St. Elizabeth Hospital v. United States

• Decision Date: 15 June 1977
• Docket Number: No. 347-74.,347-74.
• Citation: 558 F.2d 8
• Parties: ST. ELIZABETH HOSPITAL v. The UNITED STATES.
• Court: U.S. Claims Court

558 F.2d 8

ST. ELIZABETH HOSPITAL v. The UNITED STATES.

No. 347-74.

United States Court of Claims.

June 15, 1977.

Robert A. Wilmot, Milwaukee, Wis., atty. of record for plaintiff. Purtell, Purcell, Wilmot & Burroughs, S.C., Milwaukee, Wis., of counsel.

Francis H. Clabaugh, Washington, D.C., with whom was Asst. Atty. Gen. Barbara Allen Babcock, Washington, D.C., for defendant.

Before NICHOLS, KUNZIG and BENNETT, Judges.

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

KUNZIG, Judge.

At stake in this Medicare provider case, before the court on cross-motions for summary judgment, is approximately $235,000. Recovery turns on the method of computing St. Elizabeth Hospital's (plaintiff or St. Elizabeth) depreciation for fiscal years 1967-1969. Plaintiff claims that its depreciation should be based on its actual costs as established by appraisal. Actual cost depreciation would, plaintiff states, greatly increase its reimbursement. Defendant contends that plaintiff's claim of actual cost depreciation costs for 1967-1969 is untimely and that its estimated depreciation based on a percentage of operating costs is binding.

We hold for plaintiff as to its right to recovery. Quantum will be determined in later proceedings.

Plaintiff is a nonprofit, tax exempt corporation which operates a general, short-term hospital in Appleton, Wisconsin. St. Elizabeth is a qualified provider of services under the Medicare Act, 42 U.S.C. § 1395x(e)(1-8) (1970), and has engaged in providing such services from 1966. As a condition of eligibility to receive Medicare benefits, plaintiff filed an agreement with the Secretary of Health, Education and Welfare entitling it to reimbursement for the "reasonable cost" of covered services it furnished to program beneficiaries. 42 U.S.C. § 1395cc (1970). Plaintiff nominated Blue Cross Association (BCA) and its local administering agent, Wisconsin Blue Cross Plan (the Plan), as its fiscal intermediary.

In its role as intermediary, the Plan assumed the duty of determining, by annual audit, the reimburseable costs St. Elizabeth incurred by virtue of providing covered services to Medicare Act beneficiaries.

Section 405.415-18 of Title 20, Code of Federal Regulations (CFR),¹ provides an "appropriate allowance" for depreciation, which is defined either as a fixed percentage of operating costs, or as actual depreciation, if a provider can establish the historical, pre-1966, cost of its assets by records or by an appraisal. Plaintiff elected actual depreciation but, lacking adequate records of its costs, accepted reimbursement of estimated depreciation by the percentage method while it procured an appraisal.

With the Plan's knowledge that plaintiff was securing an appraisal, plaintiff contracted with the Industrial Appraisal Company (IAC) on April 25, 1967 to determine its historical costs. Plaintiff submitted the IAC appraisal to the Plan in June 1970. The Plan found the appraisal report inadequate. After numerous attempts by plaintiff to have IAC correct the deficiencies, plaintiff, at the Plan's suggestion, contracted with a different appraisal firm. That firm, Valuation Counselors Company, prepared a new report showing plaintiff's historical cost data.

The Valuation Counselors' report was accepted by the Plan following submission in March 1972, but only for the fiscal years ending after 1969 (that is fiscal years ending on June 30, 1970 and June 30, 1971).² The report was not accepted by the Plan for fiscal years ending in 1967-1969 because the Plan stated that the appraisal was submitted after the time allotted to such submissions, namely two years from the provider's contract (1966) to perform Medicare services. The two year rule is set forth in Section 128 of the Provider Reimbursement Manual, published in July 1967.

Plaintiff brought the Plan's decision to the BCA Medicare Provider Appeal Committee, which consists of three BCA representatives and two representatives of providers' associations. Plaintiff claimed the Plan's refusal to accept the appraisal as the basis for amended cost reports for 1967-1969 cost plaintiff $235,360.00 — the difference between the amount allowed for depreciation under the estimated percentage method, and the amount reimburseable based on actual depreciation using the Valuation Counselors' report. The Committee denied plaintiff's appeal on September 28, 1973, and plaintiff's request for reconsideration on January 23, 1975. Plaintiff then filed suit in this court seeking to obtain payment of approximately $235,000 it claims is due.

At this time we are concerned only with plaintiff's right to recover. As mentioned above, the issue of quantum will be deferred to later proceedings, discussed infra.

