St. Joseph Hosp. v. Heckler, S82-505.

CourtUnited States District Courts. 7th Circuit. United States District Court of Northern District of Indiana
Citation570 F. Supp. 434
Docket NumberNo. S82-505.,S82-505.
PartiesST. JOSEPH HOSPITAL, South Bend, an Indiana non-profit Corporation, Plaintiff, v. Margaret HECKLER, Secretary of the Department of Health and Human Services; and Carolyn K. Davis, Administrator of the Health Care Financing Administration, Defendants.
Decision Date19 August 1983

James D. Kemper and Richard A. Smikle of Ice, Miller, Donadio & Ryan, Indianapolis, Ind., Thomas F. Cohen, South Bend, Ind., for plaintiff.

Larry Steele, U.S. Atty. by Carol Husum, Asst. U.S. Atty., South Bend, Ind., for defendants.


SHARP, Chief Judge.

This action was filed pursuant to 42 U.S.C. § 1395oo (g) on November 4, 1982, by the plaintiff hospital against the Secretary of the Department of Health and Human Services and the Administrator of the Health Care Financing Administration. Jurisdiction of this court over the matter is predicated on a federal question. 28 U.S.C. §§ 1331, 1361. Venue is properly laid in this division and district. 28 U.S.C. § 1391. This case is presently before the court on cross-motions for summary judgment.1

The plaintiff herein seeks judicial review of the denial by the Medicare fiscal intermediary2 of Medicare reimbursement for certain costs incurred by the plaintiff. Additionally, plaintiff also seeks declaratory and injunctive relief to ensure that these costs are not disallowed in the future.

The intermediary disallowed Medicare reimbursement for costs incurred by the hospital in providing bedside telephones to Medicare patients on the ground that these costs are for non-reimbursable personal comfort items. 42 U.S.C. § 1395y(a)(6). The intermediary disallowed these costs based on unequivocal language in regulations promulgated by the Secretary of Health and Human Services (HHS). 42 C.F.R. § 405.310(j).

A hearing with oral argument was held in open court on the parties' motions on August 4, 1983, in South Bend, Indiana. Both sides having carefully briefed their respective positions, this court turns now to an examination of the merits of plaintiff's claim.


Plaintiff argues that the patient telephone regulation is procedurally invalid because it was promulgated without a record or any supporting evidence. (The relevant regulation was published on October 20, 1966, at 31 Fed.Reg. 13534.) Thus, plaintiff contends that this court must conclude that no "rule promulgation record" exists, and no "post-hoc rationalizations" may be considered. Plaintiff cites numerous authorities for the proposition that a contemporaneously documented rule promulgation record is required. In particular, plaintiff argues that such a record is required for the reviewing court to examine and evaluate the agency's deliberative process and to ascertain whether all relevant factors were duly considered. In short, plaintiff maintains that this "relevant factors" test is the controlling standard in this case. The Secretary, on the other hand, contends that the plaintiff has misconstrued the law with regard to the nature and scope of the required patient telephone regulation record.

At the outset it must be noted that the burden is on the plaintiff to demonstrate the invalidity of the regulation, i.e., a regulation is presumed valid unless and until the complaining party overcomes that presumption by sustaining its burden of proof. See, e.g., People of State of Illinois v. Nuclear Regulatory Commission, 591 F.2d 12, 16 (7th Cir.1979); Texaco v. FEA, 531 F.2d 1071, 1077 (TECA), cert. denied, 426 U.S. 941, 96 S.Ct. 2662, 49 L.Ed.2d 394 (1976); Angel v. Butz, 487 F.2d 260, 262-263 (10th Cir.1973), cert. denied, 417 U.S. 967, 94 S.Ct. 3170, 41 L.Ed.2d 1138 (1974); American Nursing Home Ass'n. v. Cost of Living Council, 497 F.2d 909, 914 (TECA 1974); Utah Power and Light Co. v. Morton, 504 F.2d 728, 735-36 (9th Cir.1974); U.S. v. Boyd, 491 F.2d 1163, 1170 (9th Cir. 1973). A careful examination of the applicable case law reveals that plaintiff has not overcome that presumption of validity.

St. James Hospital v. Schweiker, 698 F.2d 1337 (7th Cir.1983), which upheld the validity of 42 C.F.R. § 405.310(j), is the leading case on the patient telephone regulation. In that case, the Court of Appeals for this circuit reversed the district court which had invalidated the patient telephone regulation. St. James Hospital v. Harris, 535 F.Supp. 751, 765 (N.D.Ill.1981).

