St. Francis Medical Center v. Sullivan

Decision Date24 April 1992
Docket NumberNo. 91-3406,L,91-3429,Nos. 91-3406,No. 91-3429,91-3406,s. 91-3406
Citation962 F.2d 1110
Parties, Medicare & Medicaid Guide P 40,159 ST. FRANCIS MEDICAL CENTER v. Louis W. SULLIVAN, M.D., Secretary of the Department of Health and Human Services, and Louis B. Hayes, Acting Administrator, Health Care Financing Administration, and Elise D. Smith, Chairman Provider Reimbursement Review Board, United States of America, Appellant inouis W. Sullivan, M.D., Secretary of the Department of Health and Human Services, and Louis B. Hayes, Acting Administrator, Health Care Financing Administration, and Elise D. Smith, Chairman Provider Reimbursement Review Board, Appellants in
CourtU.S. Court of Appeals — Third Circuit

Stuart Gerson, Asst. Atty. Gen., Thomas W. Corbett, Jr., U.S. Atty., Bonnie R. Schluetter, Asst. U.S. Atty., Pittsburgh, Pa., Barbara H. Fisher (argued), Office of the Gen. Counsel, Baltimore, Md., and John P. Schnitker and Barbara C. Biddle, U.S. Dept. of Justice, Civ. Div., Appellate Staff, Washington, D.C., for appellants.

Stephen P. Nash (argued) and Domenic A. Bellisario, Nash & Co., Pittsburgh, Pa., for appellees.

Before: SCIRICA, ALITO, and SEITZ Circuit Judges.


SEITZ, Circuit Judge.

This is an appeal by the Secretary of the Department of Health and Human Services, et al. from an order of the district court. That order overturned the Provider Reimbursement Review Board's ("Board") refusal on jurisdictional grounds to grant the request of the plaintiff, St. Francis Medical Center ("Medical Center"), for a hearing. The dispute arises over reimbursement allegedly due from the Secretary to a provider of hospital services under the Medicare statute, 42 U.S.C. § 1395 et seq. The narrow issue presented is whether the provider met the requirement in the statute, 42 U.S.C. § 1395 oo(a) (1984) that limits hearing by the Board to claims involving amounts of $10,000 or more. The Medical Center asserts, alternatively, that federal question jurisdiction is available to entertain this provider's claims pursuant to 28 U.S.C. § 1331 (1980).


The Medical Center is a "provider" of health care services covered under Part A of the Medicare statute, 42 U.S.C. § 1395 et. seq. Payments under Part A are made directly to eligible providers under the reimbursement scheme enacted in 1982, the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"), Pub.L. No. 97-248 (codified, as amended, at 42 U.S.C. § 1395ww(b) (1988)).

Under TEFRA, a hospital may receive no more than the "target amount" of per patient costs that is calculated according to the hospital's actual cost of service in the base year. The base year cost reporting period is the year prior to the first year when the TEFRA reimbursement scheme becomes effective. See 42 U.S.C. § 1395ww(b)(3)(A) (1988). In that year and in subsequent years, a hospital's Medicare reimbursement is limited to "the allowable operating costs of inpatient hospital services" incurred in the base year. § 1395ww(b)(3)(E). The TEFRA target amount determines the maximum amount of reimbursement that the hospital can receive per patient in subsequent years. If the hospital renders care at a cost below its TEFRA target amount, it receives an "incentive payment" as a reward for its efficiency. The incentive payment is equal to fifty percent of the difference between the hospital's actual costs and its target amount of maximum per patient reimbursement. 42 U.S.C. § 1395ww(b).

The jurisdictional dispute in this case arose from the Medical Center's claim as a provider seeking to adjust the cost report for the base year 1985, in order to qualify for an incentive payment. The Medical Center's base year adjustment request was denied by the intermediary and it sought a hearing to review that determination before the Board. Such a hearing may be obtained if the jurisdictional requirements of § 1395oo(a) are met. That section provides:

Any provider of services which has filed a required cost report within the time specified in regulations may obtain a hearing with respect to such cost report by [the Board] ... if--

(1) such provider--

(A)(i) is dissatisfied with a final determination of the organization serving as its fiscal intermediary ... as to the amount of total program reimbursement due the provider for the items and services furnished to individuals for which payment may be made under this subchapter for the period covered by such report, ...


(2) the amount in controversy is $10,000 or more, and

(3) such provider files a request for a hearing within 180 days after notice of the intermediary's [or Secretary's] final determination....

