St. Francis Hospital Center v. Heckler

• Decision Date: 12 August 1983
• Docket Number: No. 82-2458,82-2458
• Citation: 714 F.2d 872
• Parties: ST. FRANCIS HOSPITAL CENTER, et al., Plaintiffs-Appellants, v. Margaret HECKLER, * Secretary, Department of Health and Human Services & Provider Reimbursement Review Board, Thomas Tierney, Chairman, Defendants- Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 872

714 F.2d 872

2 Soc.Sec.Rep.Ser. 421

ST. FRANCIS HOSPITAL CENTER, et al., Plaintiffs-Appellants, v. Margaret HECKLER, ^* Secretary, Department of Health and Human Services & Provider Reimbursement Review Board, Thomas Tierney, Chairman Defendants- Appellees.

No. 82-2458.

United States Court of Appeals Seventh Circuit.

Argued Feb. 10, 1983.

Decided Aug. 12, 1983.

Geoffrey Segar, Ice, Miller, Donadio & Ryan, Indianapolis, Ind., for plaintiffs-appellants.

Jeanne Schulte Scott, Dept. of Health & Human Services, Washington, D.C., for defendants-appellees.

Before BAUER, WOOD and ESCHBACH, Circuit Judges.

PER CURIAM.

Sixty-eight nonproprietary hospitals ("the Hospitals") appeal from the district court's decision denying them reimbursement under the Medicare Act, 42 U.S.C. §§ 1395 through 1395pp, for a return on equity capital and for certain bad debt and charity expenses. 544 F.Supp. 1167 (S.D.Ind.1982). We affirm the decision of the district court and adopt those portions of the court's excellent opinion reproduced as an appendix to our opinion. We have deleted certain portions of the opinion, primarily those dealing with a separate suit that was not appealed and those addressing issues not raised on appeal. We add the supplemental sections immediately below to address arguments raised on appeal that are not specifically answered by the district court's opinion.

Standard of Review

In their attempt to secure a return on equity capital, the Hospitals were successful in convincing the Provider Reimbursement Review Board ("PRRB") that such a return was a "reasonable cost" for nonproprietary facilities. The Secretary, through the Deputy Administrator of the Health Care Financing Administrator, reversed this ruling and held that the Hospitals could not recover a return on equity. On appeal, the Hospitals contend that the district court erred in giving deference to the Secretary's interpretation of the statute and in failing to give adequate weight to the decision of the PRRB.

The standard of review for reimbursement decisions rendered under 42 U.S.C. § 1395oo is found in "the applicable provisions under chapter 7 of Title 5." 42 U.S.C. § 1395oo(f). Thus the standards of the Administrative Procedure Act, 5 U.S.C. §§ 701-706, govern. Section 706 provides that "the reviewing court shall decide all relevant questions of law, [and] interpret constitutional and statutory provisions...." The court must "hold unlawful and set aside agency action, findings, and conclusions found to be ... arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law...." Id.

In the instant case, we do not have a challenge to any findings of fact--the facts are essentially undisputed. Neither do we have a dispute over the interpretation of an agency regulation. The present regulatory scheme denying return on equity for nonproprietary hospitals has been firmly and unambiguously in place since 1969. The challenge the Hospitals raise is that the regulatory scheme is in violation of the Medicare statute and the Constitution.

We note at the outset that to the extent the Hospitals challenge the constitutionality of the statute or the regulatory scheme, their non-deference argument is unnecessary. Deference to administrative expertise does not extend to judging the constitutionality of a statute or regulatory scheme. As far as construing the Medicare statute, a court should give deference to the interpretation of the agency charged with administration of the statute. See Blum v. Bacon, 457 U.S. 132, 141, 102 S.Ct. 2355, 2361, 72 L.Ed.2d 728 (1982); Griggs v. Duke Power Co., 401 U.S. 424, 433-34, 91 S.Ct. 849, 854-55, 28 L.Ed.2d 158 (1971). Congress has charged the Secretary of Health and Human Services ("HHS") with administration of the Medicare program. 42 U.S.C. § 1395kk. Nevertheless, deference to the Secretary must yield to the clear meaning of the statute as revealed by its language, purpose and history. See Southeastern Community College v. Davis, 442 U.S. 397, 411, 99 S.Ct. 2361, 2369, 60 L.Ed.2d 980 (1979).

