Tallahassee Memorial Regional Medical Center v. Bowen, s. 85-3839

• Decision Date: 05 May 1987
• Docket Number: Nos. 85-3839,85-5131,s. 85-3839
• Parties: , 17 Soc.Sec.Rep.Ser. 374, Medicare&Medicaid Gu 36,298 TALLAHASSEE MEMORIAL REGIONAL MEDICAL CENTER, et al., Plaintiffs-Appellees, v. Otis R. BOWEN, Secretary of Health and Human Services, Defendant-Appellant. BAPTIST HOSPITAL OF MIAMI, et al., Plaintiffs-Appellees/Cross-Appellants, v. Otis BOWEN, Secretary of Health & Human Services, Defendant-Appellant/Cross- Appellee. PARKWAY MEDICAL CENTER, Palm Beach Gardens Community Hospital, Clearwater Community Hospital, and Amisub of Florida, Plaintiffs-Appellees/Cross- Appellants, v. Otis BOWEN, etc., et al., Defendants-Appellants/Cross-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1435

815 F.2d 1435

55 USLW 2632, 17 Soc.Sec.Rep.Ser. 374,

Medicare&Medicaid Gu 36,298

TALLAHASSEE MEMORIAL REGIONAL MEDICAL CENTER, et al., Plaintiffs-Appellees, v. Otis R. BOWEN, Secretary of Health and Human Services,

Defendant-Appellant.

BAPTIST HOSPITAL OF MIAMI, et al., Plaintiffs-Appellees/Cross-Appellants, v. Otis BOWEN, Secretary of Health & Human Services,

Defendant-Appellant/Cross- Appellee.

PARKWAY MEDICAL CENTER, Palm Beach Gardens Community

Hospital, Clearwater Community Hospital, and Amisub of Florida, Plaintiffs-Appellees/Cross- Appellants, v. Otis BOWEN, etc., et al., Defendants-Appellants/Cross-Appellees.

Nos. 85-3839, 85-5131.

United States Court of Appeals, Eleventh Circuit.

May 5, 1987.

W. Thomas Dillard, U.S. Atty., Tallahassee, Fla., for defendant-appellant in No. 85-3839.

Edgar C. Morrison, Jr., Office of Gen. Counsel, Dept. of HHS, Anthony J. Steinmeyer and Barbara C. Biddle, Appellate Staff, Civil Div., U.S. Dept. of Justice, Washington, D.C., for defendants-appellants.

Leonard C. Homer, Ober, Kaler, Grimes & Shriver, Baltimore, Md., Tallahassee Memorial Regional Medical Center.

Leon B. Kellner, U.S. Atty., and Patricia D. Kenny, Asst. U.S. Atty., Miami, Fla., for defendants-appellants in No. 85-5131.

Michael J. Murphy, Gaebe & Murphy, Coral Gables, Fla., Robert A. Klein and John R. Hellow, Los Angeles, Cal., for Parkway Medical Center.

Margaret M. Manning, Ober, Kaler, Grimes & Shriver, Baltimore, Md., for Baptist Hosp. of Miami and Tallahassee Memorial Regional Medical Center.

Appeal from the United States District Court for the Northern District of Florida.

Appeals from the United States District Court for the Southern District of Florida.

Before CLARK, EDMONDSON and KEITH ^*, Circuit Judges.

CLARK, Circuit Judge:

In this complex case, the plaintiff hospitals challenged the application of a 1979 regulation, promulgated by the defendant Secretary of Health and Human Services, regarding reimbursement under Medicare of medical malpractice insurance costs. The district courts below invalidated the 1979 rule, and awarded reimbursement under the pre-1979 regulation. During the briefing in the Secretary's appeal to this court, the Secretary promulgated a new regulation to replace the invalid 1979 rule. The Secretary now argues that this case is moot because the 1979 rule is no longer in effect. The Secretary also argues that five hospitals that "self-disallowed" certain costs should be denied relief. For reasons set out in this opinion, we affirm the rulings of the district courts below and order the Secretary to pay all of the hospitals under the pre-1979 regulations.

I. FACTUAL AND PROCEDURAL BACKGROUND

To understand the issues presented in this case, it is necessary to review in some detail the underlying facts of the case and the progress of the litigation, both in the district courts below and in this court.

A. The Medicare Program

In 1965, Congress enacted the Medicare program, Title XVIII of the Social Security Act, 42 U.S.C. Sec. 1395 et seq. (1982), to provide a comprehensive system of health care for the elderly and infirm. ¹ Under Part A of the program, ² Medicare provides payments to qualified hospitals to reimburse them for medical care provided to Medicare beneficiaries. A hospital may participate in the Medicare program as a "provider of services" by entering into a "provider agreement" with the Secretary of Health and Human Services (the "Secretary"). Id. Sec. 1395x(e), (u). The provider (i.e., the hospital) is entitled to payment of the lesser of the "reasonable cost" or the "customary charges" of hospital services provided to Medicare beneficiaries. Id. Sec. 1395f(b)(1). ³ A provider receives its Medicare reimbursements directly from the Secretary or, more commonly, through a "fiscal intermediary" appointed by the provider. The fiscal intermediary, usually a private insurance company, acts as an agent of the Secretary for the purpose of reviewing the provider's claim for reimbursement. Id. Sec. 1395h.

