Ulman v. United States, 150-72.

• Decision Date: 15 June 1977
• Docket Number: No. 150-72.,150-72.
• Citation: 558 F.2d 1
• Parties: Francis J. ULMAN, Receiver of Holiday Nursing Homes, Inc. v. The UNITED STATES.
• Court: U.S. Claims Court

558 F.2d 1

Francis J. ULMAN, Receiver of Holiday Nursing Homes, Inc. v. The UNITED STATES.

No. 150-72.

United States Court of Claims.

June 15, 1977.

Richard H. Gens, Boston, Mass., attorney of record, for plaintiff.

Arlene Fine, Washington, D.C., with whom was Acting Asst. Atty. Gen. Irving Jaffe, Washington, D.C., for defendant. Howard G. Slavit, attorney of record, Washington, D.C.

Before NICHOLS, KUNZIG, and BENNETT, Judges.

BENNETT, Judge.

This case presents another claim of a provider of services under the Medicare Act, 42 U.S.C. § 1395 et seq. (1970), and regulations thereunder, 20 C.F.R. ch. III, part 405 (1967), for reimbursement of reasonable costs incurred in extending such services to patients insured by the Medicare program. Plaintiff is the duly appointed receiver in bankruptcy of Holiday Nursing Homes, Inc. (Holiday), a Massachusetts corporation which operated a business certified by the Department of Health, Education, and Welfare (HEW) as an "extended care facility" and a "provider of services" within the meaning of 42 U.S.C. § 1395x(j) and § 1395x(u), respectively. Holiday functioned in this capacity from January 5, 1967, when it designated Blue Cross Association to act as its fiscal intermediary¹ until October 1969. Throughout this time, Holiday received periodic payments from the intermediary for its reimbursable outlays, subject to later verification and retroactive adjustment of the total of the payments to reflect the provider's actual costs reasonably expended, as determined by the intermediary on audit of Holiday's annual cost reports. See 20 C.F.R. § 405.454 (1967).

During the first 5 months of 1967, representatives of Holiday and the intermediary on several occasions discussed the extent of the periodic payments to be made to the provider pending the first annual audit and adjustment. The amount of such payments was denominated the "interim rate" of reimbursement. The interim rate was established some time after Holiday submitted its first interim cost report to the intermediary on January 25, 1967. It was revised when the second interim cost report was filed 2 months later. Thereafter, on May 18, 1967, the intermediary informed Holiday by letter that certain expenses theretofore included in the base amounts over which the rate was calculated — expenses relating to various committees and to the purchase of services from an outside contractor — would not be allowed for reimbursement. Upon final audit and adjustment of the 1967 reimbursable amount by the intermediary, a dispute arose over the propriety of the May 18 disallowance. Holiday contended that the failure of the intermediary's representative to object to the ultimately disallowed expenses at the times that its interim cost reports were filed and made the basis of the interim rates led Holiday to incur and keep incurring those expenses, thinking that they were reimbursable, and thus should preclude the intermediary from later changing its position and refusing to pay the expenses. Holiday appealed the intermediary's 1967 determination to the Blue Cross Association Provider Appeals Committee, though it did not similarly appeal the intermediary's determinations for 1968 and 1969, which were also initially in dispute.

The committee, after a hearing conducted in August 1969, sustained the intermediary's determination in February 1970. As a result of the committee's decision, coupled with the intermediary's determinations for 1968 and 1969, Holiday was found to have been overpaid by the interim payments, and to owe the Government, upon retroactive adjustment of the reimbursable amounts, a total of $179,970.30. Of this amount, $89,952, as stipulated, was attributable to 1967. Holiday then petitioned this court for review of the committee's ruling, as well as of the intermediary's 1968 and 1969 determinations. After the filing of the petition, George Goldstein was appointed receiver of Holiday, and upon motion he was substituted as the plaintiff. In an order styled Goldstein v. United States, 201 Ct.Cl. 888, cert. denied, 414 U.S. 974, 94 S.Ct. 287, 38 L.Ed.2d 217 (1973), this court granted defendant's motion to dismiss the petition with respect to 1968 and 1969 for the plaintiff's failure to exhaust administrative remedies by appealing to the Provider Appeals Committee. The order further stated that the court's review of the 1967 determination was limited, in light of 42 U.S.C. §§ 405(h) and 1395ff (1970), to ascertaining that the procedural and substantive aspects of the determination comported with the Constitution and the governing statute. See Whitecliff, Inc. v. United States, 536 F.2d 347, 210 Ct.Cl. 53 (1976), cert. denied (1977), 430 U.S. 969, 97 S.Ct. 1652, 52 L.Ed.2d 361. The matter was remanded to the Trial Division for further proceedings on the allegation of detrimental reliance with regard to the disallowed costs, along with the additional claims that the composition and procedure of the Provider Appeals Committee deprived the provider of due process of law.

