Rhode Island Hospital v. Califano

• Decision Date: 27 October 1978
• Docket Number: No. 78-1161,78-1161
• Citation: 585 F.2d 1153
• Parties: RHODE ISLAND HOSPITAL, Plaintiff, Appellant, v. Joseph A. CALIFANO, etc., et al., Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

Page 1153

585 F.2d 1153

RHODE ISLAND HOSPITAL, Plaintiff, Appellant, v. Joseph A. CALIFANO, etc., et al., Defendants, Appellees.

No. 78-1161.

United States Court of Appeals First Circuit.

Argued Sept. 11, 1978.

Decided Oct. 27, 1978.

Thomas D. Gidley, Providence, R.I., with whom Thomas R. Courage, and Hinckley, Allen, Salisbury & Parsons, Providence, R.I., were on brief, for plaintiff, appellant.

Lawrence E. Burstein, Asst. Regional Atty., Dept. of Health, Ed. and Welfare, Boston, Mass., with whom Everett C. Sammartino, Asst. U.S. Atty., Providence, R.I., was on brief, for defendants, appellees.

Before COFFIN, Chief Judge, CAMPBELL, Circuit Judge, and DUMBAULD ^*, Senior District Judge.

COFFIN, Chief Judge.

This case comes to us from the district court's denial of subject matter jurisdiction in an action by Rhode Island Hospital, as a provider of Medicare and Medicaid services, to have declared unconstitutional certain regulations and a schedule of reimbursement limits promulgated pursuant to § 1861(v)(1)(A) of Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395-1395pp. After careful consideration of the intricate statutory scheme and the substantial case law that has recently developed in this area, we conclude that appellant's failure to pursue the administrative remedies of the Act precluded subject matter jurisdiction in the district court. Accordingly, we affirm.

I. Background and Issues

In 1965, Congress enacted Federal Health Insurance for the Aged, known as Medicare, as Title XVIII of the Social Security Act. Rhode Island Hospital, as a "provider of services", 42 U.S.C. § 1395x(u), is reimbursed for the "reasonable cost", of its Medicare services, 42 U.S.C. § 1395b, from a federal trust fund channeled through a fiscal intermediary, here Blue Cross of Rhode Island. The Medicare Act, in 42 U.S.C. § 1395x(v)(1)(A), excludes costs found to be unnecessary and authorizes regulations which reimburse up to established ceilings in advance for estimated costs. Pursuant to this directive, the Secretary promulgated such regulations, 20 C.F.R. § 405.460, and published a proposed Schedule of Limits, periodically revised, for hospital costs. See 39 Fed.Reg. 20168 (1974); 40 Fed.Reg. 17190, 23622 (1975); 41 Fed.Reg. 26992 (1976); 42 Fed.Reg. 35496, 53675 (1977).

Under this system, a hospital is located within a Standard Metropolitan Statistical Area (S.M.S.A.) and a group number assigned to the S.M.S.A. based on the area's per capita income. Each group is then subdivided into cells based on the number of beds available in the hospital. The reimbursement ceilings for the cell were determined as follows: cost data were acquired from each hospital in the cell; the 80th percentile of these costs was ascertained, subjected to various computations, and became the limit beyond which expenditures were presumed to be unreasonable and thus not reimbursable. Generally speaking a hospital in a higher per capita income area is reimbursed at a higher rate than a hospital of comparable size in a lower per capita income area. The regulations establish an exception process for challenging the amounts computed under this system at 20 C.F.R. § 405.460(e)(f).

The reimbursement limit established by this system for Rhode Island Hospital during the twelve month period beginning October 1, 1977 is $112.83 per diem. The Hospital's budgeted expenditures for this period are $130.47 per diem, leaving a deficit of $17.64 per diem per patient. The result is a projected loss of $1,559,094 in Medicare costs for the twelve months. The Hospital has not filed an exception, claiming that it would be futile for it to do so.

Instead, the Hospital sought to have these regulations, promulgated under section 222 of Pub.L.No.92-603, at 20 C.F.R. § 405.460(a)-(d) (1977), and their accompanying Schedule of Limits declared unconstitutional. The Hospital argued that these limitations on reimbursement constitute a taking of its property without due process and without just compensation, and that they discriminate against hospitals located in lower per capita income areas without rational basis, in violation of the equal protection of the laws. It further contended that the limits were arbitrary and capricious.

