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METHODIST HOSPS. OF MEMPHIS v. SULLIVAN

July 17, 1992

METHODIST HOSPITALS OF MEMPHIS, Plaintiff,
v.
LOUIS SULLIVAN, M.D., Secretary, Department of Health and Human Services, Defendant. GEORGE WASHINGTON UNIVERSITY HOSPITAL, Plaintiff, v. LOUIS SULLIVAN, M.D., Secretary, Department of Health and Human Services, Defendant. LUCY WEBB HAYES NATIONAL TRAINING SCHOOL FOR DEACONESSES AND MISSIONARIES, Plaintiff, v. LOUIS SULLIVAN, M.D., Secretary, Department of Health and Human Services, Defendant. THE ADMINISTRATORS OF THE TULANE EDUCATIONAL FUND d/b/a TULANE MEDICAL CENTER HOSPITAL AND CLINIC, Plaintiff, v. LOUIS SULLIVAN, M.D., Secretary, Department of Health and Human Services, Defendant. GREATER SOUTHEAST COMMUNITY HOSPITAL, et al., Plaintiffs, v. LOUIS SULLIVAN, M.D., Secretary, Department of Health and Human Services, Defendant.



The opinion of the court was delivered by: JOHN H. PRATT

 These cases concern a Medicare regulation that implements a new statutory payment methodology for graduate medical education ("GME") costs borne by teaching hospitals. The regulation in question is a retroactive rule published in late 1989 that permits the Secretary of Health and Human Services ("Secretary") to reaudit hospitals' 1984 graduate medical education costs. Plaintiffs contend that the Secretary's regulation is invalid as contrary to the plain meaning of the statute, as an invalid retroactive rule, and as an arbitrary and capricious act.

 Defendant claims that this Court lacks subject matter jurisdiction as administrative remedies are not yet final, and that in any case, the regulation at issue is valid.

 Before this Court are defendant's motion to dismiss, and plaintiffs' and defendant's motions for summary judgment. In addition, plaintiffs have filed a motion to compel production. For the reasons that follow, we find that we have jurisdiction over this dispute and consequently deny defendant's motion to dismiss on jurisdictional grounds. On the merits, we grant plaintiffs' motion for summary judgment with the exception that we deny plaintiffs' motion for summary judgment with respect to PRRB's policy not to disclose dissenting opinions in EJR determinations and we deny defendant's motion for summary judgment.

 I. Background

 On April 7, 1986, Congress enacted Pub. L. No. 99-272, 100 Stat. 153-55 et seq., 42 U.S.C. § 1395ww(h), which established new rules for reimbursing graduate medical education costs of hospitals participating in Medicare. The law provides for the Secretary to determine for each hospital an approved per resident amount for each cost reporting period beginning on or after July 1, 1985. *fn1" The per resident amount is the average amount recognized as reasonable during a base period that began in fiscal year 1984, updated each year by an inflation factor. *fn2"

 The regulations implementing the GME reimbursement rules established in the 1986 statute were issued on September 29, 1989. See 54 Fed. Reg. 40286 (codified at 42 C.F.R. § 413.86). Fiscal intermediaries *fn3" were instructed to determine the base period average per resident amount and hospitals were authorized to appeal the determination within 180 days of the notice. 42 C.F.R. § 413.86(e)(1)(v). The challenged regulations provided that the fiscal intermediaries "verify" or reaudit the hospital's base period GME costs in fiscal 1984 and "modify" the base period costs that would be used in computing the hospital-specific per resident amount. 42 C.F.R. § 413.86(e)(1)(ii). *fn4" Under standard Medicare reimbursement procedures, the Secretary has three years from the issuance of the notice of program reimbursement ("NPR") to correct for inappropriate or misidentified costs. See 42 C.F.R. § 405.1885. The challenged regulation provides that if the hospital's cost report for its GME base year is no longer subject to reopening under 42 C.F.R. § 405.1885, the intermediary may apply the results of the reaudit only for purposes of the GME per resident amount methodology and not for the base year itself. 42 C.F.R. § 413.86(e)(1)(iii). After completing the reaudits, the intermediaries are to issue to each hospital a notice of "its base period average per resident amount". 42 C.F.R. § 413.86(e)(1)(v). Hospitals, if dissatisfied with the intermediary's determination, have 180 days from the date of the notice to file an appeal with the Provider Reimbursement Review Board ("PRRB"). 42 C.F.R. § 413.86(e)(1)(v).

