Sacred Heart Hospital v. United States

• Decision Date: 20 February 1980
• Docket Number: No. 357-77.,357-77.
• Citation: 616 F.2d 477
• Parties: SACRED HEART HOSPITAL v. The UNITED STATES.
• Court: U.S. Claims Court

616 F.2d 477

SACRED HEART HOSPITAL v. The UNITED STATES.

No. 357-77.

United States Court of Claims.

February 20, 1980.

Leonard C. Homer, Baltimore, Md., attorney of record for plaintiff. Merlin H. Staring, Washington, D. C., and James C. Lanshe, Sr., Allentown, Pa., of counsel.

Gerald L. Schrader, Washington, D. C., with whom was Asst. Atty. Gen. Alice Daniel, Washington, D. C., for defendant. Leila H. Carp, Columbia, Md., of counsel.

Before COWEN, Senior Judge, and KUNZIG and SMITH, Judges.

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

KUNZIG, Judge:

The general question presented to this court here is the appropriate amount of money owed plaintiff for administration of its inhalation therapy department under the Medicare program. Specifically, defendant contests this court's jurisdiction over the matter and plaintiff argues that defendant's actions are not in accordance with law. For the reasons stated below, we hold that this court has jurisdiction over these claims and that defendant's actions were arbitrary and capricious and contrary to law.

Plaintiff is a non-profit general hospital providing services under the Medicare program. 42 U.S.C. § 1395x (1976). In 1966, plaintiff, Sacred Heart ("Provider") filed an agreement with the Secretary of Health, Education and Welfare (HEW) entitling it to the reasonable cost of covered services it furnished to program beneficiaries. Id. at § 1395cc. Plaintiff chose Blue Cross Association (BCA) to act as its fiscal intermediary under the Medicare Act. Id. at § 1395h. BCA, in turn, subcontracted with Blue Cross of Lehigh Valley ("Plan") to service plaintiff hospital. Under the agreement with HEW and 42 U.S.C. § 1395h, BCA and the Plan were required to determine those reasonable amounts of Medicare reimbursement due to providers of services and make such payments.¹ As such, BCA and the Plan were agents of the Government — the "perennial defendant" in our court. See Overlook Nursing Home, Inc. v. United States, 556 F.2d 500, 501, 214 Ct.Cl. 60, 63 (1977).

Plaintiff submitted its costs for providing benefits to Medicare patients to the Plan which reviewed those costs as required. The Plan, acting on behalf of BCA and HEW, disallowed a substantial portion of Sacred Heart's administrative costs for its inhalation therapy program for 1967 through June 30, 1973.² All told, the Plan disallowed $69,914.00.³

The hospital appealed the Plan's determination to BCA's Chief Hearing Officer who reversed the decision. He first reviewed the history of plaintiff's inhalation therapy department. The department's purpose is to diagnose and care for patients with respiratory problems including services such as blood gas analysis, pulmonary function studies and administration of oxygen, humidity and medications. Patients range from out-patients with mild respiratory problems to those under continuous respirator care. In the hospital as a whole, about one-third of all patients were Medicare patients.

Prior to 1963, Sacred Heart had only limited inhalation therapy services available. The department, as such, consisted of a non-certified therapist and a technician who were trained to administer oxygen and operate pressure machines. In 1963, however, the hospital entered into an agreement with a board-certified anesthesiologist to administer its inhalation therapy program. The physician administrator originally was to receive 30% of the department's gross receipts but, at the insistence of the Plan, that was revised to 20%. Under the physician-administrator, the department has grown to eight full time, board certified anesthesiologists, nine trained technicians, two therapists and two registered therapists. The physicians' group receives 20% of the gross departmental receipts. For Medicare purposes, however, 25% of those receipts are considered to be for patient services and analyzed under that category. Thus, the actual fixed administrative cost of the program is 15% of gross receipts.⁴

In reviewing the reasonableness of plaintiff's administrative costs, the Plan had surveyed the administrative costs at other hospitals of comparable bed capacity and determined that $10,000 was the maximum reasonable administrative cost for a hospital of Sacred Heart's size. The Chief Hearing Officer was concerned, as we are upon review, that the Plan initially compared apples with oranges. There was no evidence that the cost of services correlated with the number of beds in a hospital.⁵ Consequently, he asked for further information regarding hospitals with similar numbers of inhalation therapy procedures.