The process by which the final amount of reimbursement is determined is quite complex. The payment process begins when the provider files, at the end of each "cost year," a cost report with its fiscal intermediary. 42 C.F.R. Sec. 405.406(b) (1985). This report sets forth the costs of all services provided to Medicare patients during the year. The fiscal intermediary analyzes and The exact language of certain subsections of 42 U.S.C. Sec. 1395oo, which establishes and controls the PRRB, is highly relevant to portions of this appeal. In order to appeal to the PRRB, a provider must meet certain deadlines and minimum amount-in-controversy requirements:

audits the cost report, and issues a Notice of Program Reimbursement ("NPR"), which sets forth the amount of reimbursement to which the intermediary believes the provider is entitled. This NPR reflects any costs claimed by the provider but disallowed by the intermediary. Id. Sec. 405.1803. If the provider is dissatisfied with the fiscal intermediary's determination (and if certain jurisdictional requirements are met), it may appeal the determination to the Provider Reimbursement Review Board (the "PRRB"). 42 U.S.C. Sec. 1395oo(a). The PRRB has the power to affirm, reverse, or modify a determination made by a fiscal intermediary. Id. Sec. 1395oo(d). Within 60 days after a final decision of the PRRB, the Secretary may review, on his own motion or at the request of the provider, the decision of the PRRB. Id. Sec. 1395oo(f)(1). A provider dissatisfied with a final decision of the PRRB or Secretary may seek review of the decision in the federal district court in which the provider is located, or in the District Court for the District of Columbia. Id. The district court's review is made in accordance with the Administrative Procedure Act, and is based on the administrative record. 5 U.S.C. Sec. 706 (1982).

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 PRRB] ... 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....

Id. Sec. 1395oo(a). ⁴ On appeal, the provider can present evidence and witnesses at a hearing before the PRRB.

A decision by the [PRRB] shall be based upon the record made at such hearing, which shall include the evidence considered by the intermediary and such other evidence as may be obtained or received by the [PRRB] and shall be supported by substantial evidence when the record is viewed as a whole. The [PRRB] shall have the power to affirm, modify, or reverse a final determination of the fiscal intermediary with respect to a cost report and to make any other revisions on matters covered by such cost report (including revisions adverse to the provider of services) even though such matters were not considered by the intermediary in making such final determination.

Id. Sec. 1395oo(d). After decision by the PRRB, there are two bases for appeal to a district court:

Providers shall have the right to obtain judicial review of any final decision of the [PRRB], 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 [PRRB] or of any reversal, affirmance, or modification by the Secretary is received. Providers shall also have the right to obtain judicial review of any action of the fiscal intermediary which involves a question of law Id. Sec. 1395oo(f)(1). ⁵

or regulations relevant to the matters in controversy whenever the [PRRB] determines (on its own motion or at the request of a provider of services as described in the following sentence) that it is without authority to decide the question, by a civil action commenced within sixty days of the date on which notification of such determination is received.

B. Medical Malpractice Insurance Under Medicare

Since its inception, the Medicare program reimbursed hospitals and other providers according to the amount the facilities were used by Medicare patients. Under the accounting procedures used, costs are grouped into cost categories. Medical malpractice insurance, along with other administrative and insurance expenses, was grouped under the General and Administrative cost category. These "G & A" costs were allocated to a "cost center" within the hospital, such as the emergency room. Medicare reimbursed the hospital for a portion of each cost center's G & A costs, based on the Medicare patient utilization rate for that center. Ultimately, in very simple terms, a hospital in which 40% of the patients were Medicare beneficiaries was reimbursed for 40% of its malpractice insurance premiums.

In 1979, in response to the increased cost of malpractice insurance, the Secretary promulgated a new regulation which removed malpractice insurance from the G & A cost reimbursement scheme. 44 Fed.Reg. 31641-42, codified at 42 C.F.R. Sec. 405.452(b)(1)(ii), recodified to 42 C.F.R. Sec. 405.452(a)(1)(ii). Under the 1979 scheme, if a hospital had actually paid any malpractice claims over the preceding five years, it would be reimbursed for insurance premiums by the percentage of those claims that were paid to Medicare patients. If a hospital had not paid any malpractice claims in the preceding five years, the hospital would be reimbursed for insurance premiums based on an average national figure set at 5.1%. Thus, a hospital with 40% Medicare patients...