Springdale Convalescent Center v. Mathews

• Decision Date: 20 January 1977
• Docket Number: No. 75-4199,75-4199
• Citation: 545 F.2d 943
• Court: U.S. Court of Appeals — Fifth Circuit
• Parties: SPRINGDALE CONVALESCENT CENTER, Plaintiff-Appellee, v. F. David MATHEWS, Secretary of Health, Education and Welfare, et al., Defendants-Appellants.

Page 943

545 F.2d 943

SPRINGDALE CONVALESCENT CENTER, Plaintiff-Appellee, v. F. David MATHEWS, Secretary of Health, Education and Welfare, et al., Defendants-Appellants.

No. 75-4199.

United States Court of Appeals, Fifth Circuit.

Jan. 20, 1977.

John W. Stokes, Jr., U. S. Atty., Julian M. Longley, Jr., Asst. U. S. Atty., Atlanta, Ga., Rex E. Lee, Asst. Atty. Gen., Robert E. Kopp, David M. Cohen, Judith S. Feigin, Atty., Appellate Section, Civ. Div., Dept. of Justice, Washington, D. C., for defendants-appellants.

Charles E. Watkins, Jr., Paul Oliver, Atlanta, Ga., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Georgia.

Before COLEMAN, CLARK and TJOFLAT, Circuit Judges.

CLARK, Circuit Judge:

The district court granted a preliminary injunction prohibiting the United States Secretary of Health, Education, and Welfare (Secretary or HEW) from suspending the Medicaid provider status of the plaintiff, Springdale Convalescent Center (Springdale), for refusing to reimburse the Secretary for alleged Medicare overpayments. ¹ The court also held (a) that the Secretary exceeded his statutory authority under the Medicare Act to promulgate regulations establishing methods for determining the reasonable cost of a Medicare provider's services, ² and (b) that the Secretary's regulation providing for the recapture of accelerated depreciation charges ³ contravened the Fifth Amendment due process clause to the United States Constitution as applied to Springdale. In their appeal defendants ⁴ argue that the district court was without jurisdiction of this cause, or alternatively, that the Secretary properly exercised his statutory authority and the regulation is not unconstitutional. We hold that the district court properly had jurisdiction but that the district court erred in holding that the regulation was unconstitutional.

The plaintiff is a "skilled nursing home" located in Atlanta, Georgia. On July 1, 1968, Springdale entered into an agreement with the Secretary to become a provider of services under the Medicare Program. See 42 U.S.C. § 1395cc. Under such agreements, a provider is prohibited from charging a patient directly for items or services provided under the Medicare Act. Id. § 1395cc(a)(1). The Secretary or his agent, a designated fiscal intermediary under contract with HEW, reimburses the provider for its "reasonable costs" incurred while rendering Medicare services. Id. § 1395h.

The "reasonable costs" reimbursed to a provider for Medicare services must be the "cost actually incurred, excluding . . . any part of incurred cost found to be unnecessary in the efficient delivery of needed health services, and shall be determined in accordance with regulations (promulgated by the Secretary) establishing the method or methods to be used, and the items to be included, in determining such costs . . . ." Id. § 1395x(v)(1)(A). The Medicare Act specifically exhorts the Secretary to adopt regulations that make "suitable retroactive corrective adjustments where, for a provider of services for any fiscal period, the aggregate reimbursement produced by the methods of determining costs proves to be either inadequate or excessive." Id. § 1395x(v)(1)(A)(ii).

When Springdale became a Medicare provider on July 1, 1968, the Secretary's cost reimbursement regulations permitted providers to use either straight-line or accelerated depreciation formulae when computing compensable costs under the Medicare Act. 20 C.F.R. § 405.415 (1967). The regulations neither qualified the use of accelerated depreciation nor provided for the recapture of any portion of accelerated depreciation charges allowed to a provider. From July 1, 1968, until August 8, 1973, when it voluntarily withdrew from the Medicare Program, Springdale used an accelerated depreciation formula in depreciating its capital assets and computing its compensable Medicare costs.

On February 5, 1970, the Secretary proposed a new depreciation regulation to become effective on August 1, 1970. 35 Fed.Reg. 2593 (Feb. 5, 1970). Under this regulation providers entering the Medicare Program after the effective date of the regulation could not use accelerated depreciation formulae. The regulation also stipulated that if a provider that had been using the accelerated method of depreciation terminated its participation in the Medicare Program after August 1, 1970, the Secretary would recoup the difference between the reimbursement received by the provider, employing the accelerated method, and what it would have received had the provider used the straight-line method of depreciation.