Upon reviewing the Plan's survey of other hospitals in the region, the Chief Hearing Officer found:

The Provider had the largest inhalation therapy department, in terms of number of procedures, in its area . . . the Provider's cost per procedure was the lowest in the region. The cost per procedure of the administration of the inhalation therapy department was not out of line with costs for other institutions. While it is true that gross physician administration costs, as a percentage of gross inhalation therapy costs, was higher for this institution, the Hearing Officer concludes that this fact alone does not make the cost unreasonable. On a per procedure basis, the Provider's administration costs align with those of comparable area hospitals. The fact that the appealing provider provides the least expensive inhalation therapy rate in its area further supports a finding of reasonableness. In conclusion, the Hearing Officer finds that the evidence submitted does not support the Plan's determination that the Provider incurred unreasonable costs for the administration of its inhalation therapy department during the periods in question, when those costs are compared to similar institutions in the region in relation to services rendered. Emphasis added.⁶

Subsequently, HEW's Social Security Administrations's Bureau of Health Insurance (BHI) reviewed the Chief Hearing Officer's decision and directed him to reopen and revise his decision "without placing emphasis on the cost per amount of procedure." BHI considered the hearing officer to have failed to evaluate the case properly under the prudent buyer policy HEW used to keep costs reasonable. The Bureau's reasoning was:

We do not believe that a "per procedure" basis is a valid measure for evaluating the administrative costs of a department. While the number of procedures may indicate variations in the size of inhalation therapy departments, which in turn may require differing degrees of administration, there is no indication to show that this relationship is proportional; that is, where one department has twice the number of procedures as another, it does not follow that the administrative costs need be in a two to one ratio.

A more accurate comparison of the administrative costs of inhalation therapy departments could be obtained by securing information on facilities with similar-sized inhalation therapy departments in accordance with the Medicare program's prudent buyer policy. This comparison should be made in terms of the number of employees, their skill levels, the number of patients in the facilities, the total costs of operating the department (exclusive of those administrative costs being questioned), and the sophistication of the services given.

It seems improper that the administrative compensation for the inhalation therapy department of the provider (a 289-bed hospital), amounted to over $67,000, whereas for the other hospitals, the costs ranged from $7,252-$12,240, the largest hospital in the comparison group (525 beds), having total costs (exclusive of administration costs) exceeding that of the provider, and serving a larger patient population, but having administrative compensation costs of only $12,240. Emphasis added.

The Chief Hearing Officer allowed plaintiff to submit further evidence before revising his opinion. Sacred Heart's evidence went to the propriety of the per unit cost basis of the prior decision and further explication of the range of administrative functions the physicians performed. Laboring under the constraints of BHI's directives, however, the Chief Hearing Officer reluctantly concluded that the hospital had failed to meet its burden of proof and the Plan's decision as to the reasonableness of Sacred Heart's inhalation therapy administrative costs must stand.⁷ Plaintiff then timely appealed that decision to this court.

I.

Defendant once again challenges this court's jurisdiction over a portion of this Medicare case. As to the years 1967 through fiscal year 1972, defendant apparently finally accepts this court's jurisdiction under 28 U.S.C. § 1491 (1976). See Gosman v. United States, 573 F.2d 31, 34, 215 Ct.Cl. 617, 621-22 (1978); St. Elizabeth Hospital v. United States, 558 F.2d 8, 214 Ct.Cl. 332 (1977); Whitecliff, Inc. v. United States, 536 F.2d 347, 349-51, 210 Ct.Cl. 53, 56-58 (1976), cert. denied, 430 U.S. 969, 97 S.Ct. 1652, 52 L.Ed.2d 361 (1977). For the cost period ending June 30, 1973, however, defendant argues that since plaintiff claims more than $10,000, 42 U.S.C. § 1395oo (1976) now requires plaintiff to bring its claim before the new Provider Reimbursement Review Board (PRRB) and subsequent review in the district courts.

In 1972, Congress enacted 42 U.S.C. § 1395oo (1976) and directed HEW to set up the PRRB to review provider complaints of intermediary's cost determinations. Ultimately, review of PRRB decisions was to be to the district courts. As we explained in Appalachian Regional Hospitals, Inc. v. United States, 576 F.2d 858, 217 Ct.Cl. 1 (1978), however, we are restricted in our ability to transfer cases to the district courts, 28 U.S.C. § 1506 (1976), and need not always do so where their jurisdiction is not exclusive. Id. at 13, 576 F.2d at 864.

In this case, plaintiff presents a compelling argument. When Sacred Heart sought review of...