Unihealth Services Corp. v. Califano, Civ. A. No. 77-3001.

• Decision Date: 21 March 1978
• Docket Number: Civ. A. No. 77-3001.
• Citation: 448 F. Supp. 1059
• Court: U.S. District Court — Eastern District of Louisiana
• Parties: UNIHEALTH SERVICES CORPORATION v. Joseph P. CALIFANO, in his official capacity as Secretary of Health, Education & Welfare of the United States, et al.

448 F. Supp. 1059

UNIHEALTH SERVICES CORPORATION v. Joseph P. CALIFANO, in his official capacity as Secretary of Health, Education & Welfare of the United States, et al.

Civ. A. No. 77-3001.

United States District Court, E. D. Louisiana.

March 21, 1978.

Donna D. Fraiche, Baton Rouge, La., for plaintiff.

Suzanne Cochran, Asst. Regional Atty., Dept. of Health, Education & Welfare, Dallas, Tex., for defendant.

MEMORANDUM AND ORDER

JACK M. GORDON, District Judge.

This matter is before the Court on the motion to dismiss of Joseph P. Califano, in his official capacity as Secretary of Health, Education & Welfare of the United States, et al (referred to as "the United States") brought pursuant to Federal Rules of Civil Procedure 12(b)(1) as a challenge to this Court having jurisdiction over the claims presented. The defendant's jurisdictional argument is grounded on two basic contentions:

(1) that the plaintiff lacks standing in this action so as to make it a case or controversy subject to a federal court's Article III jurisdiction under the United States Constitution; and

(2) that this Court does not have subject matter jurisdiction of the case in that § 205(h) of the Social Security Act, incorporated into the Medicare provisions of the Act as 42 U.S.C. § 1395 et seq., prevents this Court from exercising any judicial review over the particular claims presented by the plaintiff.

As best the Court can determine on the basis of the factual scenario presented in the record, Unihealth and the United States, through its appropriate agency which administers the Medicare program, agree on the following fact rendition. Plaintiff, Unihealth Services Corporation, established in 1969, is a private professional management and consulting firm specializing in the rendering of service to nonprofit home health agencies as those entitled are so defined in 42 U.S.C. § 1395x(m). These agency clients are "providers" under Title 18 of the Medicare Act (referred to also as "Act"), 42 U.S.C. § 1395 et seq. Plaintiff has contracted to provide services to certain providers but is not a Medicare provider itself.

Unihealth services 25 provider clients in a 17-state area and the District of Columbia pursuant to a contract with each client agency wherein a unified charge is billed for the services rendered based on the percentage of gross billings of the respective agencies as set out in the agreement. The cost, although not billed by means of a breakdown, purportedly included initial startup fees; professional consultation and orientation program; continued management services; manuals; forms; brochures; other teaching tools; as well as guidance and aid in all financial matters; data processing; billing services and preparation of cost and periodic interim payment reports; and assistance in audit procedures conducted by fiscal intermediaries. In each contract with a provider, plaintiff has agreed that it will refund to the provider any charges for its services that are disallowed by Medicare. Plaintiff's clients receive monthly payments from Medicare which the client and the United States estimate will amount to the provider's proper reimbursement when costs are audited at the end of the fiscal year. Such interim payments include payments for the cost of the types of services provided by plaintiff.

From 1969 through 1976 Medicare officials recognized Unihealth as a management company under policy considerations set out under the provider reimbursement manual. Medicare in making its determination as to the reasonableness of cost regarding Unihealth's services to the providers scrutinized those costs under guidelines found appropriate to management companies. From 1970 until November, 1976, the fees Unihealth charged its clients were found to be within the principles of reimbursement and thus allowed.

As alleged by plaintiff, in 1968 officials of Medicare began to review the status of the plaintiff in an effort to make a policy determination as to whether Unihealth should be regarded as a management company or as a franchisor under the provider reimbursement manual. Plaintiff claims that such a review was made without the knowledge of Unihealth. Purportedly without receiving legal notice of any meetings, officials of Medicare met and reached a policy decision that Unihealth should be treated as a franchisor when Medicare makes a determination on reimbursement. Under § 2133 of the Provider Reimbursement Manual, franchise fees are allowable only to the extent that they are not out of line with costs of similar services provided by nonfranchise organizations. This section requires that providers establish the cost of each of the specific services provided by the franchisor. It requires exclusion of any additional fees relating to the franchisor's trademark or reputation which are purportedly not related to patient care.