In November of 1973, Springdale notified HEW that it no longer wished to be a provider under the Medicare Act but would continue to participate as a provider of Medicaid services. In a January 17, 1974 letter, HEW formally accepted Springdale's request to terminate noting, inter alia, that its termination was effective as of August 8, 1973, and that it should contact its fiscal intermediary, The Travelers Insurance Company (Travelers), "to make arrangements for completion of a final cost report and to adjust any outstanding current financing or accelerated emergency payments." From 1968 to 1973, Springdale had used an accelerated depreciation formula in computing its compensable Medicare costs. Under the regulation, it was thus subject to the recapture provision of the Secretary's depreciation regulation since it was withdrawing from the Medicare Program after the regulation's effective date. When Springdale's final cost report was completed, however, these overpayments were not withheld.

On October 16, 1974, Springdale received notice from Travelers that it owed $6,170 under the Medicare Program for its failure to comply with the Secretary's August 1, 1970 depreciation regulation. Travelers informed Springdale that the Secretary was authorized to withhold any future payments owing to Springdale as a Medicaid provider until Springdale refunded the $6,170. Travelers further informed Springdale that the payments due it under the Medicaid Act would not be offset against the alleged Medicare overpayments. On July 15, 1975, after Springdale continued to refuse to remit the amount claimed by Travelers, the Georgia Department of Human Resources (Department) notified Springdale that it was being suspended from the Medicaid Program. See 42 U.S.C. § 1396b(l )(2). The Department apprised Springdale that its Medicaid payments would cease as of September 6, 1975.

On August 14, 1975, the district court granted a temporary restraining order of the defendants' proposed action. On September 15, 1975, the district court conducted a hearing on consolidated motions for preliminary and permanent injunctions and on Springdale's motion for summary judgment. By stipulation of the parties the court limited its consideration to the issue of

whether (the Secretary's August 1, 1970 depreciation regulation was) unconstitutional as applied to (Springdale) under the due process clause of the Fifth Amendment to the United States Constitution, insofar as it authorized the government to recoup reimbursements for depreciation charges taken prior to the effective date of the amendment . . ..

Finding that the Secretary exceeded his statutory authority in promulgating the disputed portion of the regulation and that it was unconstitutional, the district court permanently enjoined the defendants from withholding any Medicaid payments for any amounts claimed to be owed to HEW under the Medicare Program.

On appeal the defendants argue (1) that the federal courts are without jurisdiction to review this action under 28 U.S.C. §§ 1331, 1361 (1970), or 5 U.S.C. §§ 701 et seq. (1970); (2) alternatively, that the doctrine of sovereign immunity bars the instant action; and (3) assuming arguendo that this court has jurisdiction, that the Secretary's August 1, 1970 depreciation regulation is constitutional as applied to Springdale. We treat these arguments separately below.

I. JURISDICTION

Without elaborating its reasons, the district court found that jurisdiction to entertain Springdale's action exists under 28 U.S.C. § 1331 (1970) since it arises under the laws of the United States and the matter in controversy exceeds $10,000. Because of the defendants' jurisdictional attack, we first examine the Medicaid Act to determine judicial review ability of this action. In this regard, the defendants seek to limit the scope of our inquiry. They argue that this suit only nominally arises under the Medicaid Act and that it should be governed solely by the principles of jurisdiction incorporated into the Medicare Act. In an attempt to buttress this argument, they contend that the crux of this dispute involves the validity of the Secretary's Medicare regulation and the defendants' finding of alleged Medicare overpayments under the recapture portion of that regulation.

The defendants do not fashion their argument in this manner simply because our authority to review the instant action vel non depends upon statutory grants of jurisdiction contained in either the Medicare or the Medicaid Acts. To the contrary, for the accounting periods relevant to this case, neither Act expressly authorizes judicial review of provider reimbursement determinations. ⁵ Rather the defendants urge us to look solely to the principles of jurisdiction incorporated into the Medicare Act because of the implications this might possibly have upon our "nonstatutory," and especially here, federal question jurisdiction under 28 U.S.C. § 1331 (1970).

The Medicare Act vis-a-vis the Medicaid Act incorporates by reference the following provision of the Social Security Act:

The findings and decisions of the Secretary after a hearing shall be binding upon all individuals who were parties to such hearing. No findings of fact or decision of the Secretary shall be reviewed by any person, tribunal, or governmental agency except as herein provided....