United States v. Thomas

• Decision Date: 12 June 1981
• Docket Number: Civ. A. No. SA75CA262.
• Citation: 515 F. Supp. 1351
• Parties: UNITED STATES of America, Plaintiff, v. James W. THOMAS, M.D., and Smithville Hospital, Inc., Defendants.
• Court: U.S. District Court — Western District of Texas

515 F. Supp. 1351

UNITED STATES of America, Plaintiff, v. James W. THOMAS, M.D., and Smithville Hospital, Inc., Defendants.

Civ. A. No. SA75CA262.

United States District Court, W. D. Texas, San Antonio Division.

June 12, 1981.

COPYRIGHT MATERIAL OMITTED

Hugh P. Shovlin, Asst. U. S. Atty., San Antonio, Tex., Suzanne Cochran, Asst. Regional Atty., Dallas, Tex., for plaintiff.

J. Stockton Williams, Jr., Austin, Tex., for defendants.

SUMMARY JUDGMENT

SPEARS, District Judge.

On this day came on for consideration the plaintiff's motion for summary judgment in the above entitled cause, with its accompanying briefs, affidavits, and depositions filed in support thereof, and the defendants' controverting affidavits and objections filed in response thereto. After conducting a hearing on the merits of said motion, at which time all of the parties were afforded an opportunity to present oral argument in support of their respective positions, and after duly considering the pleadings, depositions, answers to interrogatories, admissions, affidavits, and exhibits on file herein, the Court is of the opinion that there is no genuine issue of material fact, and that plaintiff, therefore, is entitled to judgment as a matter of law.

This suit was instituted by the United States, on behalf of the Department of Health, Education, and Welfare (Department of Health and Human Services), to recover alleged medicare overpayments made to the defendant, Smithville Hospital, Inc., during the years 1967-1972. Prior to its involuntary dissolution in 1974, Smithville Hospital was solely owned and controlled by defendant, Dr. James W. Thomas.

I.

The Medicare System, 42 U.S.C. § 1395 et seq. (1974)¹

Federal Health Insurance for the Aged, known as medicare, was enacted to ensure "free"² medical services for persons aged 65 and older. See 42 U.S.C. § 1395c (1975-1980 Supp.). The system is administered by private, non-governmental "fiscal intermediaries", which are usually large health and accident insurance companies. See 42 U.S.C. § 1395u (1974); 42 U.S.C. § 1395h (1975-1980 Supp.). The intermediaries, to insure "providers" of medicare services an adequate cash flow while providing free medical treatment to covered beneficiaries, make interim payments to the providers for the estimated reasonable costs of such services. See 42 U.S.C. §§ 1395g, 1395x(v) (1975-1980 Supp.). These payments represent mere approximations of costs that will properly be chargeable to medicare for the fiscal year. An annual audit of each provider's account is conducted by the intermediary at year end to adjust interim disbursements for any overpayments or underpayments. See 42 U.S.C. §§ 1395u, 1395x(v), 1395mm(a) (1974). Overpayments may be recouped by the government. See Mount Sinai Hospital of Greater Miami, Inc. v. Weinberger, 517 F.2d 329, 337-39 (5th Cir. 1975), cert. denied, 425 U.S. 935, 96 S.Ct. 1665, 48 L.Ed.2d 176 (1976); Szekely v. Florida Medical Assoc., 517 F.2d 345, 349 (5th Cir. 1975), cert. denied, 425 U.S. 960, 96 S.Ct. 1742, 48 L.Ed.2d 205 (1976).

In 1973, the Medicare Act was amended to establish a comprehensive procedure for reviewing disputes arising from the annual cost adjustments. See 42 U.S.C. § 1395oo (1974). Prior to 1973, however, the Act's numerous review provisions did not explicitly provide for judicial review of intermediary readjustment claims. See Chelsea Community Hospital v. Michigan Blue Cross, 630 F.2d 1131, 1133 (6th Cir. 1980). For pre-1973 claims, a provider was required to request an intermediary hearing on contested cost adjustments. The hearing was conducted by impartial persons knowledgeable in the field of health care reimbursement, and the decision of the hearing officer was final. See generally United States v. Fairlane Convalescent Homes, Inc., 501 F.Supp. 863, 869 (E.D.Mich.1980); United States v. Graham, 471 F.Supp. 123, 126 (S.D.Tex. 1979); Pacific Coast Medical Enterprises v. Califano, 440 F.Supp. 296, 301-302, 309-10 (C.D.Cal.1977), affirmed sub nom. Pacific Coast Medical Enterprises v. Harris, 633 F.2d 123 (9th Cir. 1980).

II. The Instant Facts

Smithville Hospital, Inc., the provider herein, participated in the Medicare Program from June 30, 1967 until April 1, 1972 (plaintiff's undisputed fact 1). During this time, Group Hospital Service, Inc., the intermediary, made interim payments to Smithville, on behalf of the government, for covered services provided to medicare beneficiaries. Based on the cost reports and records submitted by Smithville for the years 1967-1972, the intermediary determined that medicare overpayments to Smithville amounted to $62,904.00.³ No administrative appeal was subsequently taken by the provider (plaintiff's undisputed fact 7).

