U.S. v. Withrow, 78-1719

• Decision Date: 15 March 1979
• Docket Number: No. 78-1719,78-1719
• Citation: 593 F.2d 802
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Dr. H. G. WITHROW, f/d/b/a Hustisford Hospital, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 802

593 F.2d 802

UNITED STATES of America, Plaintiff-Appellee, v. Dr. H. G. WITHROW, f/d/b/a Hustisford Hospital, Defendant-Appellant.

No. 78-1719.

United States Court of Appeals Seventh Circuit.

Argued Jan. 16, 1979.

Decided March 15, 1979.

Stewart G. Honeck, Milwaukee, Wis., for defendant-appellant.

Joseph P. Stadtmueller, Asst. U. S. Atty., Milwaukee, Wis., for plaintiff-appellee.

Before SWYGERT, Circuit Judge, BAUER, Circuit Judge, and GRADY, ¹ District Judge.

GRADY, District Judge.

This case arises under Title 18 of the Social Security Act, 42 U.S.C. Section 1395 Et seq., which establishes the Health Insurance For the Aged and Disabled Program, commonly referred to as "Medicare." The action was commenced on June 2, 1976, by the United States, plaintiff-appellee, against Dr. H. G. Withrow, formerly doing business as Hustisford Hospital, defendant-appellant, to collect alleged overpayments made to appellant during the years 1966-1969 as a provider of services under the Medicare program.

Appellant moved the district court to dismiss the action as barred by limitations, 28 U.S.C. Section 2415. ² The court denied the motion with respect to the years 1967 through 1969, but granted it as to 1966. Summary judgment for $24,921.00 was entered in favor of the Government. Dr. Withrow now appeals that decision, solely on the ground that the action was barred by 28 U.S.C. Section 2415. We affirm.

From July 1, 1966, through October 31, 1969, appellant, doing business as Hustisford Hospital, at Hustisford, Wisconsin, participated in the Medicare program of the Social Security Act, 42 U.S.C. Section 1395, Et seq., as a "provider of services." Under the Medicare program, a provider of services does not charge Medicare beneficiaries directly, but receives payment for services provided ("reimbursement") from the Medicare fund. 42 U.S.C. Section 1395cc(a)(1)(A). Pursuant to 20 C.F.R. Section 405.405, the provider of health services may receive interim reimbursement payments in advance from organizations which serve as fiscal intermediaries between the Secretary of Health, Education and Welfare and the provider. Appellant's intermediary was Associated Hospital Service, Inc., an agent for Blue Cross of Wisconsin. The interim payments procedure was established under the terms of 42 U.S.C. Section 1395f(b) and 20 C.F.R. Section 405.451(a), requiring that providers be paid only the reasonable costs of their services. Interim payments are advanced to the provider on the basis of estimated costs for a given accounting period, usually one calendar year. Within three months following the end of each accounting period, the provider is required to submit reports indicating the actual costs incurred. The intermediary must then audit the reports and determine how the interim payments compare to the actual costs. 20 C.F.R. Section 405.454(f)(1). Based on the results of the audit, a final adjustment is made. 20 C.F.R. Section 405.454(f)(2). If the provider is dissatisfied with the determination of the intermediary, or if the intermediary does not act in a timely fashion after receiving the cost report, the provider may obtain a hearing before a Provider Reimbursement Review Board, whose decision would be final and judicially reviewable. 42 U.S.C. Section 1395Oo.

On May 16-17, 1972, the intermediary in the present case completed audits of appellant's cost reports for the period 1966-1969, and found that a net overpayment of approximately $25,000.00 had been made to appellant. On June 2, 1976, the United States filed suit in the district court to collect this amount.

The statute of limitations applicable to suits brought for overpayments to providers of health services in the Medicare program is 28 U.S.C. Section 2415(a), which provides in pertinent part:

Subject to the provisions of section 2416 of this title, and except as otherwise provided by Congress, every action for money damages brought by the United States or an officer or agency thereof which is founded upon any contract express or implied in law or fact, shall be barred unless the complaint is filed within six years after the right of action accrues or within one year after final decisions have been rendered in applicable administrative proceedings required by contract or by law, whichever is later . . . .

The United States contends, and the court below found, that in cases brought to recover overpayments to providers, the "right of action accrues," for purposes of 28 U.S.C. Section 2415(a), when the audit has determined the final liabilities of the parties. Appellant, on the other hand, argues that the cause of action accrued on October 31, 1969, when appellant closed the hospital and ceased to function as a provider of health services under the Medicare program.

Appellant characterizes the Medicare reimbursement plan as being an "open account," in which a running balance exists, such that at any time the figures can be totalled to determine what is owed to whom. We believe this view is erroneous. Participants in the Medicare program, such as appellant, agree to provide health services subject to the conditions imposed in the Social Security Act, and all regulations promulgated thereunder. These regulations distinguish the reimbursement procedure from an open account with a shifting balance. Here, the parties clearly operate under an understanding that at some time After the end of an accounting period, an audit will be done by the intermediary. 20 C.F.R. Section 405.454(f) specifically states that

(a)ctual costs reimbursable to a provider cannot be determined Until the cost reports are filed and costs are verified. Therefore, a retroactive adjustment will be made at the end of the reporting period to bring the interim payments made to the provider during the period into agreement with the reimbursable amount payable to the provider for the services rendered to program beneficiaries during that period. (emphasis added).

Both parties here clearly contemplated that only after the audit by the fiscal intermediary could either party be liable to the other. Prior to the time of the audit, neither party had a cause of action against the other. The Supreme Court's reasoning in Crown Coat Front Co., Inc. v. United States, 386 U.S. 503, 87 S.Ct. 1177, 18 L.Ed.2d 256 (1967) supports this position. In that case, a contractor had agreed for various reasons, to a reduction in the price to be paid by the government for products delivered by the contractor on December 14, 1956. In October 1961, pursuant to procedures set out in the contract, the contractor filed a claim with a contracting officer, whose decision was final unless appealed from, seeking an equitable adjustment of the purchase price. This claim was denied, and on February 28, 1963, the Board of Contract Appeals affirmed the contracting officer's decision. On July 31, 1963, more than six years after he had completed performance of the contract, the contractor brought suit challenging the decision of the Board of Contract Appeals. The United States asserted that the suit was time-barred by the statute of limitations found at 28 U.S.C. Section 2401, which provides that "(e)very civil action commenced against the United States shall be barred unless the complaint is filed within six years after the right of action first accrues." The Government argued that limitations had started to run in 1956, when performance under the contract was completed. The Supreme Court, addressing the question of when the "right of action first accrue(d)," stated:

In our opinion, if (the contractor's) claim arose under the contract, it first accrued at the time of the final decision of the Armed Services Board of Contract Appeals, that is, Upon the completion of the administrative proceedings contemplated and required by the provisions of the contract.

But whether and to what extent an adjustment is required are questions to be answered by the methods provided in the contract itself. The contractor must present his claim to the contracting officer, whose decision is final unless appealed for final action by the department head or his representative, here the Armed...