 Plaintiffs in this action are six teaching hospitals whose allowable GME costs were found to be lower on reaudit than their 1984 base year cost report would indicate. *fn5" The suits were consolidated since the issues presented are identical. They bring this suit against Louis Sullivan, the Secretary of Health and Human Services.

 The experiences of Methodist Hospitals of Memphis ("Methodist") and George Washington University Hospital ("GWU") are illustrative. On February 26, 1991, Blue Cross and Blue Shield ("BCBS") of Tennessee sent Methodist a notice of its per resident cost for the fiscal year ending December 31, 1984. BCBS determined that Methodist's allowable GME costs were $ 893,841 less than the amount determined by the 1986 audit of Methodist's 1984 cost report. Methodist did not have to refund the difference for 1984: however, the 1991 notice established the per resident amount to be used in calculating its GME payment for post-July 1, 1985 years. Similarly, GWU's costs were assessed at $ 8,861,049 for the fiscal year ending June 30, 1985, $ 4,236,299 lower than its previous audit.

  These two hospitals appealed on August 12 and August 13, 1991 to the PRRB. *fn6" While the appeals were pending, the hospitals petitioned the PRRB for a determination that the PRRB had no authority to decide the issue of the validity of the Secretary's GME regulations, and that Expedited Judicial Review (EJR) would be appropriate. The PRRB found that the appeals involved mixed issues of law and fact and concluded that it should retain jurisdiction of the appeal. It denied the hospitals' petitions for EJR on November 8, 1991. Two of the five PRRB members dissented from the majority opinion; however, under new PRRB policy, their opinion was not published.

 Plaintiffs contend that the Secretary's regulations are invalid insofar as they permit a determination of allowable GME base year costs for purposes of the per resident amount methodology under section 1886(h) of the Act that differ from the final, audited cost report for the GME base year itself. Specifically, plaintiffs argue that the plain wording of the statute mandates that the GME payment rate be based on the GME costs found to be reasonable for the GME base year, and that the regulation providing otherwise is invalid. They argue that the Secretary did not possess the express authority to issue a retroactive rule and that the reaudit regulation is arbitrary and capricious.

 II. Jurisdictional Argument

 Defendant in its motion to dismiss first claims that we are without jurisdiction to entertain this suit. Defendant argues that this Court is without subject matter jurisdiction to review the PRRB's denial of EJR status. Defendant bases this argument on the statutory language of the EJR provision, 42 U.S.C. § 1395oo(f)(1), and on the agency's implementing regulations. Specifically, defendant contends that the statute explicitly provides for judicial review if the PRRB determines that it lacks jurisdiction (a decision, in effect, that EJR would be appropriate), but that the statute does not provide district court jurisdiction in cases where the PRRB turns down an EJR request. We resolve this question by referring to the language and the legislative history of the statutory provision.

 In 1972, Congress created the Medicare reimbursement appeals process. Pub. L. No. 92-603, § 243(a), 86 Stat. 1420 (1972). As originally enacted, the statute required that a provider obtain a decision on the merits of all issues from the PRRB before it could seek judicial review. See, e.g., Association of American Medical Colleges v. Califano, 186 U.S. App. D.C. 270, 569 F.2d 101, 110 (D.C. Cir. 1977). However, as the PRRB must follow Medicare regulations and rulings, see Bethesda Hospital Association v. Bowen, 485 U.S. 399, 406-07, 99 L. Ed. 2d 460, 108 S. Ct. 1255 (1988); 42 C.F.R. § 405.1867, the Board could not invalidate a Medicare regulation. As a result, any challenge to the regulation itself was delayed while the provider obtained a determination from the PRRB.