As a result of this policy determination recognizing Unihealth as a franchisor, the plaintiff contends that those standards applicable to franchisors in determining reasonable costs, were applied retroactively to those years when plaintiff was operating as a management corporation as designated by Medicare. Retroactive application of standards relating to franchisors purportedly altered the condition under which plaintiff was operating in the following manner:

(1) That Medicare officials retroactively conducted a more rigorous scrutiny of Unihealth's cost report than was required when Unihealth was accorded management status;

(2) That Unihealth was required to provide itemized cost statements of each individual service rendered to a provider whereas in the past under standards applicable to management corporations, it did not have to itemize costs as to individual services;

(3) That under the franchisor standards, and as referred to above, Unihealth was forced to retroactively utilize more onerous accounting procedures in setting out the costs of the services rendered;

(4) That the presumption that all costs and services stated by a management corporation are reasonable was substituted for the franchisor presumption that all costs and services rendered are not reasonable and must be proven by detailed documentation.

Plaintiff contends that as a result of this retroactively applied policy determination recognizing it as a franchisor, Unihealth's provider clients have withheld almost all payments outstanding to Unihealth in the full amount of $800,000.

In an effort to challenge the legality of the policy determination, the method of promulgating that determination, and the manner in which the policy decision and its attendant requirements were applied, Unihealth filed the lawsuit temporarily allotted to Section "I" after its transfer from Section "C." The following is a summary of the numerous claims for relief set out in plaintiff's complaint.

(1) That defendant has infringed its due process rights as set out in the Fifth Amendment of the United States Constitution: (a) by singling out the plaintiff in an attempt to regulate it under the Medicare Act without allowing plaintiff any administrative review or judicial review as provided by the Medicare Act; (b) by failing to give plaintiff guidelines further defining "reasonable cost" pursuant to Title 20, Code of Federal Regulations, § 405.501, et seq.; (c) by failing to give the plaintiff proper or legal notice that its charges for services would be disallowed based on retroactively applied policy decisions affecting cost reports for the years 1976, 1975 and 1974; (d) by retroactively applying the policies, practices, actions, and determinations of defendant so as to force plaintiff out of its professional practice thereby proscribing its ability to engage in its profession; (e) by denying plaintiff the right to a hearing relative to the issue of its status as a franchisor, though defendant's precedential policy determination had the adverse effect of depriving Unihealth of its presumption of having submitted reasonable costs on a unified basis;

(2) That defendant has failed to grant equal protection under the law to plaintiff as required by the Fifth Amendment of the United States Constitution when it singled out plaintiff on the basis of its unique status in the Medicare field to demonstrate that disallowances of certain charges submitted to Medicare could be made on a retroactive basis.

The parties are in substantial disagreement as to what is the nature of the relief sought. The United States suggests that the only relief that plaintiff is truly seeking is to have judicial review of an administrative determination under the Medicare Act that the costs of services charged to providers by Unihealth were unreasonable. On the basis of this characterization of the relief Unihealth allegedly is seeking, the United States suggests that this Court should adopt the reasoning set forth in New Jersey Chapter, Incorporated, of the American Physical Therapy Association, Inc. v. The Prudential Life Insurance Company of America, 164 U.S.App.D.C. 40, 502 F.2d 500 (1974), wherein that Court discussed both the standing and judicial review issues. In that case, the Association of Physical Therapists as a contractor of services to providers brought an action against its fiscal intermediary (private company chosen by United States to make initial determination of reasonableness of costs that providers have sustained) under the Medicare program challenging guidelines adopted by the intermediary for reimbursement to providers for cost of physical therapists' services. Medicare officials made a policy determination clarifying what intermediaries should determine to be reasonable costs for physical therapy services. In adopting these new policy considerations the officials stated that it would be necessary that accurate records of the therapists' activities be maintained and made available to the intermediary. Then, the officials prospectively applied these new record-keeping...