Thereafter, the government initiated this action to recoup the alleged overpayments. Pursuant to a joint motion of the parties, and to promote settlement of the controversy, the lawsuit was stayed indefinitely pending an independent administrative determination by HEW concerning whether Smithville, and Dr. Thomas, individually, were liable to the United States for the entire $62,904.00 (see Court Order of December 14, 1976, and accompanying "Agreed, Joint Motion to Stay Proceedings"). Approximately three years later, the agency concluded that the defendants were entitled to a $12,000.00 set off against the indebtedness due, and the government, accordingly, filed its second amended complaint reflecting the set off (plaintiff's undisputed fact 13; see "Second Amended Complaint"). Defendants have refused to make payment (plaintiff's undisputed fact 25).

At all times pertinent to this action, Dr. James W. Thomas was director and sole shareholder of Smithville Hospital (plaintiff's undisputed fact 17). The hospital, after transferring its assets to Smithville Hospital Authority in 1972, paid off outstanding debts, redeemed its stock, and ceased doing business under the name of Smithville Hospital, Inc. (plaintiff's undisputed facts 20-24). The corporate charter was forfeited in 1974 for failure to pay corporate franchise taxes (Thomas deposition at 126-27).

III. Summary Judgment

A. Failure to Exhaust Administrative Remedies

In its motion for summary judgment, the government contends that defendants' failure to exhaust the administrative remedies available under the Act bars judicial review of the defendants' claims.

There is substantial authority in this Circuit for the proposition that 42 U.S.C. § 405(h) precludes district court review of pre-1973 provider reimbursement disputes. See Homan & Crimen, Inc. v. Harris, 626 F.2d 1201, 1206 (5th Cir. 1980); Dr. John T. McDonald Foundation v. Califano, 571 F.2d 328, 330-32 (5th Cir.) (en banc), cert. denied, 439 U.S. 893, 99 S.Ct. 250, 58 L.Ed.2d 238 (1978); United States v. White House Nursing Home, 484 F.Supp. 29, 31 (M.D.Fla. 1979). Section 405(h), incorporated into the Medicare Act by 42 U.S.C. § 1395ii, states in pertinent part:

The findings and decisions of the Secretary after a hearing shall be binding upon all individuals who were parties to such hearing. No findings of fact or decision of the Secretary shall be reviewed by any person, tribunal, or governmental agency except as herein provided.

As previously noted, the Act did not authorize judicial review of pre-1973 provider reimbursement decisions. Consequently, the Court considers § 405(h) a sufficient basis upon which to uphold the intermediary's findings and determination.

This proposition aside, however, it has been held that the "final" nature of a hearing officer's decision in pre-1973 provider reimbursement controversies precludes judicial review.⁴ A medicare provider that fails to exhaust the administrative remedies available to it cannot contest the intermediary's final retroactive adjustment. United States v. Graham, supra, 471 F.Supp. at 126; see United States v. Ripley, No. CA 4-77-351-E at 5-6 (N.D.Tex. Oct. 25, 1979); cf. United States v. Fairlane Memorial Convalescent Homes, Inc., supra, 501 F.Supp. at 866 n.4 (parties precluded from raising issues not argued in administrative proceedings). The undisputed facts in the instant case reveal that, although defendants were notified of the impending audit readjustments, they refused to challenge the disputed findings, or institute an appeal from the intermediary's determination. In fact, Smithville subsequently made payments to reduce the indebtedness (plaintiff's undisputed facts 3-10). Because the defendants failed to exhaust, prior to the initiation of this lawsuit, the Congressionally prescribed procedures for reviewing pre-1973 provider reimbursement claims, judicial review is barred. See United States v. Graham, supra, 471 F.Supp. at 126.

In connection with the exhaustion of remedies issue, it should be noted that this suit was continued indefinitely to allow the defendants a further opportunity to pursue all available administrative remedies. Instead of challenging the original audit adjustments, defendants merely submitted additional reimbursement claims to offset the alleged overpayments. Consequently, despite numerous opportunities, defendants have failed to utilize the prescribed administrative remedies to contest the validity or propriety of the original readjustments. Any defenses now raised by the defendants, therefore, which question the existence of overpayments and the government's right to recoup them, will not be considered. See, e. g., U. S. v. Ruzicka, 329 U.S. 287, 290, 67 S.Ct. 207, 208, 91 L.Ed. 290 (1946); United States v. Southern Railway Co., 364 F.2d 86, 91-92 (5th Cir. 1977), cert. denied, 386 U.S. 1031, 87 S.Ct. 1479, 18 L.Ed.2d 592 (1967); cf. Pacific Coast Medical Enterprises v. Harris, supra, 633 F.2d at 138-39 ("it would not be appropriate ... for the District Court to consider claims prior to exhaustion of administrative remedies.").

For the foregoing reasons, the Court is of the opinion that no issue of material fact remains for resolution.

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