Sun Towers, Inc. v. Heckler

• Decision Date: 21 February 1984
• Docket Number: No. 82-1481,82-1481
• Parties: , Medicare&Medicaid Gu 33,628 SUN TOWERS, INC., et al., Plaintiffs-Appellants Cross-Appellees, v. Margaret M. HECKLER * , Secretary, Department of Health and Human Services, Defendant-Appellee Cross-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 315

725 F.2d 315

4 Soc.Sec.Rep.Ser. 36, Medicare&Medicaid Gu 33,628

SUN TOWERS, INC., et al., Plaintiffs-Appellants Cross-Appellees, v. Margaret M. HECKLER ^*, Secretary, Department of Health and Human Services, Defendant-Appellee Cross-Appellant.

No. 82-1481.

United States Court of Appeals, Fifth Circuit.

Feb. 21, 1984.

Weissburg & Aronson, Inc., Ronald N. Sutter, Washington, D.C., Robert A. Klein, Patric Hooper, Los Angeles, Cal., for Sun Towers, Inc.

Thomas W. Coons, Health Care Financing Div., Dept. of HHS, Baltimore, Md., Anthony J. Steinmeyer, Atty., Civ. Div., Wendy M. Keats, Washington, D.C., for Margaret M. Heckler.

Appeals from the United States District Court for the Western District of Texas.

Before BROWN and RANDALL, Circuit Judges, and HUNTER ^**, District Judge.

RANDALL, Circuit Judge:

Plaintiffs in this suit are forty-seven hospitals that are owned and operated by Hospital Corporation of America ("HCA"). The defendant is the Secretary of Health and Human Services, who is responsible for the administration of Title XVIII of the Medicare Act, 42 U.S.C. Secs. 1395 et seq. (1976 & Supp. V 1981). The Medicare Act requires the Secretary to reimburse provider hospitals for the reasonable costs of treating Medicare patients. The Act also requires the Secretary to pay corporate providers of such services a return on equity invested in hospital facilities. The plaintiffs petitioned the district court to review a final decision of the Secretary denying payment of the following costs and returns on equity capital claimed by the plaintiffs to be due to them under Medicare:

(1) Stock maintenance costs--costs attributable to stock transfer and registration fees, mandatory filings with the Securities and Exchange Commission ("SEC"), stockholders' meetings, and public relations directed at institutional investors;

(2) A return on equity capital invested in goodwill that was purchased through 100% stock acquisitions of hospitals;

(3) Costs of unconsummated acquisitions; and

(4) A return on equity capital invested in aircraft used in the construction of HCA hospitals.

Both the plaintiffs and the Secretary moved for summary judgment. The district court granted the plaintiffs' motion for summary judgment on the stock maintenance costs issue, but granted the Secretary summary judgment with respect to the other issues.

On appeal, the plaintiffs argue that the Secretary's disallowance of unsuccessful acquisition costs and returns on net equity in goodwill and in aircraft used in hospital construction is arbitrary and capricious. Moreover, the plaintiffs also contend that the Secretary's disallowance of these costs was untimely, and hence invalid. The Secretary argues that the stock maintenance costs were properly disallowed and that the district court erred in finding to the contrary.

For the reasons set forth below, we hold that the district court erred in reversing the Secretary's disallowance of the stock maintenance costs and thus reverse on this issue. We affirm, however, the district court's summary judgment against the plaintiffs with regard to the other three claims, and find that the Secretary's disallowance of these claims was timely.

I. BACKGROUND.

A. Medicare.

This case arises under Title XVIII of the Social Security Act, known as the Medicare program. 42 U.S.C. Secs. 1395a-1395xx. This legislation provides for federal reimbursement of medical care for the aged and certain disabled persons. 42 U.S.C. Sec. 1395c. It accomplishes this, in part, through contractual arrangements with medical facilities to be "providers" of such medical care. ¹ These providers afford certain covered medical services to the program's beneficiaries, for which they receive reimbursement from the government. 42 U.S.C. Sec. 1395f. A provider is reimbursed for the "reasonable cost" of the services provided or, if lower, the customary charges for such services. 42 U.S.C. Sec. 1395f(b)(1) (1976). In addition to "reasonable costs," Medicare also pays, in certain instances, a "reasonable return on equity capital, including necessary working capital, invested in a facility and used in the furnishing of ... services...." 42 U.S.C. Sec. 1395x(v)(1)(B). Under this return on equity capital principle, proprietary providers, such as the plaintiffs, receive a specific return on their "investment in plant, property, and equipment related to patient care," and on their "net working capital maintained for ... patient care activities." 42 C.F.R. Sec. 405.429(b) (1982).