The Hospital complains as well of the impact of these Medicare reimbursement ceilings, incorporated by reference in 42 U.S.C. § 1396a(a)(13)(D), on its reimbursement by the states for Medicaid expenditures. The Medicaid system, embodied in Title XIX of the Social Security Act of 1965, provides assistance to those who are economically unable to meet the cost of necessary medical care, including the aged, the blind, the disabled and families with dependent children. It is funded by the Secretary of Health, Education and Welfare, but unlike Medicare, is administered by the states rather than the federal government. Springdale Convalescent Center v. Mathews, 545 F.2d 943, 950 (5th Cir. 1977); Opelika Nursing Home, Inc. v. Richardson, 448 F.2d 658, 660 (5th Cir. 1971).

State medical assistance plans which satisfy Title XIX statutory requirements, 42 U.S.C. § 1396a(a)(1)-(37), are in part financed by federal matching funds, and thus become subject to certain federal controls, one of which is at issue here. Section 1396a(a)(13)(D) of Title XIX states that a state plan must provide:

"for payment of the reasonable cost of inpatient hospital services provided under the plan, as determined in accordance with methods and standards, consistent with . . . (42 U.S.C.S. § 1320a-1), which shall be developed by the State and reviewed and approved by the Secretary and . . . included in the plan, Except that the reasonable cost of any such services as determined under such methods and standards shall not exceed the amount which would be determined under . . . (42 U.S.C.S. § 1395x(v)) as the reasonable costs of such services for purposes of title XVIII . . . ." (Emphasis added.)

The challenged regulations and Schedule of Limits promulgated under § 1395x(v) (1)(A) of Title XVIII therefore apply as well to Medicaid payments. Accordingly, the Hospital projects a potential Medicaid loss for the same twelve month period of $219,792, allegedly in violation of its constitutional rights.

II. Jurisdiction of the Medicare Dispute

The Hospital asserted below and argues on appeal that the district court had federal question jurisdiction under 28 U.S.C. § 1331(a). ¹ The Secretary in response argues that section 1331(a) jurisdiction is barred by § 205(h) of the Social Security Act, 42 U.S.C. § 405(h), found in Title II, but expressly made applicable to Title XVIII, the Medicare Act, by 42 U.S.C. § 1395ii.

Section 205(h) reads in relevant part:

"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 (28 U.S.C. § 1331) to recover on any claim arising under this subchapter."

This provision applies "with respect to (Title XVIII) to the same extent as (it is) applicable with respect to Title II." 42 U.S.C. § 1395ii.

"The extent to which (§ 205(h)) is applicable with respect to Title II" was considered by the Supreme Court in Weinberger v. Salfi, 422 U.S. 749, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975). In Salfi, the plaintiff class, composed of surviving wives and stepchildren of deceased wage earners, challenged the constitutionality of duration-of-relationship eligibility requirements under Title II of the Social Security Act. Id. at 752-53, 95 S.Ct. 2457. The Court held that the district court was barred by the last sentence of § 205(h), quoted Supra, from exercising § 1331 jurisdiction. Describing this sentence as "more than a codified requirement of administrative exhaustion", and emphasizing that "No action shall be brought under § 1331", the Court required the plaintiffs to resort to the Act's provisions for judicial review of the Secretary's decision in that case, 42 U.S.C. § 405(g). ²

It seems to us that the plain language of 42 U.S.C. § 405(h) and § 1395ii, read in tandem, and the Supreme Court's interpretation of the former in Salfi bar the finding of § 1331 jurisdiction in this case. Our review gains support from a recent case in which the Association of American Medical Colleges sought to challenge the same cost limitation regulations at issue here. In Association of American Medical Colleges v. Califano, 186 U.S.App.D.C. 270, 569 F.2d 101 (1977), the court, relying on Salfi, held that "appellant's failure to pursue the Act's remedial administrative procedures that culminate in judicial review left the District Court without subject-matter jurisdiction over the action." Id. 186 U.S.App.D.C. at 272, 569 F.2d at 103.

The Hospital argues, however, that neither the language of the statute itself, nor the Supreme Court's directive in Salfi, as read by others than the District of Columbia Circuit, precluded the district court from hearing its claim. We first consider its attempt to confine the reach of section 405(h) as it applies to disputes under the Medicare statute, Title XVIII.

Faced with the language of 42 U.S.C. § 1395ii that applies § 405(h) to Title XVIII to the same extent that that section applies to Title II disputes, the Hospital nonetheless maintains that the impact of § 405(h) on Title XVIII can be determined only by a detailed exploration of Title XVIII itself. In 42 U.S.C. § 1395ff, provision is made for resolution of three types of Medicare controversies: disputes as to whether an individual is covered by Medicare; disputes concerning the amount of benefits to which an individual is entitled; and disputes as to whether a provider is eligible to participate in the Medicare program. The Hospital correctly notes that in these Title XVIII contexts, the judicial review mechanisms of § 405(g), See note 2, Supra, are expressly carried...