The Hospitals suggest that these well established principles are altered in this case because the Secretary reversed the PRRB on the issue of return on equity capital. For support they point to St. John's Hickey Memorial Hospital v. Califano, 599 F.2d 803 (7th Cir.1979), in which we declined to defer to the Secretary's determination that the costs of a certain educational program were not reimbursible under the Medicare regulations. In particular, the Hospitals point to the following passage:

This special provision for judicial review [42 U.S.C. § 1395oo(f) ] is not surprising in light of the statutory scheme. Here the plaintiff is not the beneficiary of the government program, but a necessary participant in carrying out the program. The Secretary is obligated by statute to reimburse all reasonable costs of such providers. It would be inappropriate to allow his subordinates to be the final arbiter of what is reasonable, particularly when they have overruled the decision of the Provider Reimbursement Review Board which was set up to mediate disputes between providers and intermediaries acting for the agency.

Id. at 813 n. 18.

This does not support the Hospitals' argument that the district court should have deferred to the PRRB's decision. Final responsibility for rendering a decision lies in the agency itself, not with subordinate hearing officers, and it is this decision that the district court reviewed. See American Medical International, Inc. v. Secretary of Health, Education and Welfare, 466 F.Supp. 605, 611 (D.D.C.1979), aff'd, 677 F.2d 118 (D.C.Cir.1981). The decision of the PRRB can be considered no more expert than the decision of the Secretary.

Under 42 U.S.C.A. § 1395oo(f) and 42 C.F.R. § 405.1875 (1979), the Secretary, on her own motion and at her discretion, may review a decision of the PRRB and on review has all the powers she would have if making the initial determination. 5 U.S.C.A. § 557(b). Thus the decision of the PRRB carries no more weight on review by the Secretary than any other interim decision made along the way in an agency where the ultimate decision of the agency is controlling. The argument that the court should recognize the expertise of the members of the PRRB must be met with the assumption that those persons within the agency who assisted the Secretary in a contrary decision must be regarded as being equally expert.

Homan & Crimen, Inc. v. Harris, 626 F.2d 1201 (5th Cir.1980).

The Hospitals argue that the prior contrary decision of the PRRB lessens the degree of deference due the Secretary's decision. We note first that the passage from St. John's, quoted above, is primarily a comment on the propriety of judicial review, and does not directly address the question of whether deference is lessened when the Secretary has reversed the PRRB. We did state in that case that the degree of deference accorded the Secretary in implementing regulations varies with the circumstances of each case. St. John's Hickey Memorial Hospital v. Califano, supra, 599 F.2d at 812. In that case, we found extreme deference inappropriate when the court merely disagreed with an unofficial interpretation of a regulation. Id. In contrast, in the instant case, we are faced with the Secretary's judgment that her regulatory scheme denying a return on equity capital to nonproprietary hospitals, in place since 1969, is consistent with the statute she is charged with administering. In these circumstances, we believe the district court's deference to the Secretary's decision was appropriate.

Supplement--Is a Return on Equity Capital a Reasonable Cost for Nonproprietary Providers Under 42 U.S.C. § 1395x(v)(1)(A)?

While we have adopted the district court's analysis on this point and the point following, we add these supplemental sections to answer arguments raised on appeal and not specifically addressed by the district court.

All providers are entitled to reimbursement of the "reasonable cost" of the services provided. 42 U.S.C. § 1395f(b). Reasonable costs are defined generally in 42 U.S.C. § 1395x(v)(1)(A), with authorization for the Secretary to prescribe regulations further defining reasonable costs. 42 U.S.C. § 1395x(v)(1)(B), added in 1966, directs the Secretary to include in the regulations a provision for return on equity capital for extended care services provided by proprietary facilities. The Hospitals contend that the services of proprietary hospitals do not fit the literal language of § 1395x(v)(1)(B), and therefore their return on capital must come under the general provisions for reasonable costs, § 1395x(v)(1)(A). If a return on equity capital is a reasonable cost under this section for proprietary hospitals, the appellants argue that it is also a reasonable cost for nonproprietary hospitals.

The reasons Congress had for singling out proprietary facilities providing extended care service (i.e., skilled nursing facilities) are not clear. The legislative history is scant. There is some indication, however, that Congress intended a return on equity capital to be extended to all proprietary providers. The Managers on the Part of the House submitted a statement to explain the recommended action of the committee of conference considering the proposed 1966 amendment. The committee recommended the amendment, which is now codified at § 1395x(v)(1)(B), the house managers explaining:

The conferees expect that the Secretary of Health, Education, and Welfare will apply similar or comparable principles in determining reasonable costs for reimbursement of proprietary hospitals for services furnished by them.

H.R.Rept. No. 2317, 89th Cong., 2d Sess., 166, reprinted in 1966 U.S.Code Cong. & Ad.News 3676, 3692-93.

The legislative enactments at issue here are not a model of clarity. However, they do not alter our conclusion that Congress did not intend a return on equity capital for...