After a trial was scheduled in Boston, pursuant to the order of remand, the present plaintiff, who had been substituted as receiver of Holiday and as the complaining party here, and the Government agreed to a cancellation of the trial and a suspension of proceedings in this court in favor of going forward with a second full evidentiary hearing before the Provider Appeals Committee. This second panel, consisting of two members designated by the intermediary and a third representing the American Hospital Association, a provider organization, named by plaintiff as an "outside hearing officer" under the Blue Cross Association Medicare Provider Appeals Procedure (1968), convened on November 19, 1974. After a hearing the committee, in April 1975, upheld the intermediary's determination. Plaintiff then returned to this court with a motion for summary judgment filed February 19, 1976, seeking review of that committee's decision. Plaintiff again complains that the 1967 expenses relating to certain of Holiday's committees and to an outside contractor were unfairly disallowed after the intermediary had lulled Holiday into believing that they would be reimbursed. He also continues the charge that the committee's composition violates due process, two of its members having been employed and designated by the intermediary and thus necessarily being partial to it, and adds the assertions that the ex parte role of an adviser to the committee (also an employee of the intermediary) and the committee's receipt of certain documentary evidence after the close of the hearing and absent the opportunity for live cross-examination of the declarants by plaintiff's counsel likewise deprived plaintiff of due process. The petition had also claimed a taking of plaintiff's property by defendant and asserted a claim for just compensation under the fifth amendment to the Constitution in the sum of $362,000 and for "damages" in the amount of $549,077. Defendant's answer denied the same. Plaintiff has not raised the taking and damage claim in his motion for summary judgment now before the court and we consider the same to be abandoned and dismiss the petition as to these allegations.

Defendant, in an amended answer, raises affirmative defenses as to our lack of jurisdiction (disposed of in Goldstein v. United States, supra) or, alternatively, asks that the petition be dismissed for plaintiff's failure to exhaust his administrative remedies. Defendant counterclaims for overpayments to plaintiff in the sum of $175,701.17 for the years 1967-69, inclusive. The latter sum is the amount determined by the intermediary, as adjusted, to be refundable to the United States by plaintiff as a result of retroactive adjustments for said years.

We find no merit in plaintiff's contention that Holiday enjoyed a right to reimbursement on all the items of expense used in computing the interim rate until May of 1967. In the period of several months after the intermediary was appointed, there was considerable activity on the part of both Holiday and the intermediary to determine what the interim rate should be. The process of fixing the rate was necessarily an imprecise one, subject to estimation in the first instance and revision on various subsequent occasions in the course of working out a realistic projection of the reasonable, reimbursable portion of the actual costs. Estimation and later adjustment were at the heart of the first few months' activity, running counter to any notion of reasonable reliance on the intermediary's projections or seeming acquiescence in Holiday's. This is borne out by the language and tenor of the Medicare regulations, promulgated by HEW, in effect at the time. The regulation specifically in point, 20 C.F.R. § 405.454 (1967), entitled "Payments to providers," states in subsection (b) that "whatever estimated cost basis is used for determining interim payments during the year, the intent is that the interim payments shall approximate actual costs as nearly as is practicable so that the retroactive adjustment at the close of the fiscal year based on actual costs will be as small as possible." To this end of tailoring the periodic payments so as to minimize the difference on final audit, subsection (c)(4) of the cited regulation provides — significantly for this case — that:

After the initial interim rate has been set, the provider may at any time request, and be allowed, an appropriate increase in the computed rate, upon presentation of satisfactory evidence to the intermediary that costs have increased. Likewise, the intermediary may adjust the interim rate of payment if it has evidence that actual costs may fall significantly below the computed rate.

The quoted language, appearing in the subsection which according to its title deals solely with fixing the interim rate "during the initial reporting period," expressly anticipates and sanctions adjustment of the interim rate...