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TUCSON MED. CTR. v. SULLIVAN

October 16, 1990

TUCSON MEDICAL CENTER, ST. CLOUD HOSPITAL, COMMUNITY HOSPITAL, and TUCSON HOSPITAL LIQUIDATING CORP., Plaintiffs,
v.
LOUIS W. SULLIVAN, Secretary, Department of Health and Human Services, Defendant



The opinion of the court was delivered by: HARRIS

 STANLEY S. HARRIS, UNITED STATES DISTRICT JUDGE

 This matter is before the Court on defendant's motion to dismiss, plaintiffs' motion for summary judgment, and defendant's motion to stay consideration of plaintiffs' motion. Upon review of the motions, the parties' oppositions, supplements, and the entire record, the Court grants defendant's motion to dismiss and denies the plaintiffs' motion, as well as denying defendant's motion to stay as moot.

 Background

 Plaintiffs, four hospitals, brought this action against the Secretary of the Department of Health and Human Services (the Secretary of HHS) seeking Medicare reimbursement plus interest under the Tax Equity and Responsibility Act of 1982 (TEFRA). Plaintiffs' claim is the third generation of litigation born of the Secretary's improper adoption in 1981 of a cost limit schedule for hospitals that provide care to Medicare beneficiaries. The Secretary has paid plaintiffs' underlying claims for reimbursement; the question remains whether plaintiffs are entitled to interest under 42 U.S.C.A. § 1395 oo (f)(2).

 A hospital that participates in the Medicare program is reimbursed by a fiscal intermediary such as Blue Cross Blue Shield. 42 U.S.C.A. § 1395h (1990). The hospital submits a cost report for each fiscal year. Id. § 1395g. Guided by the Secretary's regulations and cost limits, the fiscal intermediary determines the amount to reimburse the hospital. A provider may appeal the intermediary's determination to the Provider Reimbursement Review Board (PRRB) of HHS. Id. § 1395 oo. In turn, the PRRB's final decision is subject to judicial review. Id. § 1395 oo (f)(1). In § 1395 oo (f)(2), the Medicare statute authorizes the reviewing court to award interest if the provider is the "prevailing party." Id. § 1395 oo (f)(2).

 In 1982, Congress modified the Medicare cost reimbursement system and enacted TEFRA. Pub. L. No. 97-248, 42 U.S.C.A. § 1935ww(b). TEFRA governs only one fiscal year of Medicare reimbursement because Congress replaced it in 1983 with the current "prospective payment system." Pub. L. No. 98-21, 42 U.S.C.A. § 1395ww(d). Under TEFRA, the Secretary calculates a "target amount" for each provider. In part, the provider's allowable costs for its "base year," the year immediately preceding TEFRA, determines its target amount. 42 U.S.C.A. § 1395ww(b)(3)(B). A provider receives 100% reimbursement plus an incentive payment if its costs are lower than the target amount. Costs above the target amount, however, are only 25% reimbursed. 42 U.S.C.A. § 1395ww(b)(1).

 In 1981, prior to TEFRA, the Secretary issued technical changes to the cost limits without conducting proper notice and comment proceedings. One of the changes affected the method for calculating the "wage index" which reflects hospital employees' salaries in a given geographic area. This court struck the wage index in 1983 because of the procedural defects. District of Columbia Hosp. v. Heckler, No. 82-2520 (D.D.C. 1983) (Judge Oberdorfer); St. Cloud Hosp. v. Heckler, No. 83-0223 (D.D.C. 1983) (Judge Oberdorfer). As a result, the Secretary had to reimburse the hospitals using the preexisting wage index to calculate cost limits.

 In 1984, the Secretary attempted to reinstate the invalidated wage index retroactively for a fifteen-month period beginning July 1, 1981. HHS then recouped the money previously paid to the hospitals. Several hospitals challenged the Secretary's retroactive rulemaking through administrative and judicial appeal. In Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 109 S. Ct. 468, 102 L. Ed. 2d 493 (1988), the Supreme Court held in the hospitals' favor, forcing the Secretary to return the recouped funds.

 During the pendency of Georgetown, the plaintiff hospitals in this action pursued an appeal of the wage index before the PRRB. Plaintiffs' claim was distinct from the Georgetown action only in that it involved the effect of the retroactive wage index on the TEFRA year reimbursement rather than the 1981-82 reimbursement. The Secretary's retroactive change in the 1981 wage index had altered the allowable costs for plaintiffs' base year, thereby altering their TEFRA target amounts and their TEFRA year reimbursement.

 The PRRB granted expedited judicial review status for plaintiffs' claims shortly before the Supreme Court handed down its decision in Georgetown on December 12, 1988. Plaintiffs did not file this action until January 25, 1989. One day later the Secretary issued a ruling conceding that Georgetown invalidated the retroactive wage index for TEFRA year calculation. See Health Care Financing Administration Ruling (HCFAR) 89-1. Within two months, HHS reimbursed all of the plaintiffs for the TEFRA amounts denied as a result of the invalid wage index. Plaintiffs maintain that they are entitled to interest on those amounts as prevailing parties within the meaning of 42 U.S.C.A. § 1395 oo (f)(2).

 Defendant argues that plaintiffs' claim is moot because the Supreme Court resolved the underlying wage index dispute in Georgetown and because the Secretary fully satisfied plaintiffs' TEFRA year reimbursement. "A case is moot when the issues presented are no longer 'live' or the parties lack a legally cognizable interest in the outcome." County of Los Angeles v. Davis, 440 U.S. 625, 99 S. Ct. 1379, 1383, 59 L. Ed. 2d 642 (1979); Powell v. McCormack, 395 U.S. 486, 89 S. Ct. 1944, 1951, 23 L. Ed. 2d 491 (1969). Under the case or controversy requirement of Article III of the Constitution, a federal court lacks jurisdiction to decide a moot case. See, e.g., Boston Firefighters Union v. Boston Police Patrolmen's Ass'n, 468 U.S. 1206, 104 S. Ct. 3576, 82 L. Ed. 2d 874 (1974). Therefore, a court must dismiss an action that becomes moot during the course of litigation. See, County of Los Angeles, 99 S. Ct. at 1384; United States v. Munsingwear, Inc., 340 U.S. 36, 71 S. Ct. 104, 106, 95 L. Ed. 36 (1950).

 The Supreme Court settled the underlying legal dispute concerning the retroactive adoption of the wage index in Georgetown, 488 U.S. 204, 109 S. Ct. 468, 102 L. Ed. 2d 493 (1988). That decision triggered the doctrines of stare decisis, collateral estoppel, and res judicata as to future claims against the Secretary on the same issue. For this reason, the parties lacked "a legally cognizable interest in the outcome" of this action from the time it was filed. Furthermore, any dispute regarding Georgetown's actual effect on TEFRA reimbursement or the actual amount owed was not yet ripe. The Secretary laid to rest the possibility of a ...


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