(emphasis added)

The Board denied the Medical Center's request on the ground that it lacked jurisdiction under § 1395oo(a) because the amount in controversy requirement was not met. Ultimately, the Board's decision becomes final unless the Secretary, on his own motion, within 60 days, reverses, affirms or modifies the Board's decision. See 42 U.S.C. § 1395oo(f)(1) (1984). In this case, the Secretary did not alter the Board's decision and it became final. The Medical Center then filed this action in the district court, inter alia, under § 1395oo(f)(1). The district court reversed the Board's ruling and the Secretary now appeals.


The Medical Center sought reimbursement under TEFRA as a "distinct part rehabilitation unit," as defined by the TEFRA regulations. 1 The intermediary, Blue Shield of Western Pennsylvania, concluded that the Medical Center was not a "rehabilitation unit" under the regulations since less than 75% of its patients required intensive rehabilitation. The intermediary terminated the provider as a distinct part rehabilitation unit and the Health Care Finance Administration (hereinafter "HCFA") upheld that decision. To comply with the 75% rule, the Medical Center transferred some of its "non-qualifying" patients from the rehabilitation unit to its acute care facility. This transfer was completed in the year ending July 30, 1986, beyond the base year.

The non-qualifying patients in the rehabilitation unit in 1985 were nevertheless included in the Medical Center's 1985 base year cost report. Since the Medical Center's TEFRA target amount was set according to that base year, the Medical Center's 1985 cost report substantially underestimated its actual costs in 1986. The underestimate arose from the fact that certain "non-qualifying" patients were included on the original 1985 cost report for the Medical Center's rehabilitation unit, but then were transferred out of that unit by 1986. The absence of these "non-qualifying" patients from the group of patients treated by the unit in 1986 meant that the Medical Center's average patient costs were higher in 1986 than the estimates of those costs derived from the 1985 base year cost report. In addition, the base year cost report did not include costs associated with a physical expansion project completed in 1986. The difference between 1985 and 1986 average patient costs for the patients receiving service in 1986 was an amount in excess of $700,000.

To obtain relief from this distortion, the Medical Center submitted an amended base year cost report pursuant to 42 C.F.R. § 413.40(h) (1988). The intermediary denied this initial request to adjust or amend the 1985 cost report and issued a final Notice of Program Reimbursement ("NPR".) The Medical Center then filed a request for a base year adjustment, pursuant to 42 C.F.R. § 413.40(h) and, in the alternative, requested an "exception" to its 1986 TEFRA target amount, pursuant to 42 U.S.C. § 1395ww(b)(4)(A) and 42 C.F.R. § 413.40(g) (1988). 2

The intermediary rejected the base year adjustment request and, instead, recommended to the HCFA that the Medical Center be granted an exception to its 1986 TEFRA target amount. In reviewing that decision, the HCFA denied the base year cost adjustment claim, as well as the request for an exception to the 1986 TEFRA target amount. The Medical Center sought a hearing before the Board on that decision.

The Board ruled that it lacked jurisdiction over the Medical Center's request for a base year cost adjustment. It found that the $10,000 amount in controversy requirement of § 1395oo(a) was not met.

The Medical Center filed this action in the district court against the Secretary and the court exercised jurisdiction pursuant to 42 U.S.C. § 1395 oo(f). See McKeesport Hospital v. Heckler, 612 F.Supp. 279, 282 (W.D.Pa.1985). Pursuant to a designation from the district court, the magistrate heard the case and issued a Report and Recommendation that the Secretary's motion to dismiss be denied and the case be remanded to the Board for review on the merits. The district court adopted the report and recommendation of the magistrate as its own and entered an order denying the Secretary's motion to dismiss and remanding the matter to the Board for determination of the merits. 3 This appeal by the Secretary followed.


Although the parties do not challenge our jurisdiction, we have an independent obligation to decide whether 28 U.S.C. § 1291 (1982) provides a jurisdictional basis for this appeal.

The Medical Center filed its complaint in the district court pursuant to § 1395oo(f)(1). 4 That court reversed the Board's jurisdictional ruling and remanded the matter to the Board. It is true that "remands to administrative agencies are not ordinarily appealable," Finkelstein v. Bowen, 869 F.2d 215, 217 (3d Cir.1989) rev'd sub nom. Sullivan v. Finkelstein, 496 U.S. 617, 110 S.Ct. 2658, 110 L.Ed.2d 563 (1990). However, there are exceptions to this rule. For example, the Medicare statute confers jurisdiction on the district court over any "civil action" filed there by a Medicare provider pursuant to 42 U.S.C. §...

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    ...Id. at 807-08. The district court reversed this determination but was in turn reversed on appeal. See St. Francis Medical Center v. Sullivan, 962 F.2d 1110 (3d Cir.1992). The Third Circuit agreed that the PRRB had lacked jurisdiction under § 1395oo to review HCFA's decision but remanded the......
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