In its decision, the district court declared the pivotal issue to be as follows:

This court must determine, since a challenge is made to the validity of a regulation promulgated by the Secretary, whether she exercised discretion through a reasoned consideration of the relevant factors....

535 F.Supp. at 762. Thus, the district court considered the regulation under the "relevant factors" standard, and found it deficient.

As noted above, the Court of Appeals reversed and its decision governs, in contrast to the district court which held that the regulation is invalid because all relevant factors were not considered. The Court of Appeals specifically phrased the issue as whether it could be shown that the agency's determination was "arbitrary and capricious," and concluded it could not. 698 F.2d at 1346-1347. Plaintiff argues that the patient telephone regulation is arbitrary and capricious because of the purported failure to consider all relevant factors. Since the district court held that the regulation is invalid after considering whether all relevant factors were considered, either the Court of Appeals was able to determine that all relevant factors were considered or it felt that this standard did not apply.

Moreover, the absence of an official contemporary rule-making record was brought squarely to the attention of the Court of Appeals in St. James. In her brief, the Secretary advised the Court:

At the outset, a precautionary note about the current record before this Court is in order. Due to the peculiar posture of this case, the record contains primarily plaintiff's own evidence attacking the Secretary's patient telephone rule, and no reasoned administrative response in defense of the rule. This is so because the Secretary's patient telephone regulation dates from 1966, an era when APA rulemaking requirements did not apply to Medicare regulations. See Humana of South Carolina v. Califano, 590 F.2d 1070, 1084 (D.C. Cir.1978). Thus, no rule-making record is available.

Brief for the Appellant, St. James Hosp. v. Schweiker (No. 82-1253, June 11, 1982) at 33. The Secretary further stated:

In these circumstances, this Court (if it finds jurisdiction) may choose, as we suggested below, to return the patient telephone issue to the Secretary for development of an administrative record, including the Secretary's full justification for his rule (see the Secretary's Reply to Plaintiff's Supplemental Memorandum at 4). See Oljato Navajo Tribe v. Train, 515 F.2d 654, 665-67 (D.C.Cir.1975); and see Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 419-21, 91 S.Ct. 814, 825-26, 28 L.Ed.2d 136 (1971).

Id. at 34 n. 13. (emphasis added).

The Court of Appeals did not deem such a remand necessary and it clearly upheld the patient telephone regulation with full awareness of the lack of a contemporaneous rule promulgation record that plaintiff decries. The Court of Appeals, citing the arbitrary and capricious standard of Citizens to Preserve Overton Park v. Volpe, supra, on which plaintiff relies here upheld 42 C.F.R. § 405.310(j) under the same standard. 698 F.2d at 1346.

Moreover, in doing so the Court rejected appellee St. James Hospital's argument that the administrative history of the regulation which does exist required that the regulation be invalidated. The hospital argued that this history showed that the Secretary had failed to address the relevant factor of therapeutic value and had relied on an erroneous interpretation of the legislative history, specifically, the television rental example. The hospital supported this argument by citing the requirement that the regulation must be based on consideration of all relevant factors. Brief for Appellee, St. James Hosp. v. Schweiker, (No. 82-1253, June 22, 1982) at 42-43.

Plaintiff makes the same claims here. The Court of Appeals in St. James found an adequate and permissible basis on which to evaluate the patient telephone regulation despite the absence of a contemporaneous rule promulgation record. The decision in St. James upholding 42 C.F.R. § 405.310(j), notwithstanding the "contrary" evidence in the record that patient telephones do have therapeutic value (698 F.2d at 1341) should therefore not to be disregarded by this court in deciding plaintiff's administrative procedure claim.

Plaintiff herein also suggests that St. James is not controlling in the Seventh Circuit because that decision purportedly is inconsistent with an earlier decision, Northwest Hospital, Inc. v. Hospital Service Corp., 687 F.2d 985 (7th Cir.1982). At the least, St. James must be deemed to be the controlling decision which modifies Northwest, if in fact the two cases are inconsistent.

The two cases, however, may not be inconsistent. Both cases involve challenges to Medicare regulations. Plaintiff asserts that the two are inconsistent because in St. James the Court exercised a "total deference" to the Secretary (see 698 F.2d at 1346-47) which had been rejected in Northwest. Plaintiff claims that in Northwest the Court took a more cautious approach, mindful of the final authority of courts to interpret statutes. (687 F.2d at 991). Notwithstanding plaintiff's attempt at distinction, the St. James Court asserted its ultimate authority to interpret statutes and did not abdicate it. 698 F.2d at 1346. It was on the basis of this authority that the St. James Court rejected the Secretary's argument that the Court lacked subject matter jurisdiction to consider the challenge to the patient telephone regulation. Id.

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