St. Louis University v. Blue Cross Hospital Service

• Decision Date: 10 May 1976
• Docket Number: 75-1293,Nos. 75-1274,s. 75-1274
• Citation: 537 F.2d 283
• Parties: ST. LOUIS UNIVERSITY, etc., Appellant-Appellee, v. BLUE CROSS HOSPITAL SERVICE, etc., et al., Appellees-Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 283

537 F.2d 283

ST. LOUIS UNIVERSITY, etc., Appellant-Appellee, v. BLUE CROSS HOSPITAL SERVICE, etc., et al., Appellees-Appellants.

Nos. 75-1274, 75-1293.

United States Court of Appeals Eighth Circuit.

Submitted Jan. 12, 1976.

Decided April 12, 1976.

Rehearing and Rehearing En Banc Denied May 4, 1976.

As Modified May 10, 1976.

Thomas V. Connelly, St. Louis, Mo., for St. Louis University, etc.; Michael B. McKinnis and Gary T. Carr, St. Louis, Mo., on the brief.

David M. Cohen, Atty., Civil Div., U. S. Dept. of Justice, Washington, D. C., for Blue Cross Hospital Service, etc., et al.; Rex E. Lee, Asst. Atty. Gen., Robert K. Kopp, Atty., Civil Div., U. S. Dept. of Justice, Washington, D. C., and Donald J. Stohr, U. S. Atty., St. Louis, Mo., on the brief.

Weissburg and Aronson, Inc., Carl Weissburg and Lyle R. Mink, Los Angeles, Cal., on the brief for American Hospitals, amicus curiae.

Before GIBSON, Chief Judge, CLARK, Associate Justice, Retired, ^* and BRIGHT, Circuit Judge.

BRIGHT, Circuit Judge.

These appeals follow an action brought by St. Louis University challenging certain HEW-mandated procedures and seeking to recover alleged overcharges repaid to HEW by appellant pursuant to an administrative determination by appellees Blue Cross Hospital Service, Inc. of St. Louis and the Blue Cross Association. The dispute arises from services rendered and payments made during appellant's fiscal year ending August 31, 1966, pursuant to the Medicare provisions of the Social Security Act of 1965. ¹ In response to cross motions for summary judgment, District Judge John F. Nangle, on February 18, 1975, dismissed counts I and III of the University's complaint but granted relief on count II. The University appealed the dismissal of counts I and III and defendants cross-appealed the judgment on count II. ²

I. Background.

In order to place this case in the proper perspective, the internal organization of St. Louis University must be examined. St. Louis University, as part of its program in the school of medicine, owns and operates a general hospital known as Firmin Desloge Hospital and a psychiatric unit known as the Wohl Institute. These two institutions are known as the St. Louis University Hospitals. The hospitals serve as a teaching and training facility for the school of medicine and provide medical services to both Medicare and non-Medicare patients.

Various types of medical care are provided by the hospital. The category of care involved in this case consists primarily of the services of radiologists but also include pathologists, anesthesiologists, and others. Physicians on the staff of St. Louis University who provide these services to hospital patients also perform teaching duties. In compensation for all their medical and teaching services, they receive a salary from St. Louis University.

Prior to the advent of Medicare in 1966, patients of the St. Louis University Hospital received a hospital bill which contained a single charge for this type of medical care. Taking radiology services as an example, that single charge to the patient included two unidentified components: (1) the charge for technicians, equipment, and overhead used in providing x-rays, and (2) the professional charge of the radiologist.

The Medicare program requires that these components be isolated and treated differently. The first component is termed the "provider component" and provides reimbursement for those types of services which normally are furnished by the hospital itself. This charge is covered by part A of the Medicare program. 42 U.S.C. §§ 1395c-1395i. The second is termed the "professional services component." The professional services component is insured and compensated under part B of the Medicare program. 42 U.S.C. §§ 1395j-1395w. The Medicare Act provides that the amount of reimbursement under part A (provider component) must be determined on the basis of the "reasonable cost" of such services to the provider; under part B (professional services) the basis is the "reasonable charge."

