 217 (1973). However, our scope of review is quite limited. We can only review the administrative decision to see if it is arbitrary, capricious, unsupported by substantial evidence, or contains errors of law. We do not make a de novo review of the facts of these disputes. Overlook Nursing Home, Inc. v. United States, 214 Ct.Cl. at 65, 556 F.2d at 502.

I

The first issue on the merits involves plaintiff's claim that disallowance of reimbursement for certain items was improper because the disallowance was not timely made. The disallowance was made by Blue Cross after reopening an audit of plaintiff's cost reports. The parties agree that Medicare regulations require that if the fiscal intermediary wishes to reopen an audit of a provider's cost reports after a final determination has been made, it must do so within 3 years after the final determination. The applicable regulation was 20 C.F.R. § 405.499g (1973), 37 Fed.Reg. 10,725 (1972) (now replaced by 42 C.F.R. § 405.1885 (1979)). The relevant portions read:

(a) Reopening a determination. A determination on the amount of program reimbursement contained in a notice of program reimbursement may be reopened by the intermediary, either on its own motion or at the request of the provider, at any time within 3 years of the date of such notice to correct the amount of program reimbursement due the provider or due the health insurance program. No such determination may be reopened after such 3-year period except as provided in paragraph (d) of this section.

* * * * * *

(e) * * * The provision of this section shall also be applicable to any cost reporting period ending before December 31, 1971, and for any such period the 3-year period referred to in this section shall commence on the date of the intermediary's final determination on the cost report filed for such cost reporting period.

Plaintiff timely filed cost reports for its fiscal years ending October 1966 and October 1967. The reports were reviewed by the intermediary and on January 26, 1971, there was an "exit conference" attended by representatives of plaintiff and Blue Cross, at which plaintiff was notified that it had been overpaid and owed Blue Cross $22,285. Plaintiff was also notified of this deficiency by letter from Blue Cross on June 7, 1972, 17 months later. On June 26, 1974, Blue Cross reopened the audit of the 1966 and 1967 years and demanded $169,500. This was more than 3 years after the exit conference, but less than 3 years after the letter notice. The parties dispute whether the exit conference or the letter was the "final determination" and therefore whether the reopening was timely.

A related issue arose in Overlook Nursing Home, Inc. v. United States, supra. There the representatives of the provider and the fiscal intermediary met to discuss discrepancies in their accounts. The meeting resulted in an agreement wherein the intermediary promised to reimburse the provider for $125,000 worth of costs. Subsequently, after a post-audit review, the intermediary refused to pay more than $4,000. The provider argued that the earlier agreement was binding on both the intermediary and the Government. The court held that the intermediary's representatives at the meeting did not have real authority, as opposed to apparent authority, to bind the intermediary or the Government. The court characterized the agreement as merely an assurance by auditors that they would recommend their report to the intermediary. 214 Ct.Cl. at 69, 556 F.2d at 504. Since the representatives were without real authority, they could not bind the Government. Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 68 S.Ct. 1, 92 L.Ed. 10 (1947); Molony & Rubien Constr. Co. v. United States, 214 Ct.Cl. 809, 810 (1977); Dunphy v. United States, 208 Ct.Cl. 986, 989 (1975); Brown v. United States, 207 Ct.Cl. 768, 782, 524 F.2d 693, 701 (1975).

Plaintiff attempts to distinguish Overlook on the grounds that in Overlook only sub-contract auditors were involved whereas in the instant case Blue Cross's "senior reimbursement auditor" also attended the conference. Actually the Overlook opinion reveals that the intermediary's "field representative" as well as its auditors attended the meeting. 214 Ct.Cl. at 63, 566 F.2d at 501. Moreover, the fact that a "senior reimbursement auditor" attended the exit conference cannot serve to distinguish Overlook unless plaintiff can also show that the "senior reimbursement auditor" had real authority to bind his principal. On plaintiff's administrative appeal, the Blue Cross hearing officer held that the Blue Cross representatives at the exit conference had no real authority to bind Blue Cross to audit findings, citing testimony about Blue Cross internal procedures to that effect. In its brief, plaintiff attacks this finding, pointing to a Blue Cross internal memo summarizing the exit conference which says that plaintiff was told that no change would be made in the audit report and that the appeal procedures were available to it. This is rather indirect evidence of real authority. It is not enough to show that the administrative decision was unsupported by substantial evidence or was arbitrary and capricious. Therefore that decision must stand on this issue. Overlook Nursing Home, Inc. v. United States, supra, 214 Ct.Cl. at 65, 556 F.2d at 502.

At oral argument, plaintiff's counsel admitted that the Blue Cross representatives who attended the exit conference could not bind the Government, but argued that they could start the 3-year period running for reopening audits. This argument goes essentially to the interpretation of the words "final determination" in the regulation. 20 C.F.R. § 405.499g(e) (1973), 37 Fed.Reg. 10,725 (1972), quoted above. The parties' briefs do not address this issue directly, and Overlook is not in point. We are left to conclude what we can from the words "final determination." We hold that for a determination to be final it must be made by someone with authority to bind the intermediary and the Government to such determination absent a proper reopening or fraud or similar fault. See 42 C.F.R. § 405.1885(d)-(e) (1979). Since we have held above that no one had such authuority at the exit conference, it follows that the exit conference did not constitute a final determination.

Plaintiff next invites us to modify the rule of Federal Crop Ins. Corp. v. Merrill, supra, citing United States v. Lazy FC Ranch, 481 F.2d 985 (9th Cir. 1973), which was a case for estoppel. We do not think the facts of the two cases are analogous.

Plaintiff's last argument on the timeliness question is that the long delay in issuing the letter notice, 17 months, amounts to a waiver of the right to reopen the cost reports, citing Roberts v. United States, 174 Ct.Cl. 940, 357 F.2d 938 (1966). Roberts is distinguishable from the present case in that (1) the Government's delay in presenting its claim prevented the plaintiff contractor from appealing any dispute on the matter to the head of the department, and (2) the dispute involved a situation where it was imperative to examine the evidence involved while a...