A provider may be reimbursed for services rendered to Medicare beneficiaries directly by the Secretary, or it may appoint as a "fiscal intermediary" any qualified public or private agency to act as the Secretary's agent for the purpose of reviewing its claims and administering payments due it from the government. These private entities are frequently health and accident insurance companies such as Blue Cross and Aetna. Each provider files an annual cost report with its fiscal intermediary, which audits the report and then issues a notice of program reimbursement informing the provider of the amount of reimbursement to which it is entitled. 42 C.F.R. Sec. 405.1803 (1982). If a provider is dissatisfied with the fiscal intermediary's determination, it may request a hearing on this matter before the Provider Reimbursement Review Board (the "Board"). ² 42 U.S.C. Sec. 1395oo (a). The Board's determination is the final agency action unless the Secretary, "on his own motion," reverses or modifies the Board's decision. 42 U.S.C. Sec. 1395oo (f)(1). The Secretary has delegated her authority to review the Board's decision to the Administrator of the Health Care Financing Administration ("HCFA"). ³ The Administrator has, in turn, re-delegated this authority to the Deputy Administrator. The provider has a right to judicial review from the Board's decision or from the Secretary's subsequent action.

B. Facts.

HCA began operations in 1968 as a single hospital. It rapidly began to acquire and construct other hospitals, principally in the South and Southwest. By 1973, the cost year in dispute, HCA owned and operated forty-seven hospitals.

Plaintiffs are the forty-seven Medicare providers in the chain owned and operated by HCA, which serves as the home office. Medicare recognizes that home offices provide central management and administrative services, and reimburses home office costs to the extent these services relate to patient care. In 1973, certain "home office" expenses were claimed on HCA's home office cost report to be allocated to the members in the chain. HCA's fiscal intermediaries, however, disallowed these costs and the plaintiffs took a group appeal to the Board. The Board found in favor of the plaintiffs on four of six issues. Thereafter, the Secretary reversed the Board's decision on the four issues decided in favor of the plaintiffs. The plaintiffs then sought judicial review before the district court, challenging the Secretary's reversal of the Board's decision, and contending that the Secretary's decision was untimely. ⁴ The four disputed issues are (1) stock maintenance costs, (2) return on goodwill, (3) unsuccessful acquisition costs, and (4) return on aircraft equity. Subsequently, the district court upheld the Secretary's decision on all but the stock maintenance costs issue.

II. TIMELINESS OF THE SECRETARY'S DECISION.

Because the timeliness of the Secretary's decision necessarily determines whether we must consider the merits, we address this issue first.

Both the Secretary's review process and judicial review of her decisions are governed by 42 U.S.C. Sec. 1395oo(f)(1). This section provides in pertinent part:

(1) A decision of the Board shall be final unless the Secretary, on his own motion, and within 60 days after the provider of services is notified of the Board's decision, reverses, affirms, or modifies the Board's decision. Providers shall have the right to obtain judicial review of any final decision of the Board, or of any reversal, affirmance, or modification by the Secretary, by a civil action commenced within 60 days of the date on which notice of any final decision by the Board or of any reversal, affirmance, or modification by the Secretary is received.

Thus, under the plain wording of the statute, the Secretary's decision is without legal effect if it was rendered more than "60 days after the provider of services [was] notified of the Board's decision ...."

The Board's decision is dated January 2, 1980. On the same day it was mailed to the plaintiffs and hand-delivered to the Office of the Attorney-Advisor, which is responsible for preparing the Deputy Administrator's decisions. The plaintiffs received the Board's decision on January 7, 1980.

The Deputy Administrator's decision reversing the Board on all four issues presently upon appeal is dated March 6, 1980, 64 days after the Board's decision was rendered but 59 days after it was received by the plaintiffs. The letters transmitting copies of the Deputy Administrator's decision are dated March 11, 1980, 69 days after the Board's decision and 64 days after the plaintiffs received the Board's decision.

The plaintiffs contend that the Secretary's decision is untimely for three reasons. First, they argue that the 60-day statutory period allowed for secretarial reversals of the Board begins to run from the date the Board's decision is rendered and mailed to the parties. Thus, the Secretary's decision is invalid because it is dated more than 60 days after the Board's decision was mailed to the parties. Second, the plaintiffs maintain that the Secretary is collaterally estopped from contesting that the 60-day period runs from the date of the Board's decision as a result of an earlier court decision adverse to the Secretary on this issue. Third, the plaintiffs argue that the date the Secretary's reversal became effective is the date on which the decision became a matter of public...