After the enactment of the Medicare Act, the St. Louis University hospitals adopted an internal accounting procedure which segregated the provider and professional services components on the hospitals' books but not on the patient's bill. Despite this new accounting procedure and even though the professional services component was no greater than the admittedly reasonable charges made by physicians in other area hospitals, the University's claim for reimbursement was disallowed to the extent that the professional services component exceeded the actual cost of the service to the hospital based on a pro rata allocation of the salary of the physicians in question. The University was required to refund to HEW all amounts received under part B which exceeded the salary amount.

Not all physicians on the teaching staff of the University hospitals bill patients through the hospitals. Teacher-physicians in certain specialties traditionally have made charges directly to the patient for their services. For example, surgeons bill the patient directly for an operation, notwithstanding that the surgeon is also a salaried member of the University's teaching staff. The surgeon's bill is paid directly to him by the Medicare carrier, and the surgeon turns the payment directly over to the University. In turn, the University pays the surgeon a salary. Where billing is done in this manner, Medicare pays the surgeon's entire bill, provided it is reasonable, even though it exceeds his salary.

In some other hospitals radiologists and related specialists customarily bill the patient directly. In those cases, Medicare pays the full reasonable charge even though it exceeds the radiologist's salary. This also is true even if the hospital does the actual billing so long as a separate charge for the physician's service (including radiological and similar services) is set out on the patient's bill and provided that this practice was followed prior to the enactment of Medicare. However, if a hospital did not identify a separate professional services component on the patient's bill prior to Medicare, it cannot obtain full reimbursement by now adopting such a procedure. ³

Some explanation must be made of the system by which disputes with regard to Medicare payments are resolved. The Blue Cross Association (BCA) was nominated by the University Hospitals to serve as their fiscal intermediary with HEW. BCA delegated its duties as intermediary to the Blue Cross Hospital Service, Inc. (the Plan), which is a local Blue Cross group in St. Louis. Part B of the Medicare Act is administered through an insurance carrier under the part B supplemental program. That insurance carrier in this case is General American Life Insurance Company. BCA entered an agreement with the Secretary establishing a five-member Provider Appeal Committee (the Committee). The Committee was to hear appeals by providers who were dissatisfied with the reimbursement allowed by BCA. The agreement required that three of the Committee members be BCA employees one a BCA vice-president. The other two were appointed by the BCA president from nominees of various national associations of providers. Decisions of the Committee were by majority vote. The agreement specified that decisions of the Committee would be absolutely final. ⁴

The University's claim for reimbursement under part B of an amount which its internal bookkeeping identified as the charge for professional services such as those of radiologists, was accepted and paid by the insurance carrier, General American, but later, after an audit, was disallowed by the Plan. The Plan has the responsibility for auditing Medicare payments approved by the carrier. The Plan determined that the University's right to reimbursement under part B for services provided by those specialists who bill through the hospital was limited to the pro rata salary paid to those physicians.

The University appealed to the BCA Provider Appeals Committee. The Committee unanimously affirmed the Plan's decision.

When the University lost its appeal before the Committee, it brought this action in district court against BCA, the Plan, and the Secretary of HEW. As we have already noted, see note 2 supra, the complaint contained three counts. Count I alleged that the Committee's decision violated the Medicare Act and regulations promulgated thereunder. Count II alleged that the makeup of the Committee was unfair and improper and thus violated procedural due process. Count III alleged that essentially identical claims of other providers processed through a different bookkeeping procedure had been approved and paid by Blue Cross and HEW, that this distinction was not rationally related to any legitimate governmental objective, and that the University therefore had been arbitrarily and capriciously denied the equal protection of the law.

In ruling on cross-motions for summary judgment, the district court dismissed counts I and III for lack of jurisdiction due to sovereign immunity since those counts sought a money judgment, but granted the University relief on count II for denial of procedural due process. The district court determined that the Committee, consisting as it did of a majority of BCA employees, could not afford an impartial hearing to the University. By way of relief, the district court remanded the University's appeal to the Secretary for a de novo evidentiary hearing before a tribunal not containing employees of the BCA. The district court also concluded that the Medicare Act and due process required the Secretary of HEW to review the record of the hearing afforded the plaintiff, citing 42 U.S.C. § 1395h(a). We essentially affirm the district court but on different grounds.

II. Federal Question Jurisdiction Under § 1331.

In examining our federal question jurisdiction alleged by appellant under § 1331 we are met with the provisions of 42 U.S.C. § 405(h). This...