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NATIONAL MED. ENTERPRISES v. BOWEN

August 15, 1989

NATIONAL MEDICAL ENTERPRISES, INC., and its wholly-owned subsidiaries which provide service under the Medicare Program, Plaintiffs,
v.
OTIS R. BOWEN, M.D., SECRETARY OF HEALTH & HUMAN SERVICES, Defendant


Thomas A. Flannery, United States District Judge.


The opinion of the court was delivered by: FLANNERY

THOMAS A. FLANNERY, UNITED STATES DISTRICT JUDGE

 Defendant Otis Bowen ("the Secretary") has moved pursuant to Fed.R.Civ.Pro. 12(b)(1) to dismiss the underlying complaint for lack of subject matter jurisdiction. As demonstrated below, under the clear dictates of Supreme Court and D.C. Circuit caselaw interpreting the relevant statutory and regulatory framework, this court is divested of jurisdiction in this case until the plaintiffs have exhausted their administrative remedies under 42 U.S.C. § 1395oo. Accordingly, the court dismisses the underlying complaint.

 I

 Plaintiff National Medical Enterprises, Inc. ("NME") is the parent company for various plaintiff subsidiary hospital corporations throughout the country. It is undisputed that plaintiff hospitals are certified providers of services under the Medicare Act. Defendant Otis Bowen, M.D. was the Secretary of Health and Human Services ("HHS") at the time the motion under consideration was filed. The plaintiffs filed their underlying complaint on August 24, 1988, challenging what they termed the "retroactive application" of a regulation recently promulgated by the Secretary. Cmplt. para. 24.

 II

 The Health Insurance for the Aged Act, popularly known as the Medicare Act ("the Act"), was originally enacted as part of the Social Security Act in 1965 to provide federal subsidies for medical care provided to the aged. *fn1" The Medicare Act consists of two parts, Part A and Part B. Part A, the portion of the Act at issue here, authorizes payments for the costs of inpatient hospital services and related post-hospital services. 42 U.S.C. §§ 1395c & d. *fn2"

 Part A services are provided by "providers of services" -- health care providers such as hospitals who enter into "provider agreements" with the Secretary of Health and Human Services. 42 U.S.C. §§ 1395x(u) & 1395cc. These part A "providers of services" are reimbursed through fiscal intermediaries designated by the individual provider and the Secretary. *fn3"

 In response to the burgeoning costs of the Medicare program, *fn4" Congress enacted changes in the way providers were compensated under the Act. Instead of basing compensation on the provider's "reasonable costs" of covered services, a prospective payment system ("PPS") was to be phased in. Under the PPS, Medicare will pay most Part A providers for inpatient operating costs on the basis of prospectively determined, standard national rates. These rates of compensation are based on one of approximately 468 different diagnosis related groups ("DRG"), a grouping that best characterizes the treatment provided to each Medicare patient based on the patient's diagnosis at discharge.

 Under the PPS, after a Medicare patient has been discharged from a hospital/provider, the hospital/provider sends documentation to its fiscal intermediary to support a requested DRG. The intermediary evaluates the provided documentation and in turn notifies the hospital as to which DRG a patient was assigned. According to the Secretary's regulations, every patient discharged will be assigned to a particular DRG based on the patient's "age, sex, principal diagnosis . . . secondary diagnoses, procedures performed, and discharge status." 42 C.F.R. § 412.60(c)(1) (1988). And, as noted by the plaintiffs, the DRG assigned to a given patient "dramatically affects the payment which a hospital receives for services provided under PPS." Pltf's Mem. in Opp. at 7.

 The Secretary's regulations also allow a hospital/provider to request a review of an assigned DRG to a particular discharge and to support its request with additional documentation. 42 C.F.R. § 412.60(d). The fiscal intermediary reviews the DRG assignment and any additional information to determine "whether a change in the DRG assignment is appropriate." Id. § 412.60(d)(2). If the fiscal intermediary determines that a "higher-weighted DRG should be assigned, it must request the appropriate PRO [Peer Review Organization] to review the case to verify the change in DRG assignment. . . . " Id.5 This DRG review procedure is the subject of the underlying dispute in this case.

 III

 The regulation at issue here, codified at 42 C.F.R. § 412.60(d)(1), placed a formal, sixty day limitation on the ability of a provider to request a review of an assigned DRG code. *fn6" The preamble to the regulation indicated it was to be effective as of October 1, 1987. 52 Fed. Reg 33034, 33034 (Sept. 1, 1987).

 According to the complaint, plaintiffs submitted a series of requests for review of assigned DRGs to their respective fiscal intermediaries on November 24, 1987. Cmplt. para. 19. These requests, filed within 60 days of the regulation's effective date, were for changes in DRG codes which were originally assigned, in "virtually every case," more than sixty days previously. *fn7" These requests were all subsequently denied by the respective fiscal intermediaries, many of whom referred to the sixty day limitation contained in the regulation. *fn8"

 Plaintiffs argue that by these actions the fiscal intermediaries are attempting to apply the new regulation retroactively, an action alleged to be impermissible under a variety of legal theories including the Administrative Procedures Act and "due process of law." *fn9" Accordingly, plaintiffs seek a declaration by the court that the new regulation does not bar consideration of their requests for DRG recoding filed on November 24, 1987, and an order requiring the intermediaries to consider these requests. *fn10" The plaintiffs rely on 28 U.S.C. § 1331 (federal question jurisdiction), 28 U.S.C. § 1361 (mandamus against a federal official), and 28 U.S.C. § 1651 (the "All Writs Act") to establish subject matter jurisdiction in this court. *fn11"

 IV

 The crucial decision for this court in resolving this motion is the characterization of the plaintiffs' underlying claims. In response to the complaint, the Secretary has filed the current motion to dismiss for lack of subject matter jurisdiction. The Secretary classifies the plaintiffs' claims essentially as seeking relief for "dissatisfaction with a final determination of the Secretary as to the amount of payment" under the Act. Deft's Mem. in Supp. at 16.

 Under this characterization, the Secretary argues that section 405(h) of the Social Security Act, incorporated into the Medicare Act by 42 U.S.C. § 1395ii, precludes this court from jurisdiction under 28 U.S.C. § 1331. ...


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