Plaintiff pursues its case on two principal grounds. First, plaintiff argues that it is entitled to reimbursement for depreciation based on its actual costs on the theory that the applicable statute and regulation published in the Code of Federal Regulations mandate such payment. As a corollary to this argument, plaintiff contends that the two-year limit imposed by the Provider Reimbursement Manual was improperly applied against it. This argument, in essence, is that defendant, through the Plan and the BCA, denied plaintiff reimbursement in violation of the Medicare Act.

Second, plaintiff claims the BCA's appeals procedures and the composition of the Provider Appeals Committee deprive plaintiff of due process of law in violation of the United States Constitution.

Defendant, in response, takes the position that this court is without jurisdiction to hear this case. In addition, it argues that the two-year limit was properly applied to plaintiff, and that the composition and procedures of the Provider Appeals Committee are constitutional.

We hold for plaintiff. This court has jurisdiction over this case. The two-year rule was improperly applied to plaintiff. The issue of possible unconstitutionality of the Provider Appeals Committee's procedures and composition is not reached as not necessary to our decision.

Before reaching the merits of plaintiff's claim, we must first consider defendant's contention that the court is without jurisdiction to hear this case. Defendant maintains that the Supreme Court's decision in Weinberger v. Salfi, 422 U.S. 749, 756-62, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975), prohibits judicial review of plaintiff's claim. Defendant takes this position, even though this court has already refused to extend Salfi to Medicare cases. Whitecliff, Inc. v. United States, 536 F.2d 347, 210 Ct.Cl. 53 (1976), cert. denied, 430 U.S. 969, 97 S.Ct. 1652, 52 L.Ed.2d 361 (1977).

In view of defendant's insistence that Salfi precludes judicial review, it is appropriate to restate what this court said in Whitecliff:

We decline the invitation to extend Salfi's reading of Section 405(h) to this Medicare case. The social security provisions with which the Supreme Court dealt in Salfi authorize appeals of all decisions made after hearings, without limitation as to issues; footnote omitted the practical effect of the Salfi decision was simply the enforcement of the Section 405(g) procedures and prerequisites to judicial review. See also Mathews v. Eldridge, 424 U.S. 319, 326-32, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976). By contrast, the Medicare statute's express review provisions in effect prior to 1973 apply to extremely limited categories of cases involving providers. footnote omitted To import into the Medicare program the Salfi preclusion of judicial review (except as expressly authorized) would be to prevent all review of very large categories of cases and issues, including constitutional questions, and to accord absolute finality to adjudications by private organizations like the BCA. Such a result would be of doubtful constitutional validity and would undermine the normal presumption in favor of judicial review. footnote omitted We cannot assume that the Supreme Court would extend the Salfi interpretation of Section 405(h) to Medicare cases, where the consequences would be so dramatically different, and therefore we adhere to the pre-Salfi view of judicial review of Medicare provider disputes.

Whitecliff, Inc. v. United States, supra, 536 F.2d at 350-51, 210 Ct.Cl. at 57-58.

The pre-Salfi view of judicial review of Medicare provider disputes is set forth both in Whitecliff, supra, and in Goldstein v. United States, 201 Ct.Cl. 888, cert. denied, 414 U.S. 974, 94 S.Ct. 287, 38 L.Ed.2d 217 (1973). Essentially, the scope of review established in these two cases³ and as applied to this case is that we will examine the decision of a Provider Appeals Committee to ensure compliance with the applicable statutory and constitutional provisions. Whitecliff, supra, 536 F.2d at 351, 210 Ct.Cl. at 58; Goldstein, supra.

Plaintiff in this case meets both of the tests for jurisdiction. First, St. Elizabeth alleges that the application of the two-year rule set forth in the Health Insurance Manual violates its right to reimbursement under the Medicare Act. Second, plaintiff alleges that the Provider Appeals Committee, in both its operation and composition, violates plaintiff's constitutional rights. As plaintiff meets both tests, there is no jurisdictional bar and we turn now to the merits of plaintiff's claim.

Here we are confronted with the central issue of the case — whether the two-year limitation for claiming actual depreciation set forth in the Provider Reimbursement Manual, § 128, prevents plaintiff's recovery.

Plaintiff begins its argument that the Manual does not apply with an analysis of its statutory right to recover. The relevant section of the Medicare Act, codified at 42 U.S.C. § 1395x(v)(1) and (1)(B)(1970) (in effect at the time this dispute arose) states:

The reasonable cost of any services shall be determined in accordance with regulations establishing the method or methods to be used * * * in determining such costs * * * * * *

Such

...