 In 1980, Congress amended section 1878(f)(1) of the Social Security Act, 42 U.S.C. § 1395oo(f)(1), to provide for expedited judicial review of Medicare regulations. Under the statute, the provider may petition the Board for a determination that it lacks jurisdiction, or the Board may decide sua sponte that it lacks such jurisdiction. Upon such a determination, the provider is permitted to file a judicial action seeking review of the appropriate regulation.

 Quite simply, plaintiffs contend that they followed the appropriate procedural requirements to obtain expedited judicial review and that this Court has jurisdiction to review the regulation at issue pursuant to section 1878(f)(1), 42 U.S.C. § 1395oo(f)(1). Defendant claims that the statute and Medicare regulations do not provide for expedited judicial review where the PRRB does not explicitly permit it. We believe that defendant's interpretation of the statute is strained, and that we do have jurisdiction pursuant to 42 U.S.C. § 1395oo(f)(1) to hear this dispute.

 To determine if this Court has jurisdiction to review, we first turn to the language of the statute. If Congress has spoken directly to the issue at question, "that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress." Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43, 81 L. Ed. 2d 694, 104 S. Ct. 2778 (1984). In construing congressional intent, we look to both statutory language and legislative history, and the court is "'not required to grant any particular deference to the agency's parsing of statutory language or its interpretation of legislative history.'" Washington Hospital Center v. Bowen, 254 U.S. App. D.C. 94, 795 F.2d 139, 143 (D.C. Cir. 1986) (quoting Rettig v. Pension Benefit Guaranty Corp., 240 U.S. App. D.C. 118, 744 F.2d 133, 141 (D.C. Cir. 1984)). Section 1878(f)(1) of the Social Security Act, 42 U.S.C. § 1395oo(f)(1), which is hardly a model of clarity, provides:

 [1] A decision of the Board shall be final unless the Secretary, on his own motion, and within 60 days after the provider of services is notified of the Board's decision, reverses, affirms, or modifies the Board's decision. [2] Providers shall have the right to obtain judicial review of any final decision of the Board, or of any reversal, affirmance, or modification by the Secretary, by a civil action commenced within 60 days of the date on which notice of any final decision by the Board or of any reversal, affirmance, or modification by the Secretary is received. [3] Providers shall also have the right to obtain judicial review of any action of the fiscal intermediary which involves a question of law or regulations relevant to the matters in controversy whenever the Board determines (on its own motion or at the request of a provider of services as described in the following sentence) that it is without authority to decide the question, by civil action commenced within sixty days of the date on which notification of such determination is received. [4] If a provider of services may obtain a hearing under subsection (a) and has filed a request for such a hearing, such provider may file a request for a determination by the Board of its authority to decide the question of law or regulations relevant to the matters in controversy (accompanied by such documents and materials as the Board shall require for purposes of rendering such determination). [5] The Board shall render such determination in writing within thirty days after the Board receives the request and such accompanying documents and materials, and the determination shall be considered a final decision and not subject to review by the Secretary. [6] If the Board fails to render such determination within such period, the provider may bring a civil action (within sixty days of the end of such period) with respect to the matter in controversy contained in such request for a hearing. [7] Such action shall be brought in the district court of the United States for the judicial district in which the provider is located (or, in an action brought jointly by several providers, the judicial district in which the greatest number of such providers are located) or in the District Court for the District of Columbia and shall be tried pursuant to the applicable provisions under chapter 7 of title 5, United Statss Code, notwithstanding any other provisions in section 205. [8] Any appeal to the Board for action for judicial review by providers which are under common ownership or control or which have obtained a hearing under subsection (b) must be brought by such providers as a group with respect to any matter involving an issue common to such providers. *fn7"

 We think it clear that the statute provides for our jurisdiction. The fourth and fifth sentences dictate that once a provider has filed a request for "a determination by the Board of its authority to decide the question of law or regulations", the Board must issue its determination within thirty days after receiving the request and accompanying documents and materials. The sixth sentence provides that if the Board does not render its determination within thirty days, the provider may bring a civil action within the next sixty days.

 Plaintiffs complied with all of the procedural requirements; they filed their request as well as additional information and material to aid the Board in determining whether it had authority to decide the issue. *fn8" The Board denied Methodist's request for ...


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